No half measures for Singapore

Having decided that this is no time for half measures, Singapore has come up with a surprisingly large stimulus package to take the edge off the coronavirus-induced economic pain.

While it may not stave off a recession, powered mainly by the panic in the global financial markets, Singapore’s response is among the most focused and forceful globally.

The total stimulus of about $55 billion represents roughly 11 per cent of Singapore’s gross domestic product (GDP), making it the largest among advanced economies after Germany and Britain.

By that measure, Singapore’s stimulus is way bigger than some of its closest competitors.

For instance, Hong Kong’s $22.4 billion aid package is about 4 per cent of its GDP. South Korea’s $13.7 billion stimulus is just 0.6 per cent of its GDP.

In the Asean region, only Malaysia has pledged more – a stimulus package of $89 billion, nearly 18 per cent of the country’s GDP.

Singapore’s political leadership has taken a risk in forking out such a large amount from a shrinking economy – a risk made more manageable by salting away large reserves in good times.

Nevertheless, economic thinking that champions free markets considers the state an inefficient conduit of income distribution.

Singapore, however, has a reputation of efficiently targeting policy measures, unlike places like Malaysia and India where fiscal leakages have been a perennial problem.

That may have been a source of confidence in the decision-making process, allowing Singapore to boldly confront the crisis with the full force of the resources available.

Despite the pace at which the economic outlook has deteriorated, prompting a second official downgrade of GDP growth in less than six weeks, the framework of the stimulus package shows no signs of haste or desperation.

Headline numbers may suggest the bulk of the stimulus is targeted at business and industry.

But the way the aid is designed will ultimately benefit the unemployed and those who may get retrenched.

The threat to jobs is real.

DBS Bank estimates total retrenchments this year will top 24,500, up from an annual average of about 14,500 in a normal year.

Referring to the stimulus, OCBC Bank’s head of treasury research and strategy Selena Ling said: “The focus is still squarely on protecting jobs, incomes and the livelihoods of Singaporeans.”

For instance, the wage offsets will help with cost relief for companies and, as a result, may protect jobs. “That’s where the up to 75 per cent wage offset will come in, very quickly and very usefully, over the next few months,” Ms Ling said.

Compare this with the US$2 trillion (S$2.9 trillion) rescue package which includes a US$500 billion fund to help industries, and a comparable amount for direct payments of up to US$3,000 apiece to millions of American families.

Several Republicans insist the Bill does not ensure that laid-off workers would not be paid more in unemployment benefits than they earned on the job.

Some Democrats have called it “a historic corporate giveaway”.

Singapore’s package, on the other hand, is more targeted.

“It is in line with the philosophy of the Singapore Government – to provide targeted help when needed, and to make good use of resources, not frittering away fiscal resources they have accumulated,” Ms Ling said.

The hardships of average Singapore families have not been forgotten.

The Government is tripling the handout each individual gets, as well as parents of young children, and also giving cash top-ups to PAssion cards, aimed at helping individuals.

Yet these particular measures will in turn help the worst-hit segments of the service sector that accounts for about two-thirds of the nation’s GDP and employment.

The payments to citizens will boost consumer confidence and their purchasing power, in turn helping the retail sector and other service providers.

The overall fiscal deficit will rise to $39.2 billion, or 7.8 per cent of GDP, according to DBS Bank’s estimates.

Still, given Singapore’s track record of fiscal prudence, a historically high deficit is unlikely to shake investor confidence in its economic management.

In fact, Singapore’s “whatever it takes” stance is probably what is really required to put a floor under this economic downturn, which has largely been a crisis of confidence.

The supply chain disruptions caused by measures to contain the spread were made worse by panic in the financial markets.

Then desperation by certain central banks virtually froze lending and borrowing.

DBS senior economist Irvin Seah said there could be more downside risks to the global outlook.

“Singapore is heading into uncharted waters, which calls for unprecedented fiscal push to buffer the economy from the incoming storm,” Mr Seah said.

The Monetary Authority of Singapore stands ready to do its part, while the Government has promised more measures if the situation demands it – whatever it takes to overcome an unprecedented crisis.

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Govt to subsidise wages of all local workers by at least 25% amid Covid-19 outbreak

SINGAPORE – Firms will receive wage subsidies of between 25 per cent and 75 per cent for all local workers as the Government makes “bolder and more aggressive moves” to save jobs and keep locals employed amid the coronavirus outbreak.

This is up from the 8 per cent wage subsidy in the Jobs Support Scheme announced in the Budget statement in February. The help will also last for nine months, instead of three, up to the end of this year.

Deputy Prime Minister Heng Swee Keat said on Thursday (March 26) that a total of $15.1 billion will now be allocated to the enhanced Jobs Support Scheme, up from the original $1.3 billion package.

This is more than twice the level of support provided during the global financial crisis in 2009, he told Parliament.

