Takeaway from Singapore Budget 2009

After posting the summary of the Singapore Budget 2009 here, it was easy to see what is the government is trying to do during this severe recession.

In my opinion, this is what they are trying to do:

1. Preventing job losses by partially subsidizing the employees' pay, and encouraging the employers to send those employees for retraining under SPURS.
   
   
2. Encouraging employers to pay CPF to their employees as this is the only way they are going to get the subsidy. This relief I believe is targeted to Singaporeans and PR.
   
   
3. Helping the businesses to stay afloat by reducing their taxation
   
   
4. Encouraging more businesses to set up shop in Singapore by introducing some new funds.
   
   
5. Increasing rebates to Singaporeans and encouraging Singaporeans to donate more to charities if possible.
   
   
6. Providing some jobs by investing in certain sectors.

This budget is not about rejuvenating the economy. Instead, it's all about lessening the blow of the recession until demand recovers. The problem is ... ... Will demand recover?

Many analysts are predicting a V-shape recovery for Singapore, but I am less optimistic than them. The world is largely dependent on U.K. and the USA for most of the demand for goods, and I do include China and India too. However, I can see from the signs that U.K. and U.S.A is not going to recover anytime soon. Their banks are too over-leveraged, and the excesses are not exactly drained out as of now. Not only that, their citizens finally realised that they should be saving more. The USA household saving rates might be up by at least 1% compared to 2008. In fact based on data from OECD, almost every country is upping their household savings rate. The only reason I felt that the world's economy was expanding at such a rapid pace previously was because of over-leveraging.

If everyone is saving more, where is the demand for goods? The answer is none. So why is everyone predicting that the economy is going to pickup late 2009? That is because of history. They have their eyes on the average recession period, but not on what's happening around the world. Currently, I did see a glimmer of hope from the insurance for toxic assets that Britain is introducing. Other than that, I've not seen any innovative solution that can get us out of this mess. Demand improving late 2009? Highly unlikely. In fact, my view has not changed that this recession might even match the great depression.

One should not also forget that in some countries, the population is shrinking. Economic growth is also based on the fundamental concept of increasing population. So when the population shrinks instead of increasing, it doesn't take a rocket scientist to predict a lowering of demand.

Granted, the government can do nothing about Singapore's recession. Singapore is too dependent on the outside world. In fact, sometimes even Singaporeans wonder how come foreigners are treated better than the citizens. What's the advantage of being a Singaporean? We have no minimal pay, government is always pro-business rather than pro-citizens, and we have a lot of other taxes even though our income tax is one of the lowest in the world. In Hong Kong, they even have 1 brokerage refunding the money for all the investors affected by the downfall of Lehman. In Singapore?? The only response was "Please read carefully before signing anything". There will most likely be a off-budget stimuls, and it will come several times. Looks like the reserves finally came in handy.

The only hope I see for Singapore, and Asia, is that somehow Asia could band together and initiate a joint stimulus, while at the same time opening up the trade borders with each other to excite the flow of goods and services. This may provide some demand stimulation that will circulate within Asia itself, and hopefully generate some sustainable demand internally, instead of always relying on U.S.A and U.K. We should no longer rely on demand from U.S.A and U.K.

A dream?