Tuesday, 3 February 2009

Budget 2009: Speech on Budget Statement, 3 February 2009

This is the final prepared text of my speech on this year's Budget. The version that I actually delivered may have some minor changes, but this is fairly definitive.

Right now, it looks like this speech may be under some sort of media blackout. The only media coverage I've seen is limited to the points I made about the use of the reserves, and the desirability of having the President publish details of his deliberations in approving the use of the reserves.

To me, those were self-evident and entirely uncontroversial. I think the points I make about the Jobs Credit scheme are much more interesting and newsworthy. Yet, I have dim hopes of them being covered by the MSM with fairness or in detail.

After I completed my speech, four PAP MPs stood up to question me. This is the first time this has ever happened to me, and it was really quite intimidating and unnerving. I really had to think on my feet. I hope I acquitted myself well.

When Mr Low Thia Khiang spoke earlier in the day, he had six PAP MPs stand up to question him, and that is being covered in the MSM, including the CNA website and on TV. Curiously, the CNA and TV coverage absolutely omits any mention of my exchanges with the PAP MPs. ST does have a short reference to my disagreement with the Jobs Credit scheme, but with very little detail. It also looks a little odd, that they used my photo to lead the story but there is only a one-line reference to my speech. I'll wait and see what is published tomorrow. [update 1: I thought the coverage in ST and TODAY turned out to be, on the whole, quite fair]

I'll try to get my exchanges with the PAP MPs transcribed. In the meantime, I'm trying to get the video uploaded -- Youtube has rejected the entire speech (plus questions) because the single clip is too long. [update 2: the video is now available here]

Budget 2009

1. Mr Speaker Sir, thank you for allowing me to join the debate on the Budget Statement. I will touch on three aspects of this Budget: the use of the reserves, the Jobs Credit scheme, and the amount of help for the retrenched and unemployed.

Using the reserves

2. First, the unprecedented use of our reserves, to fund the Jobs Credit scheme and the Special Risk-sharing Initiative. I applaud the Government for taking this step.

3. Our reserves have always almost bordered on the mythical: Singaporeans speak of them proudly and reverently, but we know so little about these fabled reserves. Using them now sends the right signal about just how dire the situation is. It assures Singaporeans that the reserves are not sacrosanct, that they are not being accumulated for the sake of accumulating them, and that they will be used when it is necessary to do so. If the worst economic crisis the world has seen in six decades does not merit the use of the reserves, then nothing ever will.

4. But I have some concerns about the process in which the use of the reserves is being approved. We have always been told that the reserves are a hard-earned strategic asset of Singapore, and that the Elected Presidency is necessary to safeguard them. And yet, there has been precious little information about the deliberations of the President or of the Council of Presidential Advisers, in giving in-principle approval to use the reserves.

5. The Government should ask the President and the Council to publish detailed reasons for their decisions. This is the first time we are using the reserves. It is therefore a golden opportunity to define the principles for doing so. The Elected Presidency is all about the process for using the reserves – so it is important to ensure that the process in this instance is transparent and clearly articulated.

6. The Government has stated some principles for using the reserves, but principles articulated by the Government do not -- and more importantly, should not -- bind the President. After all, the President is supposed to be the independent check on the Government in its use of the reserves. The President is the guardian of the so-called second key to the reserves. It would therefore be helpful for the President, and the Council of Presidential Advisers, to publicly explain to Singaporeans why they approved the use of the reserves, and what principles they intend to adopt moving forward. Doing so would buttress the institution of the Elected Presidency.

7. These principles and guidelines do not have to be legally binding or even binding on subsequent requests to use the reserves. But they would certainly provide helpful guidance if we ever want to use the reserves again. Now is the time to set a sound foundation for the future.

8. This is all the more important, given that this Government has actually accumulated sufficient reserves during its term to fund the Jobs Credit and SRI schemes. The Government should therefore ask the President to explain whether and why he is satisfied with the Government’s reasons for not using its accumulated reserves.

