By Shamim Adam
Jan. 22 (Bloomberg) -- Singapore, suffering its deepest recession since independence, will probably announce record spending in its budget today to help companies hurt by the global slowdown and preserve jobs.
Finance Minister Tharman Shanmugaratnam may outlay as much as S$20 billion ($13.3 billion), or 8 percent of gross domestic product, to alleviate the effects of the slump on households and businesses, economists predict. The government may also say it plans to tap into its reserves for the first time to fund its expenditure plans.
Companies in export-dependent Singapore including Creative Technology Ltd. are firing workers as demand for goods and services ebb. More than 10,000 people were retrenched last year and a worsening economy may result in job losses tripling in 2009, reaching numbers not seen since the Asian financial crisis a decade ago, the government said.
“Singapore will not be able to spend its way out of the recession but that’s not going to stop it from trying,” said Vishnu Varathan, an economist at Forecast Singapore Pte. “The government’s strong budget surplus position over the years leaves it in good stead to dig in deep to cushion the economy.”
Singapore’s economy may contract as much as 5 percent this year, after growing 1.2 percent in 2008, the trade ministry said yesterday in the second reduction in its 2009 GDP forecast in less than three weeks. The government said the nation may experience deflation this year, with consumer prices falling as much as 1 percent or staying unchanged.
Global Recession
Asia’s export-driven economies have pledged more than $670 billion in extra public spending over the next five years as demand for their products diminishes amid recessions in the U.S., Japan and Europe.
Malaysia is planning a second economic stimulus package after unveiling a 7 billion-ringgit ($1.9 billion) plan in November, Deputy Prime Minister Najib Razak said this week. China’s Premier Wen Jiabao pledged this month to increase a 4- trillion yuan ($585 billion) stimulus package to create employment and support industries.
The size of Singapore’s budget today will probably overshadow the amounts it spent to fight recessions in the past decade. In the 2001 slump, when the economy shrank 2.4 percent, the government rolled out S$13.5 billion in cuts and rebates on personal, corporate and property taxes and sped up public works.
It spent S$12.5 billion in 1998 to pull the economy out of the Asian financial crisis. Last year, as inflation climbed to a 26-year high, Singapore unveiled more than S$5.6 billion in cash payouts, utility rebates and special funds to help the poor.
Help for Companies
Businesses are struggling with rental and wage bills amid falling sales, prompting Prime Minister Lee Hsien Loong last month to promise help for companies in today’s budget. The government in November announced plans to extend more loans to local firms and spend S$600 million over the next two years on worker training programs to prevent job losses.
The manpower ministry this week said a deeper slowdown may result in up to 30,000 people losing their jobs in 2009, while Credit Suisse Group predicts as many as 300,000 positions may be shed by the end of 2010.
The government will probably avoid cutting the amount an employer pays into workers’ mandatory pension funds, economists said. Employers now pay up to 14.5 percent of a worker’s wage, while employees contribute as much as a fifth of their salary to the Central Provident Fund. The rate was last reduced in 2003.
‘Costly Exercise’
Tax cuts for companies such as CapitaLand Ltd. are also unlikely after the government reduced corporate rates by 2 percentage points to 18 percent in 2007, most economists say. Singapore has shaved eight points off the corporate tax rate since 2000.
“The government may want to save some bullets for later use,” said Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore. “Cuts in corporate or even personal income tax would be a costly exercise. The official coffer will require every ounce of tax revenue it can gather to finance the expansionary fiscal policy.”
Measures to help citizens survive the recession may include more than S$7.5 billion of cash handouts, tax and utility rebates, said Selena Ling, head of treasury research at Oversea- Chinese Banking Corp. in Singapore.
The deficit in the fiscal year ending March 31 may exceed S$2.4 billion, or three times initial projections, Finance Minister Shanmugaratnam has said. Economists are predicting the following year’s shortfall to be anywhere between S$2.5 billion and S$10 billion.
The government may consider dipping into the country’s financial reserves to fund its spending programs this time around, after refraining from doing so when it ran budget deficits previously, Senior Minister Goh Chok Tong said Jan. 18. The assets have been “painstakingly accumulated” and shouldn’t be squandered on wasteful programs, Goh told parliament in 1999.
The funds include $174 billion of official international reserve assets held by the central bank and more than $100 billion managed by Government of Singapore Investment Corp.
“The reserves are for a rainy day,” Goh said Jan. 18. “If this is not a rainy day, I don’t know what is.”
To contact the reporter on this story: Shamim Adam in Singapore sadam2@bloomberg.net
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