Non-Constituency Member of Parliament (NCMP) Leon Perera told Parliament yesterday (28 February) that the timing of the price hikes introduced in the recent Budget 2017 seems more synchronised to the political cycle than to the economic cycle.
Mr Perera said that the economy is facing numerous problem and net births of companies are plunging.
“Is this the right time to raise the electricity tariff? The gas price? Parking fees? Diesel usage costs? And last but not least, to raise the water price? All within the space of a few months? What is the justification for these price hikes and their timing?” he asked.
Hitting the economy with these multiple price hikes within the space of a few months may make good political sense, because people have three years to forget them before the next General Election, the NCMP said.
Why introduce price hikes at this time of economic uncertainity?
“But do they make good economic sense? Why introduce all these price hikes now at a time of economic fragility, when they could tip some SMEs at the margins over the edge, when they increase the hardships faced by Singaporeans beset by job market insecurities? Why not introduce some of them later when there is an upswing in external demand?” he popped another question.
Mr Perera said that the country’s economic growth in 2015 and 2016 was about 2 percent, stressing that it is the slowest since the financial crisis year of 2009.
As at December 2016, he noted that job seekers continue to outnumber job vacancies in Singapore for the first time since 2012. Low headline unemployment belies deepening insecurity in the job market, with rising redundancies, reports of under-employment and more people taking up jobs in the less secure, gig economy, not all from choice.
As is well known, he also said that productivity performance in recent times has been poor and far below targets.
“And according to one city level study cited by the Prime Minister in 2012, our per capita GDP is not even among the top 20 cities worldwide,” he added.
Expansionary budget? Think again
Mr Perera then stated that the Finance Minister has said that 2016 was an expansionary budget, meaning to say, in crude terms and at the risk of some oversimplification, that the state was pumping in more money than it is taking out, because the basic deficit was $5.6 billion.
In 2017, he noted that the basic deficit is projected to be $8.2 billion or about 2 percent of GDP, which would imply an expansionary budget again, even if the deficit turns out to be smaller by a few billion due to conservative budgeting, as it almost certainly will be.
“But what if we properly reflect the cash going out of the economy to the state in the form of land sales, projected to be $8.2 billion for 2017 net of other elements that may not be reflected such as the actual cash spending of endowments and funds? Once all these items are accounted for, is the Budget as expansionary as the basic deficit of $8.2 billion would suggest?” he asked.
Mr Perera then ask the Government to include a section in future Budget books that presents the country’s national Budget and quantifies the surplus or deficit according to the methodology prescribed by the IMF as such transparency is important to enable Singaporeans to make up their own minds as to whether future Budgets are indeed an effective response to current economic realities.
Racking surplus and spending near to General Election
According to the NCMP, the recent Budgets from the PAP government have tended to follow a pattern – racking up a surplus in the early part of the Parliamentary term and then incurring deficit spending towards the end of the term close to the General Election.
“So much so that some economists now openly predict that Budgets in certain years will be election year Budgets that spend off the accumulated surpluses from the preceding term of Parliament,” he stressed.
“Has the government held back on fiscal stimulus in 2017 so as to keep ammunition in reserve for closer to the election? And if so, is this the right thing to do for Singapore?” he added.
Mr Perera then noted that $700m in construction projects have been brought forward.
He then asked the Government to consider bringing forward projects in other areas of expenditure than construction, ICT projects for example, which would provide a greater and more sectorally balanced stimulus.
Measures to help SMEs is questionable
He then stressed that some initiatives to address SME funding and new measures announced in this Budget, for example, tweaks to the IFS scheme and the new globalization fund, are welcome.
However, he asked the Government whether those are enough to uncage the Republic’s local firms.
He then pointed to commercial and industrial rents and land costs, which are still very high relative to the region.
“When this was debated in COS 2016, the reply was that we do not need more measures because the retail and industrial space market was already softening due to market forces,” he noted.
However, Mr Perera said that the government should understand that for entrepreneurs it is not all about the cost today but what will be the cost tomorrow.
He stated that an entrepreneur will not invest blood, sweat and tears to build a business only to see commercial rentals surge due to wipe out commercial viability in 5 or 10 years time, instead they will think about the long-term future outlook.
Mr Perera then noted that larger share of JTC in commercial and industrial space and a smaller share held by REITS, as was the case in the past, would help underscore that longer-term assurance.
Another thing that he mentioned is that the country needs to step up education about entrepreneurship to students.
“Right now I fear that most aspiring students dream of becoming civil servants or working in an MNC,” he said.
And on funding he said in New Zealand for example, an SME can obtain bank loans for M&A projects overseas based on a certain PE ratio.
In countries like Switzerland, Germany and Japan, local banks have close ties to local firms in particular states or prefectures and both parties see a commonality of interests, he added.
“Is such funding easy to obtain in Singapore?” he asked.
Mr Perera said that the point is that not all ideas and companies are fundable.
He said that the country have several options whether not to make its support to companies more selective – with much more generous support at higher caps given to companies who truly have a track record of results and the acumen and ambition to succeed globally, scale down support if the results are not delivered or do not benefit Singapore, or not move decisively away from a schemes administration mindset to a results-driven mindset in SME development.
“It is this kind of tough-minded, results-driven approach which enabled Japan and Korea to groom world-leading companies in the 1960s and 70s, companies that to this day employ many people in their home countries both directly and indirectly, in the form of extremely complex chains of suppliers and sub-contractors,” he said.
Missed opportunity to tackle risk-adverseness of Singapore business
Mr Perera then stressed that one of the opportunities missed by the CFE and Budget 2017 is about fostering risk-taking.
According to him, it is no coincidence that the countries with the most innovative companies and disruptors are also the countries that have a larger role for social safety nets and risk pooling.
He stressed that there are two aspects that stand out, which are managing the risk of redundancy from ever shortening product life cycles and continuous disruption, and retirement adequacy.
Mr Perera noted that most Singaporeans do not have enough in their CPF to live on when they retire, as the Prime Minister discussed in his NDR speech in 2013, necessitating some kind of monetisation of their HDB flat, which is not always an easy or happy process, or continuing to work till much older.
“This is due to high property prices which deplete the CPF OA,” he said.
Mr Perera said that managing these risks are important if a globalized, open economy and society are to thrive, saying, “We must create enough security and confidence for Singaporeans to become the disruptors and not the disrupted.”
He then noted that there have been some measures announced to address these issues. However, the basic structural issues remain.
“Most households are exposed to cyclical economic risks without robust safety nets and risk pooling, reinforcing a tendency to focus on short-term cash flow. This makes it less likely that they will set up companies, take risks to innovate and take time off work for education, reskilling or training – because they cannot afford to,” he stated.
Education as the basis of future economy
The last point Mr Perera noted is that the country’s education system excels at training literacy and numeracy to a high standard.
“The government takes pride in our PISA scores,” he said.
However, he stressed that equally important to competitive success in the 21st century are “skills” like lateral thinking, creative problem-solving, leadership, communication and self-confidence.
“Can we sustain the current high academic content workload and add the cultivation of these softer attributes on top, like the icing on a cake? Will our students be able to cope with all these demands?” he asked.
To read Mr Perera’s speech in full, visit here.