The problem with the budget...

is not just about the details, but also about the timing.

First let us talk about the timing, which I think its very important. The question I have in my previous post is basically about timing, which I have stated is pretty late, and as a result, the possibility of it being ineffectual is very high.

After all, while other governments overseas have re-installed the regulatory system or fine tuned the system so as to shore up long term confidence in the economy for overseas investors and for people domestically, the government instead has had to deal with the minibonds uproar, and it took them more than two months to consider some form of compensation, and some form of discussion within Parliament to put in some form of regulations.

In the economical front, a 2 to 4 months gap is a long one, and doesn't instill much, if any confidence in the economy both domestically and overseas.

Second, this stimulus package is late. While countries like Australia were putting in stimulus packages, in the form of direct tax cuts/rebates and infrastructure spending since September 2008(4-5 months before), the PAP government hesitated and then refused to(by remaining quiet). Instead it forced more companies to consider more retrenchment, more wage cuts, and then allowed the civil service to increase business costs, bureaucratic costs. The example of high rents for the shops at the Singapore Flyer is one such example, where policy direction has gone wrong. And when more small businesses shut down and when more bigger MNCs retrench people, there will be not just more unemployment, but also less productivity.

But more importantly, people's self esteem and morale would be hurt. And when these people are re-employed, some, if not many, will get jobs that pay way less than their previous ones. That means they have to get by with much less, and bring up a family with much less. Their new jobs will also be less secure, since many of them are of more menial nature, and are probably temporary or of contract.

And if they have kids, long hours for lower pay, affects the children as well, especially if a parent isn't at home at certain times to ensure that the child is studying, and doing well physically and in his studies in school and at home.

In short, all these have condensed itself to the point where Singapore had to revise itself 3 times in the economical outlook for 2009- embarrassingly. And now the government has had to announce that this country suffered a shocking -12% shrinkage in the 4th quarter of 2008, with manufacturing and exports suffering one of the biggest drop-off in recent decades.

I leave you to decide whether this government has done enough adequately, when its clear it hasn't.

And on, on to the second point:

I think stimulus packages only work effectively when two conditions are present: One, they must be done at the same time, in co-ordination with other countries; second, when the money going through must go to those who need the most, and not to those who don't need it.

For example, I have said in my previous post that if tax cuts and rebates go to those companies, especially state-owned ones, instead of independent SMEs, then these tax cuts are effectively pork and will be wasted. You'd be just throwing good money after bad in a financial black hole.

Similarly if you give most of these tax rebates to the rich, instead of the middle and working classes, then its not just pork but also for the fact that the money given will not be cycled back into the economy. If a supergrade civil servant decides to spend his tax rebates in London, instead of in Singapore, then who benefits from that exactly?

And as a sidenote, while SMEs deserve to get low-interest loans from the government, businesses and banks will not loan each other's money if banks don't believe that the businesses will be able to repay those loans eventually. Confidence is something hard to build and cannot be built in a day. That's why re-regulation, common sense regulation is needed to restore accountability and re-open transparency, which would help shore up respect, honesty and trust. In turn banks would start loaning more money knowing businesses would eventually repay those loans.

Until this government does all of these things, I do believe there is some justified professional doubt on whether it'd work. On the surface, its Keynesian economics, something I believe that what's needed in these difficult times. What I agree on theory though shouldn't be viewed however the same in terms of application. Because if the government doesn't reform the system, then a politicised budget 2009 that gives more pork, covered up as a stimulus package, will only damage the economy further, and make us even more exposed to any recession long after this one has ended.

The Budget for Singapore in 2009..

Why this Budget could be flawed- despite its best intentions by the government...

I do support this Budget- which was announced this afternoon- by Finance Minister Tharman, in principle. Still I have some qualms about it. These are the reasons why:

1. I think the Budget was too late. They let things go on as it is until now. Other countries had passed an emergency stimulus package from September 2008 in a bid to shore up the economy and to restore confidence, internally and externally.

This meant that while other people in other countries got their cheques early, and saw more infrastructure(and more home insulation being installed) being built, our government has effectively sat on their hands and let the 4th quarter crash into a -12% recession.

Its symbiotic because the government is ran by an 85 year old, who probably doesn't know this recession, if left unchecked, could be become just marginally off the levels of the Great Depression. It could be he still doesn't believe that the recession would fix itself by the end of 2007.

2. We don't know if the current stimulus package is politicised till the point where most of the money becomes pork and goes to those who have supported the PAP openly. Money should go to everyone including those who have not voted the PAP in past elections- this is because everyone has to spend a bit and save a bit to keep the economy above the water. But if its given to the rich and the well connected, then this money wouldn't be returned to the local economy; let's put it in this way: if another civil servant brings his sons and daughters to spend a free $50k rebate on classes with Jamie Oliver in London, UK, then obviously Singapore and its people wouldn't benefit.

The same goes for any child who don't receive education bursaries for local studies at home, but for a Supergrade civil servant's NSF son to disrupt his NS to go to MIT for his uni course.

The same goes for infrastructure: building a handicapped ramp in a poor estate has more impact than say building a 5 storey car park in a well developed, but not a well populated one that has already 6 of these, and which all remains pretty empty.

3. Not enough has been given to those who need the most- even if there is, is it enough? The government is known for its switch-and-bait and/or delaying tactics- making sure that when people receive $500 in tax rebates, the people will end up paying maybe 5x more when they increase living costs, rental, utilities as such. If not they will insist that the people have to put in a precious $100 into your CPF to receive $1000 in CPF funds- which you can't take out.

And then there's the bureaucratic waste when you have to apply for bursaries and such. With a country which is so technologically equipped, compared to the US, and Australia, surely through the income tax submissions, the government should have each and everyone of us in their data, knowing how much we earn and how much do we pay(or not) in income taxes...and in other form of taxes? Then why insist everyone has to apply to see if they're legally able to do so? That only delays time and time is money. If everything is computerised as they insist they are, then spare people, especially old and uneducated ones, from these paperwork, and directly use these computerised data as a way to source out those who need the cheques, job training etc and those who are not or cannot. It saves a ton of trouble, gets money into people's pockets faster, and reduces the chances of the process being politicised.