My view on Budget 2020

Budget 2020 has to meet two goals. The first goal is to allocate funds for the normal activities during the year. The second goal, which is special for this year, is to provide relief to businesses and households to meet the economic downturn caused by the covid-19 virus.

In his budget speech, the finance minister Heng Swee Keat introduced two packages, with a budget of $5.6 billion, to stabilise the economy, help workers to stay in their jobs, help enterprises with their cash flow and provide timely help to households to meet the cost of living.

I shall not go through all the details of the many “bits and pieces” that contribute to the $5.6 billion.

I agree with many commenters who said that the amounts allocated under several schemes are too small to be of much help.

I shall just mention some of them.

For example, the job support scheme to help enterprises retain local workers provides a subsidy of 8% of wages for three months only. This quantum is too small and too short to be of much help.

There is also a corporate tax rebate of 25%. This does not seem to be of much help to businesses that are not profitable and is struggling to avoid closure.

The one month of rental waiver for stalls rented from the government is another example of a parsimonious approach.
Let me share my ideas on how I would use the $5.6 billion budget to really help the businesses and workers that are badly affected by the economic downturn.

Protect jobs
The businesses that are badly affected by the economic downturn have to cut down their wage cost to match the decline in their revenue.

Most of them have to retrench their workers.

The retrenched workers will not be able to find alternative jobs in a depressed economy.

I suggest that the businesses be encouraged to adopt a different approach.

Instead of laying-off some workers, they should put ask the workers to take no pay leave.

For example, if they have to cut their wage cost by 30%, they should ask all the workers to take no pay leave for 30% of the work week.

To help these workers to meet their monthly expenses, the government can provide a monthly loan to the affected workers to cover the loss of income.

These loans can be administered by the Central Provident Fund and is based on the loss of income as declared by the employer.

Some workers have savings and may not need to avail themselves of this loan. Others may not take the full amount of the loan, as they can reduce the expenses.

The loans will carry an interest rate of 2% per annum and can be repaid in the future, when the economy recovers.

If they are not repaid, the loans can be set-off against the CPF savings at the time of withdrawal or on the sale of a property covered by CPF.

The workers on no-pay leave can use the free time to take up a training course (for which they may receive an allowance), take up part time work, or just take a break. They do not need to worry about the financial impact.

For self employed workers such as taxi drivers, the loan can be set at a certain percent of the average monthly income in normal times.

These measures give the workers a reason to remain confident about the future, as the economic downturn will be short lived. The mood of consumer confidence will be good for the economy.

Reduce rental
Apart from wages, rental represents another important component of the operating expenses of a business.

The government can encourage by landlords to reduce the rental of the business premises to help the tenants to tide over this difficult period. This encouragement can take the form of a cash subsidy for 50% of the reduced rental.

The landlords will be happy to do their part to help their tenants to get over the difficult period, as half of the cost is shared by the government. It is better than having no rental from tenants that have closed their business.
This 50% subsidy can also be given to stall holders and taxi drivers who have to pay a rental for their taxis.

Providing cash flow
Many businesses may need assistance on their cash flow.

The government can help them to get the financing from the banks by guaranteeing the loans that they have to take during this period.

The loans will be capped at the amount of the monthly rental and the wage bill. It does not cover the other financial needs of the company.

The banks will be willing to grant the loans at competitive rates, as they do not have to face the credit risk.

How much will these measures cost?
The measures that I have suggested are for the duration of the economic downturn.

They can start now and continue for a year or two, until the economy recovers.

The actual cost to the government is the rental subsidy and the future write-offs of the loans from workers and businesses that are not repaid.

I do not know the actual amount, but I estimate that the budget of $5.6 billion would be sufficient to meet the actual cost.

The government can monitor the actual loans and the rental subsidy that are granted monthly and see the progress. For the purpose of budgeting, they may assume that 20% of the loans may eventually have to be written off.

My suggested schemes also have some self control mechanisms to prevent abuse.

The government will need to engage auditors to check on these loans and subsidies, but the abuse is likely to be small.

 

Anon

 

 

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2 Responses to “My view on Budget 2020”

  • Good Start, Anon:

    Don’t want to lose a sincere writer. Still hoping you write an even better article with better economic research & pragmatism. So take heart. BUT please don’t go the way of Tan Kin Lian. He… NO HOPE!!!

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  • Anon is famous:

    Famous writers develop a unique style and a set of ideas.
    This anon is clearly someone with aims at the highest office.

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