Jobs Credit scheme

9. I now turn to the Jobs Credit scheme. It is one of the lynchpins of the Budget, and it seems to have caught the imagination of Singaporeans. Call it what you will, but it is fundamentally a wage subsidy for employers. It equates to a 9 percentage point cut in the employers’ CPF contribution rate. It will cost taxpayers S$4.5 billion dollars, and will be funded by our reserves.

10. The objective of this scheme is to save jobs. But how effective will it be?

11. Clearly, the effectiveness of the scheme for each employer will depend on the proportion of its costs attributable to wages. If wages form just 10% of an employer’s overall costs, then the Jobs Credit scheme will reduce its total costs by up to 0.8%. On the other hand, if 70% of costs are wages, then the scheme will reduce total costs by a maximum of 5.5%. These are theoretical maximums, based on improbable assumptions of 100% local employees, all earning $2500 per month or less.

12. The Minister has explained that the global economic crisis is caused by a worldwide collapse in demand. Simply put, there is massively reduced demand for the goods and services produced by our economy.

13. Last week, the EDB released a report on the manufacturing sector’s business expectations for the next six months. This report paints a shocking picture of just how dire things are expected to get. An across-the-board negative outlook for the first half of 2009 for manufacturing, with similarly negative forecasts for output and employment for Q1. For instance, 92% of data storage firms and 81% of precision engineering firms predict a drop in output.

14. When demand falls off a cliff like this, many businesses will face a drop in revenue far exceeding 8%. Businesses will have no choice but to cut costs to stay afloat.

15. In this context, I suspect that the Jobs Credit scheme will turn out to just a band-aid. Yes, it will provide a temporary cushion for businesses, especially SMEs. Yes, it will make employers a little bit more reluctant to lay off locals. Yes, whatever protection it creates will probably benefit the low-income more than the high-income. But it will still only be a band-aid at best, in stopping job losses.

16. And what a very expensive band-aid it will be. Citigroup’s head of Singapore research Dr Chua Hak Bin has pointed out that if the Jobs Credit scheme helps to save 50,000 jobs, then the cost of saving each job is $90,000 – three times the median annual salary of each job in Singapore. Even if it helps to save 100,000 jobs, the cost of saving each job is $45,000 – still 50% more than the median annual salary.

17. And contract workers, who are probably most at risk when a business cuts staffing costs, may not benefit from the Jobs Credit scheme. Contractors are usually hired by employment agencies and farmed out to companies. The agencies will receive the subsidy. They have no incentive to pass it on to the companies. Unlike with property tax rebates, the Government has not exhorted these agencies to pass the savings on to their customers. And so, the scheme could make contractors, who form a growing proportion of the workforce, even more vulnerable than they otherwise would be.

18. I agree with people like NUS professor Shandre Thangavelu, who has said that the Jobs Credit scheme will only have a short-run impact on the retrenchment behaviour of employers. Even the MOF team who designed the scheme is unable to predict just how many jobs it will help to save, and for how long. Mr Poon Hong Yuen, who led the team that put the scheme together, said:
“If just because of this they rethink (retrenchments), then I think it’s already quite an achievement.”
19. I would praise the Ministry for its willingness to take a chance on the Jobs Credit scheme. I think this sort of policy risk-taking is important and helpful. But I don’t think the risk will pan out in this case. And I think Mr Poon sets a surprisingly modest target. At $4.5 billion, I would expect more.

20. The Jobs Credit scheme will end up benefiting capital owners disproportionately. It will reduce business costs, but I do not expect it to save very many jobs, and even then not for very long. It is essentially a special transfer to capital owners, such as business-owners and entrepreneurs. And considering that around 50% of the Singapore corporate sector is foreign-owned, a big chunk of this transfer will leak out of Singapore.

21. Today’s Straits Times Forum carried a letter from someone who works in an SME, praising the Jobs Credit scheme. But if you drill into the details, it is clear that the business was not considering retrenchments in the first place. Instead, it is considering using the Jobs Credit funding to invest further in its business. In these times, that is not a bad thing. But it clearly shows up the limitations in the scheme’s ability to achieve its stated goal of saving jobs.