“We cannot prevent an economic recession as the external health and economic situation will evolve beyond our control. But it will help us mitigate the extent of the downturn and more importantly, help save jobs, and protect livelihoods,” said DPM Heng in announcing the Supplementary Budget.

“With this support from the Government, I urge employers to do your part to hold on to your workers.”

DPM Heng announced a slew of measures to support the immediate priority of saving jobs, supporting workers and protecting livelihoods, including help for the self-employed, lower-income workers and the unemployed – measures that account for over one-third of the $48 billion Supplementary Budget.

For employed workers, the top priority is to help them stay in their jobs, said DPM Heng. While his Budget statement last month introduced the Jobs Support Scheme and enhanced the Wage Credit Scheme to preserve and enhance jobs, “the situation now calls for bolder and more aggressive moves to save jobs and keep workers in employment”, he said.

The basic cash grant of 25 per cent applies to all Singaporean and permanent resident employees, who number more than 1.9 million.

Firms in the food services sector, including hawker stalls, will receive higher support, at 50 per cent of wages. Firms in the aviation and tourism sectors – which are the worst hit by the Covid-19 outbreak – will receive 75 per cent of wages. These include airlines, hotels and operators of meetings, incentives, conferences and exhibitions venues.

The support will apply to the first $4,600 of gross monthly wages per local employee, which is the median wage in Singapore. Gross monthly wages include employee contributions to the Central Provident Fund (CPF).

Business owners will not receive subsidies for their own wages.

The qualifying salary was raised from the original $3,600 level to provide greater support for middle-income workers.

Employers will receive payouts in three tranches, at the end of May, July and October.

They do not need to apply for the scheme as it will be computed based on their CPF contribution data. Those eligible for higher tiers of support will be informed closer to the date of the first payout.

Enhancements to the Wage Credit Scheme, which co-funds wage increases for Singaporean employees, were announced in last month’s Budget statement

The Government’s contributions for qualifying wage increases for last year and this year were raised by five percentage points. It will pay 20 per cent of increases given last year, and 15 per cent of those given this year.

The monthly wage ceiling was also raised to $5,000, up from $4,000, for qualifying wage increases given last year and this year.

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Cash handouts, tax cuts on table in Hong Kong's recession budget

HONG KONG (BLOOMBERG) – As the Hong Kong government posts its first deficit in more than 15 years, all eyes will be on financial secretary Paul Chan’s budget release Wednesday (Feb 26) and how he’ll tap cash reserves to stimulate an economy under pressure from months of unrest and the coronavirus outbreak.

Anti-government protests drove the city into recession last year and economists now forecast another slump for 2020, spelling the first back-to-back annual contractions on record. Yet Chan holds a major card that he has largely yet to play: A fiscal reserve that stood at HK$1.12 trillion (S$201 billion) as of Dec 31.

One factor that could inform Hong Kong’s response is the big packages announced elsewhere, such as by rival Singapore, which has pledged to post its biggest budget deficit since at least 1997 to combat the impact of the virus. While Hong Kong has historically espoused a conservative fiscal policy, the government has already earmarked an extra HK$30 billion in this fiscal year to help those affected by the virus outbreak.

“No government wants to be accused of having done too little,” said Alicia Garcia Herrero, chief Asia Pacific economist at Natixis.

So far, the spending measures rolled out to deal with Hong Kong’s downturn have been limited, focusing on helping low-income families and enterprises that have been most hurt by the damaged economy. Chan has so far played down talk of cash handouts, though he said the government wanted to have a “bold” response.

“The government’s resources are always limited, and this budget cannot fully meet everyone’s requirements,” Chan said in a blog post Sunday, according to translated text from the Chinese-language post.

In an earlier post describing “tsunami-like” shocks to the economy, Chan appeared to temper expectations by raising concerns about the long-term affordability of stimulus measures given the recent surge in government spending amid the recession.

“The projected fiscal deficit for the new fiscal year may be a record high in terms of dollar value,” he said.

Hong Kong last posted a budget deficit in March 2004 of about HK$40 billion in the aftermath of the SARS epidemic.

TARGETED STIMULUS

Chief Executive Carrie Lam earlier this month pledged an extra HK$30 billion in funding, targeting those affected by the virus outbreak. Specific proposed measures include an HK$80,000 one-off subsidy to licensed tour agencies and up to HK$200,000 one-off subsidy to restaurants – sectors hit hardest by the downturn.

The package is on top of about HK$35 billion in stimulus and livelihood spending announced since the start of protests in June. The city in January announced a HK$10.6 billion injection to revitalize the Ocean Park attraction, which is now closed because of the epidemic.

Tommy Wu, senior economist with Oxford Economics in Hong Kong, said he anticipates the coming budget will focus on long-term spending such as on housing, health care and social welfare “as well as policies to help Hong Kong keep its existing competitiveness in the financial industry and to develop new industries, along with discussions on linkages with China on various fronts.”

