The political character of the SDP Shadow Budget 2011

After a through reading of the SDP Shadow Budget, I have expanded on my earlier thoughts.:

It contains numerous contradictions

This is best illustrated by the conflict between A14 and C11

A14 justifies the breakup of GIC and Temasek by explaining the logic against government intervention in economic planning:

“Co-opting successful entrepreneurs into state-mandated committees is counter-productive because, governed by the internal logic of the establishment, they become hidebound by the culture of conservatism, hierarchies, and ministerial edict and become reified(sic), unable to identify the trends and patterns of consumer behaviour.”

Yet, C11 audaciously goes on to state:

“The government will encourage the establishment of SMEs in the organic foods, environmentally-friendly and eco-friendly products, and ecotourism sectors. These sectors have been selected because they are growing in terms of market share and reflect lifestyle shifts in the nation.”

A prime example of ministerial edict justified via internal logic, no?

And then there is C31:

“The Foreign Worker Levy payable by employers will, instead of being returned to the Government, be divided equally between the employees on Work Permits and the employer.”

Effectively nullifying the existence of the Foreign Worker Levy. Coming straight after C30, which implements a Singaporeans First Policy. It is thus unclear if the SDP shadow budget will actually reduce immigration and foreign workers at all, depending on how strict this Singaporeans First Policy is.

Dramatically expands the role of government into the economy

While the document does expand civil liberties in the social arena, it shows a willingness to intrude into the free market. For example, there is C63, the creation of a minimum wage policy.

Following closely behind is C39, reducing university fees by 50% in public universities for Singaporeans and freezing them until 2015. Along similar lines is C49, freezing public transport fares at 2010 levels till 2015.

These two proposals are in effect price ceilings, which will in the end lead to massive shortages and underprovision of university places and public transport, unless the government steps in with massive subsidies.

And then there is C70:

“A Utilities Commission will be created to implement the return of electricity and water to the public sector. The Commission will determine, upon open and transparent consultation with the public, the utilities rate.”

Definitely a step back for good economics. It seems as though the previous lessons and rhetoric on government waste and inefficiency (exemplified by A14) was totally forgotten.

I am not a budget specialist, but it is quite likely that the spending increases (as per C17), coupled with the lack of similar rises in taxation, will lead to deficits, which will worsen the inflationary pressures in our economy.

All in all, there is a lot for small government conservatives to worry about.

An inherently political document

The SDP uses this budget to advance its own agenda, while pretending that this is in the greater interest. I was very interested to read the justifications behind the repeal of the Political Donations Act and the amendment of the Newspaper Presses and Printing Act.

C12:

“The government will also repeal the Political Donations Act in order to encourage local NGOs to flourish and regional and international NGOs to relocate to Singapore, thus opening up a new economic sector.”

C13:

“Likewise the Newspaper Presses and Printing Act will also be amended to encourage Singapore to become a centre for the international media industry which commands a large source of job creation.”

If you have not realised, these are rather contrived rationales to support their case. There are far better uses of government resources to promote growth than to repeal/amend legislation that have no guaranteed results and at best, just might lead to a little more economic growth. (I challenge anyone to find a developed country that has the media/NGOs form a large fraction of the economy relative to other sectors)

Don’t get me wrong. There are genuine reasons why we should reform the bills above.

But if the SDP wants to do so, then it should campaign transparently its rationales to the public. We do not need more lies or half truths.

What we need is transparency in government, and this does not set a good precedent.

Conclusion

My impression has turned for the worse after reading the entire 26 page document.While there are still good ideas, the entire proposal is not fully thought out and incomplete (e.g. there is a total lack of  Revenue Estimates).

While this is in part understandable: it is not like the SDP had the entire Ministry of Finance to help them draft this budget, this should not diminish the criticism of this proposal.

For if we demand high standards of accountability from the PAP, we should ask for the same from the SDP, what more with its fervent cries for transparency and fairness in government. The release of such a contradictory budget laden with populist sounding measures (all while Mr Chee claims there are none) convinces me that the SDP is just a party of unprincipled hacks that is fundamentally like the PAP. It is unserious and plainly aimed at attaining power.

We deserve better. And we can do better.

A quick reaction to the SDP shadow budget

While the shadow budget released by the SDP is technically not purely a budget (several areas, like amending the Newspapers and Printing Presses Act, are unrelated to the budget), it provides a useful insight into the mindset of the SDP. The efforts taken by the SDP to prepare this budget should be commended, and it marks a step forward for the opposition. It will be interesting to compare this budget against the actual budget released by the Government.

