by Yeoh Lam Keong
While the additional measures in Deputy Prime Minister Heng Swee Keat’s Solidarity Budget, especially the 75% payroll support for all companies in April are of course to be welcomed, and his initial Resilience Budget was very good, I feel I have to say that I am disappointed at the lack of boldness overall, now that we are indeed moving into lockdown.
The latest measures largely only address the one month lockdown. We lost a good chance to offer multi-month assistance for payroll keeping in mind that even if the new circuit breaker measures are lifted in a month, normal multipliers and uncertainty means business will take many more painful months to recover to pre-lockdown levels.
The key factor to support in a crisis like this is business and consumer confidence. Piecemeal, month by month support simply does not do this effectively enough.
There was also no mention of vitally needed rental relief measures discussed in my previous post without which, much of the relief from labour costs might well be nullified.
In addition there was insufficient boost to much needed zero interest credit lines for SMEs, many of which are facing around 50% cuts in credit lines from banks.
Let’s go through the basic public policy economics of COVID-19 financial support again.
This COVID-19 crisis is clearly an “Act of God “ similar to a natural disaster like a massive earthquake. There is thus minimal moral hazard and maximum moral imperative to use collective state funds to alleviate the worst of it.
Such costs are socially necessary for the resilience and maintenance of livelihoods and productive capacity.
In addition, the likely costs are finite ex ante (unlike say in the Global Financial Crisis when we did not know when it might end).
And for Singapore, likely COVID-19 crisis support costs are relatively small in size relative to our reserves, which in all likelihood will easily grow back again in time.
In equity terms, support for a natural disaster should, in principle be shared between companies, workers, landlords and the government in a sustainable and equitable way for all. The proportion of burden should depend on the size of the total cost relative to the resources of each of these parties.
In our case, the overwhelming resources lie in the government reserves which, for decades, have been funded by taxpayers, households and corporates especially our own SMEs. This already suggests where the relative burden of costs should lie.
In addition, economic and financial damage for this particular pandemic are largely due to the lockdowns necessary to safeguard public health and should thus be regarded as both a public good that needs to be funded largely by the public ie using government resources.
The government lost an important chance to implement a much needed more decisive financial package to support households and local businesses — the main employers of our labour force properly through this huge economic crisis.
It’s still not too late for a better solidarity package. In my humble opinion, an additional $4-5 bn or 0.8-1% of GDP going into a lockdown is clearly not enough.
We are one of the few countries that have the fiscal resources to really support our economy through the COVID-19 pandemic. It is the rainy day our reserves are designed to protect us against.
This is the time to be bold, not penny wise and pound foolish.
Yeoh Lam Keong was a former adjunct professor at the Lee Kuan Yew School of Public Policy and former Chief Economist for Singapore’s sovereign wealth fund, GIC.
While the additional measures in Deputy Prime Minister Heng Swee Keat’s Solidarity Budget, especially the 75% payroll support for all companies in April are of course to be welcomed, and his initial Resilience Budget was very good, I feel I have to say that I am disappointed at the lack of boldness overall, now that we are indeed moving into lockdown.
The latest measures largely only address the one month lockdown. We lost a good chance to offer multi-month assistance for payroll keeping in mind that even if the new circuit breaker measures are lifted in a month, normal multipliers and uncertainty means business will take many more painful months to recover to pre-lockdown levels.
The key factor to support in a crisis like this is business and consumer confidence. Piecemeal, month by month support simply does not do this effectively enough.
There was also no mention of vitally needed rental relief measures discussed in my previous post without which, much of the relief from labour costs might well be nullified.
In addition there was insufficient boost to much needed zero interest credit lines for SMEs, many of which are facing around 50% cuts in credit lines from banks.
Let’s go through the basic public policy economics of COVID-19 financial support again.
This COVID-19 crisis is clearly an “Act of God “ similar to a natural disaster like a massive earthquake. There is thus minimal moral hazard and maximum moral imperative to use collective state funds to alleviate the worst of it.
Such costs are socially necessary for the resilience and maintenance of livelihoods and productive capacity.
In addition, the likely costs are finite ex ante (unlike say in the Global Financial Crisis when we did not know when it might end).
And for Singapore, likely COVID-19 crisis support costs are relatively small in size relative to our reserves, which in all likelihood will easily grow back again in time.
In equity terms, support for a natural disaster should, in principle be shared between companies, workers, landlords and the government in a sustainable and equitable way for all. The proportion of burden should depend on the size of the total cost relative to the resources of each of these parties.
In our case, the overwhelming resources lie in the government reserves which, for decades, have been funded by taxpayers, households and corporates especially our own SMEs. This already suggests where the relative burden of costs should lie.
In addition, economic and financial damage for this particular pandemic are largely due to the lockdowns necessary to safeguard public health and should thus be regarded as both a public good that needs to be funded largely by the public ie using government resources.
The government lost an important chance to implement a much needed more decisive financial package to support households and local businesses — the main employers of our labour force properly through this huge economic crisis.
It’s still not too late for a better solidarity package. In my humble opinion, an additional $4-5 bn or 0.8-1% of GDP going into a lockdown is clearly not enough.
We are one of the few countries that have the fiscal resources to really support our economy through the COVID-19 pandemic. It is the rainy day our reserves are designed to protect us against.
This is the time to be bold, not penny wise and pound foolish.
Yeoh Lam Keong was a former adjunct professor at the Lee Kuan Yew School of Public Policy and former Chief Economist for Singapore’s sovereign wealth fund, GIC.
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