Other recurring items that appeared in the last budget may also spring up including:

One-off tax reductions on salaries for most citizens.

Investments in the city’s technology and innovation initiatives such as the Cyberport financial technology hub.

Measures addressing land supply and public housing.

HANDOUT DEBATE

Much speculation has centered on a potential HK$10,000 cash handout to residents to bolster consumption.

Accounting firm KPMG LLP earlier this month came out in favor of the HK$10,000 payout in the form of electronic spending vouchers, advocating bold spending by tapping the ample fiscal reserve. The firm forecasts a deficit of HK$47.7 billion.

Rival firm PC, however, warns that a handout to all adult permanent residents in the city would lead to extra spending of as much as HK$70 billion, according to Hong Kong tax partner Jeremy Choi. He instead called for short-term relief measures such as interest-free loans to affected retail, restaurant, hotel and tourism firms as well as other tax measures such as a simplified installment payments application process and enhanced tax deductions.

Chan downplayed prospects for a handout in an interview with Bloomberg TV in January, before the shutdowns connected to the virus outbreak that have further hurt economic growth in the city.

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Toronto council holding special meeting to set city’s 2020 budget

After weeks of consultations and tweaks, Toronto City Council held a special meeting to set the city’s 2020 budget.

The city’s finances are divided into the $13.5 billion operating budget for the fiscal year and $43.5 billion for 10-year capital plans.

This year, the city is increasing funding for transit, affordable housing, and public safety. Funding for both of the areas comes primarily from property taxes.

The 2020 budget will raise property taxes by two percent. Combined with the council’s earlier decision to increase the special property tax levy for the City Building Fund, rates will actually increase by 3.5 percent.

For the average Toronto home with an assessed value of $703,000, homeowners will pay about $128 more on their bills.

Speaking ahead of the special meeting, Mayor John Tory acknowledged the increase could be difficult for some Torontonians. He said it was a balanced and measured approach which recognizes the city’s needs.

“We’re also doing things to make life more affordable” said Tory. He cited free transit for children 12 and under, a low income transit pass, and long-term investments into affordable housing as a strong reason behind the decision.

Tory also said that efficiencies found in the budget prevented much larger increases, pointing to a seven percent tax hike in Vancouver.

During the consultation process following the budget launch, criticisms about a lack of programming to reduce youth violence, led to an adjustment by the mayor. Tory said the funding was inadequate, which is why $6 million was needed for youth hubs and other programming.

Still, many councillors are looking for more money to cover issues left unaddressed. Several councillors have cited the need for the reintroduction of a vehicle registration tax. City staff said a vehicle tax would raise an extra $55 million a year for the city. Conversely, the funds raised by a one percent property tax increase, is $30 million a year.

The city is required to keep its spending within the parameters of its operating budget, so councillors begin the budget debate by going over potential adjustments to the tax rate. When that is set, they will begin to set spending for programs.

The city’s budget contains a large $77 million hole in it, caused by a lack of funding for housing refugees in the city’s shelter system. For weeks Tory has said he will continue to press the federal government to provide funding. He added that he will continue to work with other levels of government to continue to fund other key areas.

More to come…


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Britain's new finance minister keeps March 11 budget date

LONDON (Reuters) – Britain’s new finance minister Rishi Sunak said he will stick with the March 11 date for the government’s first post-Brexit budget, dispelling speculation that the plans, likely to entail a big increase in spending, would be delayed.

Sunak’s predecessor Sajid Javid, who was already working on plans to increase public investment after a decade of tight controls on spending, resigned unexpectedly last week.

His departure raised questions about whether the budget would be delivered on schedule.

In a tweet on Tuesday, Sunak said: “Cracking on with preparations for my first Budget on March 11. It will deliver on the promises we made to the British people – leveling up and unleashing the country’s potential.”

British government bonds have underperformed U.S. and euro zone debt this month as investors believe that Sunak will obey to Prime Minister Boris Johnson’s wishes to increase government spending by more than Javid was prepared to do.

Johnson has promised to reduce the wealth and opportunity gap between parts of Britain by channeling investment into northern and central England, where he won votes from many traditional supporters of the main opposition Labour Party.

It remains to be seen if Sunak will rewrite the new fiscal rules for the government that were announced last year by Javid.

Under those rules, day-to-day spending will not be funded by borrowing within three years’ time, public sector net investment would not average more than 3% of GDP, and spending plans would be reviewed if debt interest payments reach 6% of revenue.

The rules would allow the government to use low borrowing costs to boost investment and help the Conservatives to meet election promises of up to 20 billion pounds ($26 billion) a year in extra investment in road, rail and other infrastructure.

Asked directly on Friday whether the government was still committed to this framework, a source in Johnson’s office declined to comment.

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