Budget Basics

Let's talk about first principles. What exactly is the Budget about? :-) This may sound like a completely obvious question, but it seems to the KTM from reading blogs that some people have no idea, so let's settle this issue before we talk about complicated concepts.

One of the biggest roles that any Government in the world has is the job or allocating State revenue from various sources --- taxes (all kinds), sale of State land, and in the case of Singapore, investment income from the reserves, yada yada. Whatever. There is some cash inflow each year and everything goes into this ginormous petty cash fund called the Consol Fund.

Once the allocation is done at Budget, the various Ministries will then take their share to spend and do their thing, whatever they are supposed to do lah. What's important to realize is that given this view of the word, does it really make sense to say that "we are increasing GST to fund dunno what social spending"? Is this statement wrong? Not really either lah, but at a very fundamental level, the increase in GST is really just to "balance the Budget", i.e. to pay for things. :-P Money is money lah. Money from GST doesn't come with a special "GST label". Or does it (maybe the KTM is confused)? :-)

Budget Good or Bad?

Next, people like to talk about the Budget being good or bad. Given that the Budget is all about allocating money, what makes it good or bad?

While it is true that people dun eat bullets or tank shells, does it thereby mean that it is "bad" to give money to Mindef? Actually hor, people like CASH, so isn't it better to just give out cash to the citizens? Yeah, citizens only. Non-citizens get squat, so that we can say in no uncertain terms that Singaporean citizenship is valuable. :-)

Alright, the KTM wasn't serious in the previous paragraph, but there are two points that the KTM wishes to highlight: (i) there are many competing demands for the money, and it's not like if the money is not spent on the poor or homeless, then it's "bad"; and (ii) "good or bad" depends on one's values. Some will say that good or bad depends on how much one benefits from the allocation (the KTM is actually quite irritated by the people who are asking from more money, esp. the scrapping of estate duty. :-P). The KTM will ignore this "fact" and prefers to focus on the apparent merits of a given Budget allocation from a neutral perspective: suppose we look at the Budget as a foreign economist, what can we say about the allocation?

Budget is quite Ingenuous

After looking at the numbers, the KTM might admit that the Budget is quite ingenuous in a certain sense: it's very confusing --- and strangely enough no one has any right to complain 'cos they don't really have a case to argue that they are worse off compared to last year(!). :-P And the reason, it seems to the KTM, is that the Government has carefully balanced everything so that they "give back" every cent they "take away", and everyone is pretty much where they were back last year. :-P

Does it mean that the Budget is therefore "bad" since people dun get more? People please get real. As mentioned above, the only way to have a "better" Budget conclusively is to have a BIGGER Budget. Otherwise, things are never clear cut.

So you think that firms benefit from lower corporate taxes? Perhaps you forgot that they have to pay extra 1.5% CPF?

So you think that the rich benefit from lower income and corporate taxes? Well, their tai tais now get taxed for buying their Prada bags. :-P

So the middle class get squeezed by the GST? Well, they get their dunno what rebates and lower road taxes?

Are the poor "crushed" by the GST? Alamak, they more than get back whatever they pay out in GST. Obviously so, since if not the Opposition would have have scrutinized the numbers and said something. :-P What about the criticisms that the reliefs are temporary and will last only 4 years? Cheh, people please remember what happens in 4 years' time hor. At the rate we are going, there will be another one of those big ang baos (what do they call it again? Progress Package huh? Orh... KTM must remember to sign up for his share when the time comes too.). Hiaz.

So what's going on? Government giveth, Government taketh away and everyone is back to square one. :-) This is called a "good Budget"? Welcome to Singapore. :-P

Okay, it's not so simple lah. First, some credit must be given to MOF for the precise engineering that it has done, so that strangely enough, at the end of all these apparent massives changes in tax policies (all over the place), everyone is back in the same place (and the poor is marginally better off). Fundamentally, what seems to have happened over the past week is that we have seen a change the underlying taxation structure to another manifestation that has a larger component of indirect taxation(!).

Is that a good or bad thing? Die die better be a good thing -- otherwise the Government must be very stupid to have gone through all that trouble for nothing. It seems to the KTM that the underlying strategy here is that given the restructuring of the taxation system, the economy will be stimulated to grow for the next 4 years and magically, even though "new regime" doesn't actually produce more cash upfront, revenues will grow in 4 years' time (so that the ruling party has the money to address the Opposition's accusations that the GST reliefs are temporary). What if the ruling party is wrong? Then suck thumb and deal accordingly loh. Since when life has any guarantees? Note however that the KTM is only speculating here. He is just trying to explain what he is seeing. There could be other explanations for what's happening and the KTM would be happy to learn about what others think.

One innovation: Workfare

The KTM would like to say something about the introduction of workfare. While the KTM had some reservations about workfare before, he has become somewhat of a fan in recent times after thinking about it more seriously. The implementation of the scheme is still up for debate, but the merits, in principle, are convincing (at least to the KTM).

The claims that workfare is welfare are actually false in the KTM's view. While the income of the lower-skilled workers may experience a slight jump at the onset, in the long term, the water will find its level and the employers will figure out how to pay less given that the Government is subsidizing the wages of the lower income folks (or maybe the KTM is unfair to characterize the employers as such, but this claim has nothing to do with the employers. It simply follows the law of economics).

