Commentary

Coronavirus: A budget beyond extraordinary

But success hinges on voluntary cooperation and solidarity among all the players involved

Various analysts and business leaders have been trying to guess the size of the supplementary budget, Deputy Prime Minister and Finance Minister Heng Swee Keat said in a Facebook post yesterday morning. "It is important not to have excessive expectations or merely focus on the headline numbers," he added.

And then, he went on to make history.

In terms of size and scope, his $48 billion supplementary budget - which he called the Resilience Budget - far surpassed the expectations of economists who were expecting a $30 billion package at best.

The total amount earmarked to stabilise the economy is now $55 billion. It is the country's biggest Budget since Independence. As a percentage of GDP - 11 per cent - it is bigger than the historic US$2 trillion (S$2.9 trillion) package that Congress in the United States is on the verge of passing.

The Resilience Budget will lead to an overall Budget deficit of 7.9 per cent of GDP, another record.

But no matter. This is not a time to worry about deficits. This is a time to pull out all the stops.

Because when it comes to the potential economic impact of the Covid-19 pandemic, Singapore is dealing with a black swan event - something bigger and more dangerous than the Asian financial crisis of 1998 or the global financial crisis of 2008.

It is, as Mr Heng pointed out, a public health crisis and an economic shock combined. This is not a regular business-cycle downturn, but is hitting Singapore from both the demand and supply side simultaneously. It is also a psychological shock.

A recession is certain. The only question is how bad it will be.

According to the new, sharply downgraded official forecast, the best-case scenario is that the Singapore economy will shrink by 1 per cent this year. In the worst case, it will shrink by 4 per cent.

The wide range of the forecast is well advised. The Covid-19 pandemic is still careening across the world. How it will evolve, how long it will last and how much economic damage it will leave in its wake are all uncertain.

 
 

But while Singapore can't dodge a recession, it can minimise the resulting pain.

This is what the Resilience Budget aims to do. The end goal is to ensure that companies survive, workers keep their jobs, those looking for work have some chance of finding it and families have enough to at least get by.

The supplementary budget addresses these issues, providing relief across the board. It offers support for families, companies, the self-employed, low-income groups, the unemployed, job seekers, students and trainees.

Its centrepiece is the hugely enhanced Jobs Support Scheme. In Budget 2020 presented five weeks ago, the Government pledged to subsidise 8 per cent of wages for the first $3,600 per worker. It will now co-fund at least 25 per cent for the first $4,600. For the food services sector, the subsidy will be 50 per cent, while for the aviation and tourism sectors - the worst hit by the impact of the Covid-19 pandemic - it will be 75 per cent.

These subsidies, costing $15.1 billion, will be the key to keeping companies viable and enabling workers to retain their jobs.

But companies will need to cooperate. Mr Heng has urged them to keep workers employed, but there is no requirement for this.

There should be: Companies that take the subsidy and then go ahead and retrench anyway should have their subsidies cut or stopped.

Companies should also be required to refrain from taking advantage of the subsidies to do share buybacks - as some have done in recent months - or boost top executive compensation. Hopefully the Government, as well as the trade unions, will be vigilant against such abuses.

The variable levels of wage subsidies for different categories of industries make intuitive sense. The aviation and tourism sectors, which get the biggest subsidies, are worse hit than other sectors as of now. But this may change.

As the economic damage ripples through the economy, other sectors could also face more difficult times than they do today.

Besides, the aviation and tourism sectors also have suppliers that may belong to different industries - food caterers for the aviation industry, for example, or independent retailers at tourist attractions, and they would have their own suppliers in turn.

Picking winners and losers through the course of a recession is no easy task. The levels of subsidy should therefore be subject to change, depending on what happens in the economy and how different sectors are impacted.

The effectiveness of some other measures will also depend on how companies react. For example, landlords of office and industrial properties will be getting property tax rebates of 30 per cent, but there is no assurance that tenants will benefit. A requirement to benchmark rental payments to gross turnover for at least some tenants for a temporary period would help remedy this problem.

But landlords, too, have their liabilities - for example, in the form of mortgage and other loans. So banks would need to show some flexibility on loan servicing, either through reschedulings or temporary moratoriums on principal payments.

 
 

Banks would also need to be flexible on private residential mortgages in case property owners run into difficulties - following the example of the Government suspending late payment charges on HDB mortgage arrears - as well as on credit card payments.

And when it comes to loans to small and medium-sized enterprises, for which the Government - in other words, the taxpayer - has pledged to take up to 80 per cent of the repayment risk, banks must refrain from levying usurious interest rates, as they have in the past.

As huge and comprehensive as Mr Heng's Resilience Budget is, it might still need to be adjusted and augmented as the Covid-19 pandemic evolves. This will need to be carefully watched.

Meanwhile, its success will, to a large extent, hinge on the voluntary cooperation and solidarity among companies, workers, banks, the self-employed and the health services.

Getting over this crisis will need not only an all-of-government but also an all-of-society effort.

Singapore can come through it. And then we can look back and say, that was what resilience was about.

Read Mr Heng's full speech here.

 
A version of this article appeared in the print edition of The Straits Times on March 27, 2020, with the headline 'A budget beyond extraordinary'. Print Edition | Subscribe