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FOR Singapore's business community, one of the highlights of Prime Minister Lee Hsien Loong's annual National Day Rally speech last Sunday was the revelation that the government's economic stimulus package, which has been in force since March, will be reviewed by the end of this year.
The $20.5 billion package, which was announced in the Budget, during the depths of the global recession, was among the most generous in Singapore's history. With an incipient economic recovery now underway, a review of the package is clearly in order.
The big question, of course, is: which elements should be continued, which (if any) should be axed, and which amended?
It is hard to make the case for the package to be withdrawn in toto. The economic recovery is in its infancy and there is much uncertainty as to its strength and durability. There is thus a compelling case to keep in place at least some elements of the package. And companies should get 3-6 months' notice of any changes, so that they have time to adjust.
One of the biggest elements of the package, and the most popular, is the Jobs Credit scheme, under which companies get a 12 per cent cash grant on the first $2,500 of each month's wages for every employee on their CPF payroll.
This has no doubt helped keep employment levels higher than they would otherwise be and probably kept several companies afloat. As a drastic measure in a deep recession, it was extremely effective. However, maintaining the Jobs Credit scheme at current levels is problematic. First, it is expensive, with a price tag of $4.5 billion a year. Second, as an untargeted scheme, it involves waste; every company that pays CPF is eligible, whether or not it is profitable or faces cash flow problems. Third, the scheme can mask the true situation in a company and thereby delay needed restructuring; there may be some companies that are actually uncompetitive but are kept artificially afloat by the scheme.
Removing the subsidy would enable resources, including workers, to be shifted to where they would be more efficiently used - for example, to where new jobs are being created, like the integrated resorts (IRs) and other areas of the services sector. The government's training programmes - another element of the stimulus package, and which could be expanded - will prove particularly valuable here, helping to match workers with jobs.
No doubt, some companies will be hard hit by the phasing out of the Jobs Credit scheme. But many of them can avail of other schemes under the government's Special Risk-Sharing Initiative (SRI), whereby the government bears most of the risk on bank loans - which should be maintained even if the government's risk share is reduced.
These are some of the options worth considering as the Singapore economy makes the transition from recession to recovery.
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