What good is workfare if it cannot lead to higher wages for our workers in the long term? The key is to recognize that what workfare actually does is to act as a sort of "negative local worker levy". One of the main complaints of the local workers is that because the foreign workers are willing to accept lower wages, they find it hard to compete. Workfare helps to mitigate this problem (Mitigate hor, not solve, so people please also dun get overly excited :-P). In addition, while people claim that it does nothing for the unemployed. They are actually wrong. Making Singaporean workers cheaper to hire will help the unemployed find jobs in the long term.

While workfare sounds so wonderful, what's the catch? Is there one? Of course lah, no free lunch mah(!). :-P There's a price tag of $400 million lah! And we actually dunno whether $400 million is enough (or the KTM is guessing..... maybe MOM or MOF is wiser than the KTM and knows the $400 million is definitely enough). :-P The devil is in the details lah. It all depends on how much each individual gets and whether the change is sufficient to truly make lower-skilled Singaporeans more competitive relative to foreign workers in terms of cost.

From the perspective of public policy, it is quite an innovation. Okay, it's "Not Invented Here (in Singapore)" (some other countries already have something similar for a while and the question is why we are slow...). But then, better late than never -- and it's not always best to be the first to try new "innovative" public policies. Some policies are dumb and it's not a bad idea for other countries to make the mistake (instead of us!). :-P Dun have to be so ultra-kiasu and try to be first in everything one.

Cut to the Chase, is the Budget Good or Bad??? :-P

Truthfully, the KTM still does not know whether the Budget is good or bad. :-( It's still full of questions and the following are some of the questions that remain unresolved (at least in the KTM's mind).

1. What's exactly is this deal with indirect taxation? There are a lot of textbook answers on why indirect taxation is superior to direct taxation. Problem with most of those examples is that they are applied on "Western" case studies. The KTM is not convinced that the reasons are very good (or applicable to the Singapore context). The KTM would appreciate if some one will stand up and explain in good economic terms why the new taxation structure is expected to benefit the economy in the long term (taking into account the structural idiosyncracies of the Singaporean economy). Okay, there is this thing about consumption taxes being more "stable and predictable", compared to say land sales.... but is that enough to justify the massive economic/financial engineering?

2. Competition from Hong Kong? Then there are these claims that we are competing with Hong Kong. Perhaps it may be true in the past. Is it still true moving forward? The KTM's understanding is that the structure of the Hong Kong economy is very different from Singapore's today, even though we were quite similar in the 70's. The KTM has heard that it is apparently difficult to hire a good English-speaking secretary in Hong Kong... Do two cities with significantly different structures compete directly (at least in terms of corporate taxes)? Many MNCs are in Hong Kong because of the booming China economy. Because we cannot compete with Hong Kong in terms of proximity to China, there is no competition for these MNCs.

3. How are we going to cope with 6.5 million people? It was recently announced that we have plans to allow the population to balloon to 6.5 million in 20 years. Estimated rate (based on hearsay) is 100,000 extra bodies a year. How does the Budget help Singaporeans cope with this new reality of life? Does it?

4. How many bullets (or Leopard tanks) should we continue to buy? While the KTM will unabashedly claim to be a supporter of NS (and risk getting lynched by other male Singaporeans), the KTM does not understand why the defence budget continues to have to be so large. Note that the KTM is not saying that the current budget is excessive (or proposing to slaughter the sacred cow). He is only trying to understand WHY we need so many bullets (or Leopard tanks), i.e., UNDERSTAND the sacred cow. :-P Eh, it's $10.6 billion leh. Is it too much to ask for Mindef to open its golden mouth once a year??

Too many questions, too few answers --- but the Budget doesn't really have to be about answers either. The KTM would be quite happy to learn that while there may not be good answers to some questions, questions pertinent to our long-term socio-economic welfare are being debated in Parliament.

Conclusion

The KTM hopes that the PAP MPs will wake up and ask some good questions. If they are incapable of asking good questions, Singaporeans please then wake up and vote in another fella(s) (next better player) at the next GE.

Is the KTM suggesting that Opposition MPs can ask better questions? Not really lah, but if some of the present ones (PAP or otherwise) demonstrate in no uncertain terms that they are clearly inept, the ruling party better go and swap some of them out. If not, then perhaps we can afford to give others a chance for their day in Parliament. If equally lau pok how? Nevermind hor, we can always try again the following GE. Maybe we can have PAP and the Opposition do musical chairs for the back benches until we settle on some Tan Soo Khoon's (the KTM was quite disappointed that he decided to step down). The KTM is not a fan of cheerleading... In any case, $14K p.m. for cheerleading is a bit pricey don't we think? As long as these fellas earn their part-time pay, the KTM can actually live with the $14K. :-)

[Disclaimer: the KTM took a really long CNY vacation and his kway teow all got chow tarred when he got back. Currently the KTM is busy cleaning up his KT stall and doesn't think that he has time to respond individually to the comments that will be left on this entry for a while. Readers are welcome to slug it out among themselves in the KTM's absence.]