22. The Jobs Credit scheme will have, at best, a marginal impact on businesses’ decisions on whether to retrench. Businesses facing collapsed demand will still retrench. Businesses doing well will reap a windfall benefit. MNCs will still, by and large, follow their corporate headquarters’ directions on retrenchments.

23. True, the Jobs Credit scheme is not meant to be the complete answer. It is not a panacea. It is one piece of the puzzle, albeit a big centrepiece, and there are many other measures to reduce business costs and help businesses through this difficult period. But the question must be whether spending $4.5 billion on the Jobs Credit scheme produces the most bang for the buck for Singaporeans.

24. This is a hand-out for businesses. But we have always opposed hand-outs for Singaporeans. Why are businesses different? In giving all this money away to businesses, are we somehow being psychologically held hostage to the ideological dogma that the best way to help Singaporeans is to help businesses, instead of helping Singaporeans directly?

Lack of help for the retrenched and unemployed

26. That brings me to my third point. This Budget does little for the retrenched and the unemployed.

27. The various elements that made up the GST offset package first announced in 2007 have been enhanced. The amount of GST credits for each household has been doubled, and there are additional S&CC and rental rebates.

28. But let us be honest with ourselves. These are mostly enhancements of measures previously announced to alleviate the pain from the GST hike in 2007. But the coming storm will inflict much more pain and much more suffering than the GST hike of two percentage points did. To equate the two is to severely understate the impact on Singaporeans in the coming year. They are simply incomparable. It is inconceivable to me, that the exact same tools used to soften the impact of the GST hike could be enough to address the worst recession the world has seen in 60 years.

29. In the past few weeks, various ministers have spoken about the need to save jobs. Rightly so. Saving jobs has to be the #1 priority. I may disagree on the effectiveness of the Jobs Credit scheme in achieving this goal, but I do not argue with the goal itself. And I would argue that helping those who have lost their jobs deserves to be the #2 priority.

30. Prevention is better than cure, so the saying goes. “Better than”, not “instead of”. When prevention fails, we still need a cure. Saving jobs is only one side of the coin; the other side of the coin must surely be to help those whose jobs were not saved. This Budget seems to have produced the singular oddity of a one-sided coin, where we concentrate so much of our efforts on saving jobs, but do so little to help those who do lose their jobs.

31. It is almost as if the retrenched are being dealt a double-whammy: the first hit is the loss of their jobs, and the second hit is the lack of assistance for them.

32. To be fair, SPUR have something for the unemployed. An unemployed, low skilled Singaporean who attends training courses to learn new skills can get an allowance of $4 per hour. A PMET who undergoes a PCP – a professional conversion programme -- can get an allowance of up to $1000 per month.

33. But SPUR is not without problems in implementation. It adopts the co-payment requirement of so many government measures. This strict insistence on a 10% co-payment of course fees means that trainees must still fork up an upfront fee. This can be difficult for many, since they by definition have no source of income. We should provide trainees with interest-free loans for the co-paid amount, with repayments in instalments and possibly interest-bearing after the trainee finds a job, which can be monitored through the CPF system.

34. Also, the PCPs will be unattractive to most retrenched PMETs. Some retrenched PMETs will have skills that are obsolete, and PCPs will be appropriate for them. But the majority of retrenched PMETs will have skills that are not obsolete; they are retrenched not because they are in sunset industries, but because their companies needed to cut costs.

35. Their skills will be in demand when the economy picks up again. They do not need and they do not want retraining for a new profession, because they will in all likelihood continue doing the same thing once the economy recovers. And in most cases, that is the rational choice, if only because retraining for a new profession means starting all over again at entry-level pay, wasting their accumulated experience in their existing profession.

36. For these retrenched PMETs, SPUR does not provide meaningful assistance. For these retrenched PMETs, the Budget has little else. For these retrenched PMETs, there is little help forthcoming.

