The Online Citizen

Budget 2012: Pragmatic in the face of a downturn

February 21
15:39 2012

~by: Simeon Ang~

Pragmatism, an attribute that our government is known to propagate in all of its policies, is clearly evident in this year’s budget. Analysts were right to tone down expectations about the possibilities that Budget 2012 would pump a huge stimulus into the economy on a short term basis.

Deputy Prime Minister and Finance Minister, Tharman Shanmugaratnam, mentioned from the start of his speech, that even though the estimated GDP growth of one to three percent for 2012, was lower than previously anticipated, it was still somewhere within the medium term growth potential of three to five percent for Singapore. Thus, setting the stage for its utilitarian budget that is expected to yield a $2.8 billion primary surplus for FY12.

A few key thrusts emerged from the budget that would directly affect businesses in Singapore. These thrusts would significantly affect the labour market, and three different sectors in the economy, namely, the tourism sector, the public transport sector and the healthcare sector.

Populist Labour Measures?

Off the bat, the finance minister remarked of the need to “reduce (the economy’s) dependence on foreign labour”. What came next could be widely contrived as a populist move to stymie increasing criticism from the ground about pro-immigration policies. The minister sought to introduce a reduction in the dependency ratio ceiling (DRCs) in the manufacturing and services sectors.

While the writer will not go into details about the changes, it is notable that the steps taken by the government could instead lead to higher inflation. This additional focus to hire locals as well as boost lower income wages could cut both ways as prices for goods and services will likely be driven up as businesses push cost increases to consumers. As OCBC’s review aptly puts it, “In the end, whether your income growth outstrips inflation or inflation outstrips your income growth will be the key determinant of whether your real wealth goes up or down”.

An Investment into a Tourism Hub

In a further boost to the local tourism industry, the government intends to inject a further $905 million into the Tourism Development Fund (TDF) as it jostles with other tourism destinations for the coveted tourist dollar. The fund, previously announced in 2004, seeks to ensure that Singapore has sufficient world-class infrastructure and tourism amenities to compete with regional rivals. It also helps the private sector to organize “iconic events” which boost tourist traffic. One such example is the Formula One race which is partly funded by the fund.

While the view that Singapore aspires to be a hub in all-too-many-places continues to be validated, it can be said that the tourist dollar is more attractive than most. In a way, the tourist dollar is a foreign direct investment in particular to the retail industry. While that direct investment could aid and cushion any impact domestically, it comes with its own price. For instance, the drive for the tourist dollar has led to the two integrated resorts that grace our shores and has reaped incredible revenues both in the retail industry as well as tax revenues. However, the social ills of which, cannot be ignored.

An Election Bugbear Addressed

OCBC contends that this year’s budget has addressed one of the main bugbears in the 2011 general election. In its review of the budget, OCBC said that budget 2012 recognises that transport infrastructure has not quite kept pace with the growth in the workforce. There is thus expectation that transport spending will increase by some 17.8 percent.

The government has also earmarked $1.1 billion to increase the supply of buses and reduce crowding and waiting times for buses in the short term. 550 buses will be publicly funded, with the remaining privately funded by the PTOs. The finance minister stressed that this investment would on a one-time basis and that bus operations will ultimately rest on PTOs’ improvements in efficiency as well as fare revenues. Whether these capital expenditures will be linked to future fare hikes, remains much to be seen, however, this writer feels that it will be more likely than not.

Tuning in to the Graying Heart of the Nation

Singapore will be doubling the amount it spends on healthcare in an attempt to address the concerns of a graying population. Yearly healthcare expenditure is set to increase from the current $4 billion to $8 billion over the next five years. The increase will go towards enhancing healthcare infrastructure as well as increasing healthcare manpower, including doctors and nurses.  Support for the middle class on the taking up of private healthcare services was also on the cards as the government sought to assuage fears of burgeoning healthcare expenses.

OCBC feels that the significant investment is in line with the government’s aim of portraying the nation as a medical hub and will go some ways in attaining that goal.

Pragmatism in the Face of a Downturn

Notwithstanding the commercial aspects of the above, it is imperative to note that the government has not taken too kindly to stimulus measures, opting instead, to invest on a long term basis. However astute as it might be, this leaves the short and medium term vulnerable to exposure to an external shock.

The writer notes that in a separate statement by Bank of America in which the banking giant said that, "While the consensus has shifted (about a US economic turnaround), we haven’t,” said BOA. “We continue to argue that the recent improvement is due to a recovery from the oil and Japan shocks, but ultimately will be reversed by shocks in the second half of this year. Moreover, in our view, recent news underscores, rather than undercuts our forecast of a very weak second half.”

Being an export driven economy, we are often faced with upheavals in the economic and financial market. In particular, any shock factors experienced in the US market is felt exponentially here in Singapore. That is not to say, that if such a doomsday-prediction were to be realised, our government would be caught with their pants down. The government still has the reactionary ability to create an additional discretionary budget to combat a steeper than expected downturn. In the meantime, the business community will continue to look to the government regarding the implementation of initiatives that it has espoused in Budget 2012.

