Singapore taps reserves for S$20.5b economic stimulus plan

By Asha Popatlal/ Dominique Loh, Channel NewsAsia

SINGAPORE: Singapore has unveiled a massive S$20.5 billion plan in its 2009 Budget to help Singaporeans keep jobs and viable companies stay afloat.

And for the first time, the government will be dipping into its reserves to draw S$4.9 billion to fund two temporary and extraordinary measures. They are the Jobs Credit and a Special Risk-Sharing Initiative.

The highly expansionary budget will result in an S$8.7 billion deficit, the country's largest deficit ever.

Delivering his Budget Speech in Parliament on Thursday, Finance Minister Tharman Shanmugaratnam said the multi-billon dollar plan, called the Resilience Package, will go into five main areas.

S$5.1 billion will go towards preserving jobs; S$5.8 billion to stimulate bank lending; S$2.6 billion for various tax measures to improve cash flow; S$2.6 billion to help households through moves like personal income tax rebates; S$4.4 billion to bring forward infrastructure spending plus health and education improvements.

The government will help employers with their wage bills by giving a 12 per cent cash grant on the first S$2,500 earned by each employee on the CPF payroll.

The scheme, called Jobs Credit, is for a year and will be paid out very quarter, starting from March. The grant will be equivalent to a nine percentage point cut in the employers' contribution rate to the Central Provident Fund (CPF).

The Finance Minister said the government did consider lowering the employer CPF contribution rate, but decided against it as the fundamental problem with the current recession is global demand slump and not wage competitiveness.

He said: "By designing the Jobs Credit to cover the first S$2,500, which is in fact pegged at the median wage in Singapore, we're also giving companies a special incentive to retain low and middle income workers, more than a CPF contribution cut would achieve."

Course fee subsidies under the Skills Programme for Upgrading and Resilience (SPUR) will also be increased from 80 per cent to 90 per cent to allow more professionals, managers, executives, and technicians or PMETs to upgrade. Mr Tharman added that this will result in a total 230,000 training places under SPUR, which was introduced in December 2008.

Selected tertiary courses at UniSIM and Singapore's three public universities will also be included under SPUR. The Economic Development Board (EDB) will complement SPUR with a S$100 million programme. It will help pay for manpower, training and costs for engineering and technical jobs.

Fresh graduates will also get funding for on-the-job training in these fields. These retraining and upgrading measures are expected to cost some S$750 million over two years.

During this downturn, some low income workers may face lower wages or even fewer working hours, which would mean a smaller take-home pay. To help this segment of the labour force, the government will tweak the Workfare Income Supplement (WIS) with an additional 50 per cent payment.

For example, someone aged 50 years old, taking home a S$1,000 a month salary will receive S$1,200 a year under Workfare. But under the WIS scheme, he will now get another S$600.

The government will also relax the eligibility criteria for the Workfare Special Payment to include odd job workers. In all, the temporary Workfare Income Supplement special payment will cost the government S$150 million.

The government will also be expanding recruitment across the public sector by 18,000 jobs over the next two years.

With the end to the recession still nowhere in sight and no certainty as to when major economies will recover, the finance minister said he is prepared to do more. These include off-Budget measures – over the course of the year – and more help over the next few years.

He said: "Our key objective in this package is to help Singaporeans keep their jobs. The best way to give our people confidence during this crisis is to help them stay employed and retain their ability to support their families."

While addressing crucial short-term needs, Mr Tharman said one advantage Singapore has is enough resources to develop long-term initiatives.

Mr Tharman said: "Unlike most countries, we do not borrow to fund the government Budget. Our borrowings in the Singapore Government Securities markets serve only to develop our capital markets and to provide a safe investment vehicle for the CPF Board.

"We will likewise not have to borrow to fund our response to the crisis. We will not have to burden either current or future generations with the need to repay our spending in this Package."

The President has also given in-principle approval to draw on the reserves.

Singapore is likely to experience the deepest recession since its independence, arising from the worst global economic decline in 60 years.

Mr Tharman said: "The Resilience Package aims to save jobs to the maximum extent possible in the recession, and to help viable companies stay afloat. It also prepares Singapore to emerge with strength when the global economy recovers, and enhances our capabilities and competitiveness for the long term.

"The Resilience Package will not get us out of the recession, as long as the global economy continues to contract, but it will help avert an even sharper downturn, and more lasting damage to the economy."