Suggestions

38. I spoke about the Government’s approach to helping Singaporeans in my Budget speech last year. I spoke about my disappointment at how we put so much more emphasis on GDP growth than on helping less fortunate Singaporeans. I criticized this Government’s approach to social assistance, of being willing to let Singaporeans suffer rather than risk any wastage of public funds in helping them.

39. This year’s Budget again does not risk any wastage of public funds in helping Singaporeans. But it does risk wasting public funds in helping businesses. Even in these tough times, we do not give away money with no strings attached to individual Singaporeans. But it seems that these tough times justify giving away money with no strings attached to businesses, regardless of whether they are prospering or despairing.

40. Last year, I was criticized for being reckless and dangerous. At the risk of being called the same or worse this year, I will have to press on. I continue to believe that it is possible to craft targeted social assistance schemes to help the unemployed, that minimize the risk of eroding the work ethic. I have a few suggestions, and I hope I can articulate them clearly enough.

41. I ask the Government to introduce some form of unemployment insurance. In 2007, we introduced social risk-pooling for longevity risk, which is the risk of living longer than we expect or can afford to. Why not social risk-pooling for retrenchment? Not unemployment as such, but targeted for retrenchment with low benefits. This can be restricted so that only workers who are retrenched with payouts below a certain stipulated amount, say the lower of three months of the last-drawn salary or a stipulated quantum, get a few hundred dollars for so long as they remain unemployed up to six months, provided they seek re-employment during this period. This is targeted and limited. This will not sustain long-term unemployment, but is intended to tide over those who have been retrenched while they find another job. The pay-out will be small, but the assurance to those retrenched could mean so much.

42. And if the Government will not introduce unemployment insurance on a permanent basis, then I ask it to consider unemployment benefits for the retrenched, just for this year. It can be limited to workers who were retrenched since last November or who are retrenched this year. The amount can be limited to the lower of half of the last drawn salary or $1000 per month, capped at 6 months of payments. Just like the Jobs Credit scheme, it is a one-off scheme in light of the worst recession in 60 years.

43. But I know that realistically, both of these options will not be acceptable to this Government. And so I ask the Government to introduce a temporary assistance loan scheme, loosely modeled after the UK’s social fund. It should be made available to unemployed Singaporeans including the recently retrenched, to provide small loans for certain approved purposes. We can call this the No Jobs Credit scheme.

44. Examples of approved purposes could include medical expenses that are not covered by insurance, Medishield or Medifund for whatever reason, and expenses not covered by Comcare for whatever reason. To avoid abuse or misuse, the loan amounts could be disbursed directly to the persons charging for these bills and expenses. The loans should be interest-free and payable in small instalments once the borrower starts working again, perhaps by deductions from salaries through the CPF framework. Such a scheme would reduce the incidence of folks in desperate need for cash going to loan sharks or maxing out their credit cards, which would result in a downward spiral of crippling interest at a time when they could least afford it.

45. I also ask the Government to introduce more special transfers to the low-income. The doubling of GST Credits and the additional SC&C and rental rebates are helpful, but they are small in size. Inflation hit 6.5% last year, and even in this recessionary environment, there will be a time lag before prices go down. More special transfers in the first half of this year will help the low-income cope, until such time as disinflation kicks in. This will also provide a helpful fiscal boost, given that the MAS’s own Monetary Model of Singapore shows that direct transfers to the low-income has a high fiscal multiplier for the Singapore economy.

46. Sir, I do not see these suggestions as reckless or dangerous. I do not think they will necessarily result in a bloated bureaucracy. And even if they require some more resources on the part of the Government for implementation, that should not, in and of itself, automatically rule out policies that could benefit Singaporeans. Maintaining a lean government is a means to an end, and cannot be the end itself.

47. I know that there is Comcare, and it plays an important role in helping needy Singaporeans. Today’s edition of the TODAY newspaper carried a useful reminder of that scheme. But it is an ad hoc scheme that is highly discretionary, and only intended for 3 to 6 months of assistance. That timeframe may be too short for retrenched workers in this recession. The discretionary element does not give workers the all-important assurance and security that a formalized scheme provides. These times are already so uncertain, why add to the stress of retrenched workers by making assistance uncertain as well?

