Why pump priming will not work.
SO, should Singaporeans spend their way out of the recession or tighten their belts?

To this query, Prime Minister Lee Hsien Loong took pains to explain why increased consumption would not help Singapore's economy.

The reason: Its small size and open economy. Every dollar of spending would result in 60 cents leaking out of the economy, as almost all of what Singaporeans buy is imported. This would not boost Singapore's economy.

In large countries such as Brazil, China and the United States, more consumption and other pump-priming or fiscal stimulus measures would work, given their huge populations who would be consuming domestic products.

But there was still a need for some spending, added Mr Lee - not to encourage consumption as such, but in the form of investments for the long-term, for example, in education and infrastructure.

PM Lee was also asked about calls being made for more goodies to help Singaporeans in the January Budget. Some people have also argued for the Goods and Services Tax to be cut, as a way to boost spending further.

The Prime Minister, however, cautioned against holding out 'unrealistic expectations' that could not be fulfilled.

As for a GST cut, he noted that Finance Minister Tharman Shanmugaratnam had explained that this strategy would not work, and that it would be more effective to use the tax revenues to target help at businesses and people with lower incomes.

He suggested looking at the overall package instead of individual revenue components, as a measure of Government help - or, as he put it, 'where the Government is getting the money from and where the Government is spending the money'.

'Are we, on a net basis, putting assistance in the system, or are we, on a net basis, running a big surplus at a time when the economy cannot afford surpluses?' he said. 'That is the question.'

Bertha Henson