Reform Party notes the announcement by the Ministry of Trade and Industry (MTI) on 14 April 2014 that advance estimates of Singapore’s GDP growth during Q1 2014 show the economy’s quarterly growth rate slowing to just 0.1% at an annualized rate.
However this does not tell the full story, as it was only growth in manufacturing and construction that kept the growth rate from slipping into negative territory. Manufacturing grew at an annualized quarterly rate of 4.5%, down from a growth rate of 10.4% in the preceding quarter. Only the construction sector expanded at a faster rate, growing at a quarterly annualized rate of 10.7% compared to 1.4% in the previous quarter. Services, which account for two-thirds of the economy, contracted at an annualized quarterly rate of 1.8% as compared to the 6.1% expansion in the preceding quarter.
Reform Party expects the external environment to deteriorate further in the course of this year due to a continued slowdown in Chinese and US growth. This will be exacerbated by the misguided efforts by several of the major global economies to simultaneously achieve greater government savings through a reduction in budget deficits or increases in surpluses and an improvement in their external position by running a higher current account surplus. In aggregate this is just likely to worsen a global slowdown in growth rates that has already taken hold.
We therefore anticipate, in the absence of government intervention, Singapore’s growth prospects to worsen over the course of the year and the contraction in our services sector to accelerate. While the government is offsetting some of the slowdown through public sector construction activity, most of this spending goes to foreign companies that largely employ foreign workers. In addition there is a limit to how much infrastructure spending can increase before the rate of return falls to zero. It may seem a good way of increasing GDP growth
If Reform Party were in government, we would implement a stimulus package of up to 1% of GDP as further measures to offset the slowdown already seen taking hold in the services sector. This would amount to about $2-$3 billion and only be about 10% of the probable real surplus for this year of some $30 billion including investment income and capital receipts. There would thus be no danger of dipping into past reserves. In any case a significant portion of the extra spending would come back to the government in the form of tax receipts, fees and income of GLCs and Stat Boards.
The Reform Party would target lower-income groups, primarily on equity grounds but also on the well-established fact that those on lower incomes spend a higher proportion of their income. Thus money distributed to those on median incomes and below is likely to be more effective in stimulating the economy than if it was given to the better off.
We are hampered by the dearth of statistics that the PAP government makes available as well as the lack of funding for alternative parties. However the Yearbook of Statistics 2013 gives the median monthly income from work, including Employer CPF and share of annual bonuses, in 2012 of full-time employed residents as $3,480 and for those at the 20th percentile as $1740. Monthly income from work per household member in full-time employed resident households using the same criteria was $2,127 and $1020 for the median and the 20th percentile respectively. There were roughly 3.3 million Singapore citizens in 2012.
Reform Party calls on the government to introduce a supplementary budget to provide Singapore citizen household members with a cash payment as follows:
Bottom 20th Percentile $2000
20th-50th Percentile $1000
50th-75th Percentile $ 200
For children below the age of 18, the payment should be made to their chief caregiver, normally their mother.
We estimate the total initial cost of this measure to be less than $2.5 billion but we expect the final cost to be considerably less once the taxes from the additional spending and output generated are taken into account.
The domestic economy is already close to recession if not already in one. Reform Party believes that stimulus measures of this order of magnitude are needed if the economy is not to deteriorate further and we are not to suffer an unnecessary shortfall in terms of output, employment and growth.