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Bitter medicine prescription – with a little spin thrown in

Breaking News: Feb 27: Freeze on government fees extended till end of 2008. The one-year freeze on government fees which kicked in last July will be extended till the end of 2008. This will include fees charged on all government-provided services such as school fees, ITE and polytechnic fees, charges in public car parks, and all licence fees. (Channel NewsAsia)

By Andrew Loh

On 24th January, 2007, Prime Minister Lee Hsien Loong said the following, when justifying the increase of 2 per cent for the GST:

"Is it better to take your medicine sooner or stretch it out? Take medicine once or two times? I prefer to make (sic) my medicine early, why? This is something we need to do, once we have done it, we can move on; we have the resources to have the revenue from the GST that we use….” (Channel NewsAsia)

The PM was right in that the increase by 2 percentage points in the GST brought in the expected revenue for the government - $1.4 billion.

But do note that the $1.4 billion of GST collected so far is only for the months from July 2007 to March 2008. That is, 9 months, and not a one year (12 months) total. It follows then that the total one year collection of the 2% of GST could be as much as or close to $2 billion – dwarfing the initial projected $1.5 billion. (Singapore Budget)

(I stand corrected on the above but as far as I understand, that is what it is. No one seem to know for sure.)

Even the estimate for the total GST collection for FY2007 was way off the mark. The estimate made last year was $4.85 billion. The revised estimate in the 2008 Budget is $6 billion.

What was also unexpected was a budget surplus of $6.45 billion, a stark contrast to the $0.7 billion deficit which the government had projected.

Now, questions are being asked if the GST hike was needed in the first place. (See here and here.)

Why increase GST to 7%, say that the extra $1.5 billion would help the lower income, that the government would run a deficit of $700 million, and then have a budget surplus of $6.45 billion?

As my colleague Leong Sze Hian said, this is probably one of the most inaccurate budget forecasts in Singapore’s history.

PAP MPs’ praises

Yet, if you recall some PAP MPs’ reaction to Budget 2007, their praises were verging on the ecstatic. Tampines GRC MP Irene Ng described it as “an unprecedented new commitment”, and “incredibly generous”.

MP for Ang Mo Kio GRC, Lee Bee Wah, in defending the GST hike in 2007, rebutted the Workers’ Party chairman, Sylvia Lim:

“On Ms Lim's criticism of the timing of the GST hike, she said it was better to raise the tax now while the economy was doing well, rather then wait till things took a turn for the worse. Using a Hokkien phrase, she warned against 'looking for a toilet only when one needs to pass motion', a comment that evoked laughter from the House.” (Link)

Dr Fatimah Lateef (Marine Parade GRC) said:

“Let me share with her (NCMP Sylvia Lim) that nowhere else in the world can you get a Budget which includes love and compassion in abundance as this one.”

Indeed, the prime minister was the strongest defender of the GST hike:

“That's the way the PAP is – upfront – give the bitter medicine first and worry first and enjoy later on." (Channel NewsAsia)

With the cost of living increasing at an alarming rate and inflation breaching record levels, one wonders when Singaporeans will get to “enjoy” the fruits of this so-called “golden era”.

“Growth Dividend” – really?

Instead of admitting and taking responsibility for the atrocious forecast, the government is now packaging the surplus as “Growth Dividends” and claiming to be sharing the fruits of such “growth” with Singaporeans.

The Straits Times senior writer, Chua Mui Hoong, describes it thus in the report titled, “Budget goodies for all S’poreans”:

“Despite it not being an election year, an impressive $865 million in 'Growth Dividends' will be given to all Singaporeans, with more rightly going to the lower-income worst hit by rising costs.

The figure is about 62 per cent of the $1.4 billion increased revenue from the hike in Goods and Services Tax - which means that through the Growth Dividend, the government is giving back to the man-in-the-street 60 cents of every extra dollar it collected from the GST hike.”

I fail to understand, as do many of my friends, how collecting GST of $1.4 billion and then giving back “60 cents of every extra dollar it collected from the GST hike” can be called “Growth Dividends”.

It is a media spin which has not gone unnoticed by many – and I think senior writers in the press should do better. It is like, I take $100 from you, give you back $60 and then say I am sharing my profits with you – and having the cheek to call it “growth dividends” in the same breath!

Budget deficit forecast not the only wrong forecast

If you think the budget deficit forecast is the only one which is way off the mark, my colleague Sze Hian offers the following examples as well:

Real Gross Domestic Product (GDP) expanded by 7.7%, higher than the 4.5% to 6.5% growth projected when the Budget for Financial Year (FY) 2007 was set out in February 2007.

FY2007 Operating Revenue at $39.6 billion has been revised upwards by $7.3 billion (22.5% higher), driven primarily by active property market transactions and higher than expected economic growth in 2007. Higher collections came from Stamp Duty, Corporate Income Tax, Goods and Services Tax, property tax and various fees and charges.

