Budget 2.0: Economists favour job-saving aid over direct cash handouts

Singapore

IN the US, there is talk of cheques to households at S$1,200 per adult; in Hong Kong, a handout of HK$10,000 (S$1,850) apiece has already been announced.

While the Covid-19 outbreak shreds markets worldwide, several economies are gearing up to hand cash to residents who are bracing for a looming recession.

But such a strategy may not be palatable in Singapore, analysts told The Business Times. They spoke ahead of the second support package that Deputy Prime Minister Heng Swee Keat will unveil on Thursday, just weeks after the Budget on Feb 18.

These analysts think that, while household relief is inevitable, it may focus more on at-risk segments.

Help for individuals could also play second fiddle to business support measures aimed at saving jobs.

The February Budget had included a one-off cash payout of S$100 to S$300 for all adult Singaporeans.

"The amount, based on feedback, may not be enough; and I think the government will top it up in the second package," DBS senior economist Irvin Seah told BT. "There could be some sort of unemployment support."

But the tactic of giving money to every household would be "a blunt approach", said Foo Maw Der, a professor of entrepreneurship at Nanyang Technological University's Nanyang Business School.

For some households, the sum may not be enough to solve their financial difficulties. Other families may not need a handout, he said.

And there is no certainty that cash in the hands of consumers will be enough to kick-start the economy.

National University of Singapore professor Sumit Agarwal, who has studied the spending habits of Silver Support Scheme beneficiaries, said 80 cents to 90 cents of every dollar in "positive income shock" could return in staple purchases such as food. The scheme gives cash to the bottom 20 per cent of citizens aged 65 and up.

But he added that a meaningful boost to Singapore's economy would require a huge injection of cash.

"What you want to see is a consumption response by the people, and you want to see a big response," he said. "We need a significant fraction of the GDP to make that change."

Meanwhile, safe distancing practices are also likely to get in the way of a spending boost, Mr Seah told BT.

"If we are going to encourage people to stay at home, I think that will dilute the effectiveness of pumping in liquidity to stimulate domestic consumption... Singapore is not a domestic-driven economy anyway."

Maybank Kim Eng senior economist Chua Hak Bin added: "Handouts to households will generally have less of an economic and multiplier impact when they are staying home and cutting back on discretionary spending."

But, even with Singapore's famed headroom, Mr Seah also called for fiscal prudence with the stimulus.

He pointed out that this year's Budget already carries a basic deficit before funds from the net investment returns contribution (NIRC) are added to the scales. This year's basic deficit is tipped to come in at S$12.3 billion.

"While the NIRC is a strong and important contributor to our fiscal position, it is subject to market conditions, so when the market is down, you can expect the number to fall," he warned.

The NIRC includes some actual income from past reserves, plus part of the long-term expected real returns on some government assets.

"The minimum income measures introduced by some of the developed economies may not be applicable to Singapore. They are essentially funded by debt, which would be passing the burden to future generations," said Mr Seah. He thus prefers a targeted approach that would put part of the responsibility on companies.

Some employers might wash their hands of the need to protect jobs if they think that workers could still get bailed out, he warned. "If there is liquidity, it should be directed at the corporates," he added, citing ongoing plans for working capital and temporary bridging loans to companies.

But he stressed that distribution must be "immediate". There had been some gripes that wage offsets under Budget 2020's Jobs Support Scheme could come as late as end-July.

Meanwhile, Dr Chua told BT that "a targeted approach would be more effective than a blanket handout to households". He advocated prioritising companies "with severe cash flow problems", in troubled sectors, such as aviation and retail.

He pointed to Australia's A$66.4 billion (S$56 billion) second stimulus package. More than a third of that will go towards higher wage subsidies for small businesses, although there are also one-off and fortnightly payouts to social welfare scheme beneficiaries such as job seekers and seniors.

Rather than a payout to everyone, Dr Chua maintained: "Help should be targeted at gig workers and those who have recently lost their jobs because of the Covid-19 outbreak."

Still, labour economist and Nominated MP Walter Theseira is one watcher pushing for direct cash aid.

"There is now a substantial risk that it will simply not be economically viable to keep some firms afloat until the recovery," he said, saying that cash transfers could go straight to self-employed and gig workers.

As means-testing takes time, a payment delay, or ineligibility until family breadwinners are laid off "could be too late for some households". But a clawback mechanism would avoid this pitfall, while also providing for wealthier households that fall on hard times, Prof Theseira suggested.

He proposed direct payments to all, followed by temporary, targeted higher taxes on higher wage earners, to be paid when the crisis is over.