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PAP Government Doesn’t Understand Economics

On November 27 the Public Service Division (PSD) announced that Singapore’s 85,000 civil servants will not receive any year-end bonus this year . This followed the cancellation of the mid-year bonus which was blamed on the economic fallout from the Coronavirus pandemic.

This may sound like common sense to many Singaporeans but to an economist this makes no sense. The economy has suffered a massive exogenous shock to demand as tourism has dwindled to zero and global trade has fallen sharply, though it is now starting to recover. It is true the Government has provided a lot of support to the corporate sector (of which it owns a majority share) and rather less to the average Singaporean.

I pointed out back in June (Fake News Alert!: Why Both Kate Spade Influencer Tin Pei Ling and Her Boss Heng Swee Keat Are Talking Cock) that when Ms Tin Pei Ling claimed that the Government had spent $93 billion supporting Singaporeans this was false. I worked out that it was more like $44 billion and that a majority of this was probably passed passed from one pocket to another as it was paid out to Government-owned entities or property tax rebates benefiting the Government as the biggest landlord. Rather less has been provided to the ordinary Singaporean. In fact I calculated there that Government direct support to Singaporeans amounted to about $2.5 billion which when divided among 4 million residents (citizens and PRs) amounted to about $620. It has been increased since then and now the Government estimates that its Care and Support Package will cost $4.6 billion in total. But that is still only slightly more than $1,000 per resident.

Cutting back on cash payments to individuals (of which 25% comes back to the Government through CPF) when demand has fallen off a cliff does not make sense to anyone who knows anything about Economics. The challenge is to stop businesses going bust and laying off more workers which will cut demand even further and send the economy into a death spiral. Singapore has no pre-existing income stabilisers in the form of unemployment insurance or income support measures unlike most Western economies, including the US. There are three reasons why the Government has done this:

(1) It does not understand Economics. This certainly seems true of Heng Swee Keat who studied Economics with me at Cambridge though he only got a second class degree. He has talked about raising taxes once Covid is over to rebuild the Government’s stock of foreign assets. This would likely be disastrous in the absence of a recovery in global trade and tourism.

(2) It is still wedded to the mercantilist view that domestic consumption is bad and that only investment and exports are good. Subsidising wages is equivalent to an export subsidy (it allows exporters to sell their goods more cheaply) as well as being bad for productivity and likely running foul of attempts by the US to curb export subsidies.

(3) The Government does not want to be seen being generous to civil servants when so many Singaporeans have lost their jobs and the incomes of the self-employed like private hire and taxi drivers have declined so much.

Both (1) and (2) are examples of bad economics, or what has been called Zombie Economics. (3) is like cutting off your nose to spite your face. Instead of stopping the bonus payment to civil servants the Government should instead be making similar payments to all Singaporeans, just as Heng did with the $300 payments under the Care and Support Package and the US Government did with its more substantial Economic Impact Payment of US$2,400 per couple and $500 per child.

The Government is not a mama shop. Instead of cutting back to save money it needs to spend more, even more than it is doing now. Longer term we should be thinking about paying the Net Investment Returns Contributions directly to citizens as a form of Guaranteed Minimum Income rather than the shell games that Heng and Tharman before him play at Budget time, moving money from one silo to another so that it is saved and not spent.

 

 

Kenneth Jeyaretnam

* The author blogs at https://kenjeyaretnam.com/

 

 

 

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15 Responses to “PAP Government Doesn’t Understand Economics”

  • Wonder:

    “Longer term we should be thinking about paying the Net Investment Returns Contributions directly to citizens as a form of Guaranteed Minimum Income rather than the shell games that Heng and Tharman before him play at Budget time, moving money from one silo to another so that it is saved and not spent.”

    Suspect these are just bookkeeping “moving” money from one fund to another fund. The real money/asset stays with the same entity.

    e.g. moved from GIC to Fund X, and Fund X invested the money with GIC bond.

    This is just like our CPF money. The yearly interest is “paid” to CPF by just issuing more special bonds.

    Nice eh? If you are the fund manager. Real money coming in every year at the rate of billions and billions, and nothing going back.

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  • eCONomix:

    Two thieves only steal through different doors to a house.

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  • PAP CLOSE DOWN:

    When govts shut down businesses and forbid people to work, people must realise:

    1) The financial handouts are the most a few times only.
    2) Govts won’t be paying your monthly bills, housing loans etc.
    3) They won’t be paying you for salary lost.

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  • oxygen:

    @ Kenneth Jeyaretnam & @ Wonder

    Thank you KJ for the economic lecture and thank you both for the lecture on what financial accountants called “hollow log’ accounting practice which the Net Investment Returns Contributions is a good example/illumination.