  • No diff

    Although the MSM praised the new Budget skylight on how it will benefit the citizens. As a retiree with no income, I feel no impact on how it made living in Singapore cheaper. Whatever freebies given are really marginal and the MSM really know how to put up a Wayang show for its masrer.

  • Eugene

    It only shows the author Mr Simon's lack of in-depth masquerades performed by the papigs. What has the budget done for poor? Nothing much. Only motherhood statements have been issued. Paving the way for the poors next generation to excel etc.
    In many Asian countries free meals are provided in Schools so that at least the poor children don't go hungry. If you are hungry how to concentrate on studies.
    Damn the misers.

  • The voice inside your head

    Perhaps Eugene has not read the article well… There are many undertones in this article though as subtle as it might be. Perhaps what it does, is to lead the reader to question. And clearly, it is focuses on the commercial aspect of the budget. That much is clear…

  • oms

    Think about it…saving $16p/m? If Hougang can go without an MP, then can consider to reduce the numbers of MPs per GRC. Again, Hougang voters have the great vision to vote for Yaw. With his mistake made, everyone doing a soul reflection or maybe, God(s) making good of the mistake made.

  • Kah Poh

    It's strange TOC never comment or criticise curbing of foreign workers as it did not include E-pass foriegn professionals.

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  • The Pariah

    After the past two decades of "Progressive Corporatism" where "Hands-Off, Heads-Out Government" cozy up to "Big Business", do you seriously think that Budget 2012 will do the trick? 
    Much harder to get into the Virtuous Cycle than it is to get out of our already Vicious Cycle.  Get real, man and read Leong Sze Hian's 2-part Budget Analyses instead.

  • David

    I still believe the cut in foreign labour quotas are not stringent enough – by merely  a 5% for each different industries. EP and PR has no quotas. Perhaps  People will be able to notice it during the crams and crowds during MRT peak period to decide for themselves they have been fooled by mere rhetorics.

  • Eugene

    If it is not for the cramming/congesting human traffic why do you think the pappies are sponsoring the MRT carriages and buses.
    They have decided to continue importing and you are expected to live with the congestion.
    The pappies are in no hurry for change in the stattus quo.

  • Rodolfo

    I was looking for a post on this but didn't find one – why is the Govt subsidising the cost of new buses when the bus operators are supposed to be private and independent of the Govt? Would the Govt care to explain how independent the bus operators can be when this sort of arrangements can be made for large capital expenditures?
    I would think this suggests the bus operators are far less independent and far less private than the Govt might care or want to admit. Question is why are tax payers' funds being used for such purposes?Why are we paying for this so the bus operators can turn more profit? The bus operators had plenty of cash to buy assets overseas to make money. And now when capex is required at home, the Govt steps in?

  • mice is nice

    govt's light touch approach to bus companies is a disappointment. govt should at least set a minimum standards for the bus operators to meet over a period of perhaps 12 months before earmarking $1.1 billion for them.
    a rather different approach is taken in regard to rising wages, that of productivity growth. yet there is nothing employees can do if employers do not increase wages when productivity goes up. IIRC, there was 1 major recession where employees have to take on additional workloads when staff is retrenched.
    earmarking so much money for what is now private entities goes against the initial reasons to privatise public transport- competition keeps cost down. time to seriously consider de-privatising, since its simply isn't working & set bigger budget to buy them back.

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  • Dico

    The government big hand big leg provide money to the PTOs for buses.
    The PTOs will again claim that operating cost had gone up and they have to increase the fare.
    With the increase in fare and the generous money throwing by the PAP using taxpayers' money, the PTOs make huge profits, pays historical highest record bonuses to the CEOs and fat dividends to 'shareholders'.
    Baldie conveniently forget to mention how is the government going to recover the 1.1 billion from these PTOs cronies. Are these cronies going to get the new buses free with repayment? Make all the money with the new buses and pocket them?
    Nothing of that sort of repayment is mentioned at all. This could be the biggest open corruption in Singapore history!

  • Simi

    When future world economy looks bad, the budget should aim at helping the industrial and financial sectors to maintain a comfort zone with reasonably profit margins. When future world economy looks good, budget should aim at promoting better investment environment to improve the GDP, GNP whatever. When will be the tim for the Budget to focus on the PEOPLE whether they are sending SOS or not.
    Every year who  are the critics praising the budgets and whose voices for help are heard and considered. Definitely not the voices which have been conveniently relegated to NOISES OF THE ENVIRONMENT. Yes Budget2012 is pragmatic as to exempt GST from Gold, Monies for foreign scholars, monies to facilitate assimilation process, monies for denationalised public transport , but no GST exemption on essentials, restrained allocation for medicares, possible or impending increases in education fees (NUS recent report).  Pragmatic with respect to the majority of the citizens, I wonder when the noises are getting louder and with sign of frustration and incomprehension??

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