Corporate Income Tax (CIT) collections are estimated at $9.0 billion, or 7.1% higher than the budgeted FY2007 estimates. This was driven by higher profits booked by companies due to strong economic growth in 2006 and 2007.

Personal Income Tax (PIT) collections are estimated at $5.6 billion, or 7.9% higher than the budgeted FY2007 estimates, in line with strong wage growth in 2006 and 2007.

Assets Tax collections are estimated at $2.6 billion, or 23.0% higher than the budgeted FY2007 estimates. This was largely due to the revision of Annual Values to reflect the rise in residential and commercial rents.

Goods and Services Tax (GST) collections are estimated at $6.0 billion, or 23.7% higher than the budgeted FY2007 estimates. This was due to higher than expected consumption growth.

Motor Vehicle Related Taxes and Vehicle Quota Premiums (i.e. receipts from Certificate of Entitlement (COE) premiums) are expected to be higher than budgeted by $0.7 billion. This was attributable to lower rebates paid out with lower deregistration rates and fewer cars with high rebate value.

Stamp Duty collections are estimated at $3.8 billion, 155.0% higher than the budgeted FY2007 estimates. This was due to a buoyant private residential property market, which saw a price increase of 31% and a 60% jump in transaction volume vis-à-vis 2006.

Net Investment Income Contribution (NIIC) for FY2007 is expected to be
$2.3 billion, or $0.3 billion above the budgeted 2007 estimate. This is due to higher interest and dividend income from the investment of the Government’s financial reserves.

While it wouldn’t be fair to expect the government, or anyone, to be perfect in their economic forecasts, nonetheless Singaporeans expect the government to admit its mistakes and take responsibility for them when they are wrong.

Using nice-sounding phrases – “budget bonanza”, “growth dividends” and so on – only obfuscates and do not address the problems which such policies, based on faulty forecasts, create for the average Singaporean.

This is most obvious in the case of the GST hike last July, which even the government admitted has contributed to rising cost and record inflation since then. (Bloomberg, Associated Press)

Branded, non-branded, frozen, unfrozen…

The spiraling cost of living is of great concern to Singaporeans and a real one. The prime minister tried to assuage such fears. He had two particular pieces of advice for Singaporeans.

First, Singaporeans were advised to buy “non-branded” bread on February 4:

“No need to buy branded bread,' he said in Mandarin to laughter. 'Bread is bread, rice is rice.” (PM Lee, Feb 4)

The very next day, the local media reported:

“House brands are flying off the shelves.” (Straits Times, Feb 5)

“More households opt for house-brand items to cut grocery bills” (Channel NewsAsia, Feb 5)

Five days later, the PM had new advice on how to cut cost – buy frozen food.

But what you can do is to adjust, go for house brands, maybe go for frozen food instead of fresh food.” (PM Lee, Feb 9)

Right on cue, the media came up with:

“Picking frozen over fresh food could halve your marketing bill” (Straits Times, Feb 13)

“Go for frozen food and cut up to 50% off bill” (Straits Times, Feb 14)

“More Singaporeans buying cheaper frozen food products.” (Channel NewsAsia, Feb 22)

And all the while, Singaporeans had no idea that the government would be reaping a budget “surplus” of $6.45 billion.

What the government could - and should - do

What the government could do and should do with the “surplus” is to give the entire $1.4 billion back to Singaporeans, and not only “60 cents of every extra dollar it collected from the GST hike.” With a “surplus” of $6.45 billion, it would still have $5 billion in its coffers.

The government should also freeze prices of essential goods and services such as electricity (which is adjusted every 3 months), transport fares, healthcare cost, school/tuition fees, etc, which are all within the control of the government.

I hope that MPs will be more critical and think deeper before singing praises of the government in the current budget debate in Parliament.

Else, the ones who will constantly be asked to swallow bitter medicine will be Singaporeans who are already struggling to keep up – while also being told that we are in a “golden era” at the same time.

But that is another story for another day.

“I have to make the adjustments of 2% which I think is fair and I think Singaporeans will support.” (PM Lee, Nov 2006)

So, as the prime minister asked last year:

“Is it better to take your medicine sooner or stretch it out? Take medicine once or two times?”

For me, I’d first make sure the doctor is not a spin doctor.

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One last note: I find it really insensitive for the prime minister to be asking Singaporeans to, effectively, scrimp and save by buying non-branded bread and cheaper frozen food, while the government’s investment arms of Temasek and the GIC spend billions on bailing out ailing foreign banks.

In the past year alone, both Temasek and the GIC have spent more than $34 billion on these “investments” – an amount exceeding our entire annual budget itself.

Read blogger Looking For Lalaland’s write up on this: “Please stop lying to us!”

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