    K. Jeyaretnam: Longer term we should be thinking about paying the Net Investment Returns Contributions directly to citizens as a form of Guaranteed Minimum Income rather than the shell games that Heng and Tharman before him play at Budget time, moving money from one silo to another so that it is saved and not spent

    and

    Wonder: Suspect these are just bookkeeping “moving” money from one fund to another fund. The real money/asset stays with the same entity.

    e.g. moved from GIC to Fund X, and Fund X invested the money with GIC bond.

    This is just like our CPF money. The yearly interest is “paid” to CPF by just issuing more special bonds.

    Nice eh? If you are the fund manager. Real money coming in every year at the rate of billions and billions, and nothing going back

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  • Little help:

    Many of the private business and individual get very little help during this Covid crisis…especially those that fell between the cracks of various support scheme.
    Many business were destroy and job loss. The negative effect will be long lasting.
    Some don’t even get the $500 pm assistance to survive.
    Too many stupid rules and requirements to make it difficult to get any meaningful help for those in need.
    Actually Government should have done more to help to promote local consumption at this time as external trade or tourism related business is badly hit.
    This will help some business to survive and jobs saved.

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  • Papeconomics is cultic ...:

    The Government is not a mama shop. Therefore, it should neither be secretive in its management accounting of citizen savings nor the amounts of rewards and remunerations it metes out to its own (party) members. Even if Lee Kuan Yew says so, that doesn’t make it right nor proper with respects to social ethics. And we recall that nobody has a monopoly on morality nor compassion.

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  • Tightening Belt:

    This may sound like common sense to many Singaporeans but to an economist this makes no sense. The economy has suffered a massive exogenous shock to demand as tourism has dwindled to zero and global trade has fallen sharply, though it is now starting to recover.

    I am one of those affected civil servants. Find myself becoming more prudent in spending now.

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  • AristoCATs - Peasy ?:

    > PAP government doesn’t understand economics . . .
    -
    But but . . .

    2013 Mr Pink initiatives -
    * Start OpenGate
    * Persuade 10 more Billionaires to SG to create new jobs.

    Easy peasy . . .
    -
    Does one really need economics?

    61% approved?
    -
    More should know the Power of the Ballot Box !

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  • NotFreeRider:

    To the government, economics consists of:
    1) importing cheap foreign labour to keep business costs down
    2) spend on needless glory projects like T5 and Jewel to bump up GDP and own bonuses
    3) use cost recovery method to charge citizens full price for public goods and services (HDB flats, utilities, etc) [Kenneth, pls write on this]

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  • xoxo:

    Agreed 100 %!
    PAPple onLEE understand eCONomic$!
    They apply eCONomic$ to CON the common sgs.

    Always giving CRAPPY REASONS to SUCK common sgs ,including their CPF,and even LOOTING * untouchable* RESERVES by the Hundred of Billion$ to save jobs for FTs who stole our jobs.

    PAPynomic$ is based on the THEORY OF ABUSING DAFT SGS TO SERVE THE INTERESTS OF PAPple and their PET PUPPIE$ and some dummies they imported and called FTs?

    PAP IS CRAP NOWADAYS unlike the 1G whom i respect.
    Dr Goh,PHD LSE,and others They understood what Economics was all about and helped make our lives better; from HAWKERS’ SONS to PROFESSIONALS like bankers and accountants,lawyers and doctors.
    Nowadays,The PAPple tell you to leave bank jobs,law jobs,accounting jobs etc to their FTs and tell you to become HAWKERS?

    So,you see,from hawkers to professionals back to your great-great grandfathers’ job as hawkers?

    Very crever one!

    *MEE-SIAM MAI HUM*,anyone???

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  • Harder Truths:

    Kenneth

    The government and its ministers understand economics perfectly. Just look at their millionaire salaries, Riviera lifestyles and no accountability. They know what they want, how to get it, and how to keep us paying for it.

    If that is not good economics, I don;t know what is.

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  • Jman:

    Mr Jeyaretnam, this is such a sweeping and unjustified statement.

    The overall strategy is appropriate. There is no way we can afford to consume in the way the British and Europeans and Americans do. There is precious little room for that. This idea of consumption, kicking the can down the road, is something the Americans can do now because people still use the USD as the global reserve currency. The EU and British can still borrow and borrow. We should not and must not go down that path. Don’t copy and paste that western logic over here.

    It is exceedingly condescending and distasteful of you to mock HSK for having earned a second class degree. Shame on you for this comment.

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  • Heng Lan Jeow:

    The funny thing is the Executioners think we so stupid can be fooled.

    An executioner when asked why he execute people. He says oh, just doing my job. Following orders .

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  • Alamak Jman come on lah.....:

    Singapore Incorporated’s gross debt as of 8.15pm tonight still climbing…..

    S$ 755,094,560,000

    In Singapore’s case, she borrows to invest, not to spend. Singapore remains a net creditor. But how about they borrowing from sheeples CPF savings?

    Read more at: https://commodity.com/data/singapore/debt-clock/

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  • WP Voter:

    What do public servants deserve a bonus which is not performance-related? The government collects taxes and spends money. There is no economic activity here.

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