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.