Much however hinges on the details and actual numbers, so until the SDP releases the full document, the analysis below, which is mostly based on what I have read, should be regarded as preliminary.

Good

• Graduated GST: While basic necessities may not form the majority of expenditures in poor households, every bit counts. Furthermore, as necessities form an even smaller part of the average family budget, the impact to the Budget faced by the loss of GST revenue should be minimal. All in all, this stands to be an easy way to make GST less regressive.

• Amend Newspapers and Printing Presses Act: It is quite clear that the government has too much power over the local papers. My only quibble would be that this proposal is better off in a standalone bill.

• CPF liberalisation: Personally, I feel that there should be an option for individuals to withdraw their CPF monies at any point in time, so long as they have at the Minimum Sum in their accounts. However, to prevent abuse in the system, this must be paired up with a provision preventing people from reinvesting their savings into the CPF after they withdraw their funds.

• Including a developmental budget in the MFA: Compared to our military budget, the MFA receives fairly scant attention. Much is made among our neighbours about our large defence spending, something which I view as excessive. In this regard, I am in agreement with the SDP: we should strike a more equal balance between diplomacy and deterrence.

Good, needs refinement

• Family Credits: I support this, but not for the reasons provided by the SDP. Rather, as more and more government aid schemes are developed based on income, the take home pay of the poor on these aid schemes may actually start to fall as their incomes rise, as they receive less aid from multiple programs or are disqualified entirely. This creates the perverse incentive of the poor to remain poor, something that this scheme, by merging all aid programs into one, will prevent.

• Lowering Ministerial salaries: I definitely agree that the salaries of government ministers are excessive. But pegging them to median income only seems misguided. It will only encourage ministers to look at the short term, or worse still, goose up the population with massive giveaways just to push up median incomes.

• Replacing the ISA with an Anti-Terrorism Act: The ISA in its current form is too expansive, but scrapping it entirely seems too extreme. I do not know how the proposed Anti-Terrorism Act looks like, but for now, I would focus on making the process more accountable.

• Reducing defence spending: As stated above, I do find the defence budget too large. Yet simply shaving off billions without identifying what exactly is to be cut is not good policy. As for the related policy of reducing the NSF liability to 1 year and moving to a fully professional army, I think such measures are better off in a public debate, rather than simply rammed through Parliament. The IR disaster should caution all about the limits of politicians.

Bad, could be improved

• Divestment of GIC and Temasek: It should be noted that much of our accumulated CPF savings/ budget surplus are in these entities. While we definitely should be greater private sector involvement in the economy, it need not and should not involve disbanding these highly successful SWFs. For instance, we could just mandate that these SWFs should not hold controlling stakes in Singapore companies.

• Higher government expenditure as a share of GDP: I fear this is a backdoor to runaway spending. More details and justification should be given, backed up by sound analysis. Saying that “some” feel that the current state is encouraging low productivity is not enough. Especially when one considers that private companies tend to be more efficient than government regulation.

Bad

• SG First employment policy: This seems likely to add an unnecessary burden to the thousands of small and medium enterprises that make up the backbone of Singapore, without much effect. For example, would every Singaporean family with a foreign domestic helper be affected? The implementation side needs to be fleshed out, but it doesn’t look good.

• A minimum wage:  A full analysis can be found here, but in short, a minimum wage will lead to wage rigidity, putting more of  those who desperately need money out of work.

• Making HDB a non-profit statutory board: Sounds good, just like what the masses wanted, until one realises that this will probably lead to speculators swooping down to buy cost price HDB flats, and reselling them on the market to make a killing. This will further increase the long queues for HDB flats, preventing those who really need affordable homes from getting them.

• University Fee reform: Cutting university fees by 50% and freezing them till 2015 for locals sounds great to halt the rise in the cost of living, yet it signifies nothing. While large, education is not exactly the main driver of inflation now. Food, transport and fuel are. This smells like a giveaway, and I expect attacks to come from the PAP on this.

There is much to look forward to in this proposal; yet there is also much to fear. I find it hypocritical that while the SDP rails against election goodies, it places similar policies into its budget that are ineffectual at best. Yet there are several interesting ideas that should be explored.

Still, I cannot deny that progress has been made. The preview looks promising.

But numbers don’t lie.

And I shall wait for the numbers.