48. I think we can, and we must, do more and do better for Singaporeans who lose their jobs. When Franklin D. Roosevelt was inaugurated for his second term as US President in 1937, he said in his inaugural address:
“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”
49. This year, there will be many amongst us who will have too little. Economists have forecast anything between 30,000 and 300,000 jobs lost over the next 1 to 2 years. But this Budget does little to provide for them. What then is the extent of our progress? Singaporeans will have to judge for themselves.

18 comments:

Buddhi said...

Very well done. First time to your blog, I love what you said. Will be back often now. Keep up the good work. Best regards

Anonymous Craven (AC) said...

I feel that it is the privilege of our parliament to have a NMP like Mr. Siew, and I wait with great interest to see the speech and the question and answer exchange on You tube when it’s up.

Jobless said...
This comment has been removed by the author.
Jobless said...

I was retrenched on Dec 2008 from Healthcare.

Since the Government implemented Jobs Credit Scheme, employer should have re-employ previously retrenched workers for 2008 as those got layoff at 2008 which the scheme was not implement by Government.

Businesses facing collapsed demand will still retrench. Businesses doing well will reap a windfall benefit. But those company who's doing well, will they create more jobs?? Where does the money goes?

The scheme should apply to those retrenched workers of the company to re-employ them back to work force rather than looking for new jobs as company are not hiring and reduce headcount. This in reverse will reduce jobloss in the first place.

The NTUC Union or Government should concentrate more on the company who retrench workers and re-employ them back since the scheme implemented. And it will be easier for CDC or Union to start from company who retrench workers for re-employ back to the same company, rather than helping them to find jobs since Union already have all retrenched workers information. Start from the root rather than source in the wild. Why all the job conversion and job seek CDC, quite a waste of resources and money.

These are just my feedbacks as I am still unable to find any job since Dec 2008.

vertigoer said...

Thank you Mr Siew, it is a blessing you are an NMP.

The Job Credit subject seems not well thought off and discussed before it is set in stone.

As per always, Gov just set the budget without discussion or releasing much details before that. It is always veil in secrecy before it is release.

I think this is the problem, solutions to problems are not well discussed in the government before it implemented. Giving little chance for public to comment/suggest.

MPs maybe elite and hardworking people, but they don't always have the right answers. So it is an issue, and public input of solutions should also be considered in Gov process.

Airtrekie said...

I'm a SME owner & had numerous chats with many entrepreneur friends on the JCS.

IMO, the JCS can definitely help lower operating cost but it is not going to save jobs as long as there is no market demand for the business.

The purpose of running a business is to maintain healthy P&L therefore it is only logical that a company will remove redundant headcounts(be it good or bad time).

Therefore, JCS can only delay retrenchment but not prevent one to happen.

In short, there is a very high chance that the JCS would fail to meet it's intend.

Kaffein said...

Darn good speech there... kudos!

Kaffein

ithink said...

I got to know your blogspot through a Netizen.

I think you are doing a good job as a Nominated MP. You should be proud of yourself that you spoke up on what you personally believed on the Jobs Credit Scheme despite the media coverage and hype of how great this scheme was.

I agree with you that this global recession is due to demand falling off the cliff. The Jobs Credit Scheme will not help very much to save jobs.

A business is based on P&L. Whatever savings that the company gets for an employee, it will be added to the company's bottomline. If the bottomline goes to the red despite the savings, jobs will be cut.

As you rightly pointed out, the employment agency for the contract workers will not pass the savings to the companies that the contract workers will be working for. The hiring companies will still trim their contract work force if there is less demand for their goods and the employment agency will just terminate the employment of the affected contract workers.

The crux of this global crisis is that there is a loss of business and consumers' confidence which affects the demand side of the equation.

It is not an easy piece to fix and and most governments in the world are trying their utmost best to do so.

However, if there is much doubt as to how effective the Jobs Credit Scheme can help to save jobs, I would think we should not implement it just to show that we are doing something.

It is interest to note that Obama shelved a US$3,000-per-job credit incentive as reported in the Washington Post on Jan 13 2009. See http://www.washingtonpost.com/wp-dyn/content/article/2009/01/12/AR2009011203298.html.

Maybe we should understand more as to why US decided to drop that incentive.

eddie said...

理论与制度建立起的新加坡,无论理论还是制度应已公民利益为准。:)

Siew Kum Hong said...

To all of you with kind words: Thank you.

To Jobless: You have my greatest sympathy. But I must disagree with your suggestion. Mandating that would sound the death knell for so many companies, that it would almost certainly send the economy into a death spiral.

To vertigoer: I agree that it would have been more helpful if the Jobs Credit scheme had been floated for public discussion earlier, instead of having been prepared in secret and then sprung onto Singaporeans as a surprise. From anecdotal feedback, and as can be seen from Airtrekie's comment below, honest input from the business community could have helped refine the scheme and improved its chances of working.

To Airtrekie: Thanks for your honesty.

Chee Wai Lee said...

Airtrekie and your subsequent comment just made me realize that behind every policy, there has to be some groundwork and sound basis for the formulation of that policy.

Is this information available? Did the team that formulated the Jobs Credit Scheme publish a report on the base facts and guesswork that went into the formulation of the scheme? It is clear that while the scheme is extremely simple in that it applies to all companies across the board (the one thing that bothered me most about this scheme), it is also clear that it will not have the same impact on all companies with factors like manpower overheads, company size, expected demand etc ... having significant impact.

Airtrekie said...

In my humble opinion, I suspect that a number of policymakers may not have the real-life ground experiences, untested for recessions because they are either too young or too sheltered to even notice one, or simply too conceited - to be able to derive schemes that are creative, exemplary and effective.

Even business gurus/billionaires like Warren Buffet & Lee KaShing seemed to be humbled by this financial meltdown. Therefore, it may not be too difficult to comprehend that policymakers, who have been working in a controlled environment all these while, can become pretty lost now.

Chandra said...

Good job Mr Siew. Please keep it up.

I have a suggestion to #26
"26. That brings me to my third point. This Budget does little for the retrenched and the unemployed".

My suggestion: allow retrenched works to draw from his/her own CPF accounts (subject to minimum sum restrictions).

Pros:
- No additional budget required by the government.
- No impact in retirement benefits due to minimum sum requirements.

I hope you can bring up in Parliament.
Thanks

Wealth Journey said...

Wow! You were excellent dude!
Enjoyed your speech and your response to the questions directed at you. I am just flabberghasted that instead of addressing your queries/doubts, questions were given to throw everyone off the track.
You should stand for election.

Siew Kum Hong said...

To Chee Wai Lee: The information you referred to is not available. But if you read the Straits Times from 31 January, it is clear that the MOF itself does not have a target or KPI for the effectiveness of the scheme.

To Chandra: In my view, that suggestion has some merit. I believe it has been raised before and repeated, perhaps repeatedly. I will see if there is another suitable opportunity.

To Wealthy Journey: Thanks for the kind words.

Lim Soon Chung said...

Well done. You know you said something important when they refuse to publicise what you said. Media blackout leh! The kosong bun is already in the garmen's oven but perhaps there is room to implement temporary measures to help reduce family expenses without using real cash handouts. These measures should benefit the poorest/ on the edge families the most:
1) Suspend school fees for 2009, 2) Free nutritious canteen meals or meal supplements for primary & sec school kids eg. free milk , 3) milk/ rice/ oil vouchers for people who fall into certain unfortunate categories, 4) public transport vouchers or discounts, 5) rebates for utility bills & HDB conservancy charges (prolly already being done) 6) somehow provide even cheaper medical care plus extend working hours at polyclinics, 7) Recession Aerobics, special regular mass health and fitness events to keep people healthy and motivated.

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