By ALVIN LIEW
GUEST COMMENTATOR

THE latest Singapore Budget for FY2009 was unprecedented in more ways than one. It exceeded most expectations in terms of size and the radical short-term measures (such as co-sharing the trade financing loan risk by the government with the financial sector). On a more sombre note, the record stimulus package should also brace Singapore households and companies for a very difficult year in 2009 while the government also warned that there is no guarantee of a recovery in 2010.

Although Singapore managed to eke out 1.2 per cent GDP growth in 2008, the economy entered a recession in the second half of last year and Singapore could be staring at the worst year yet in 2009 going by the government's latest forecast for GDP to contract this year by as much as 5 per cent. Singapore's worst year to date was a 3.8 per cent GDP contraction in 1964. Such unprecedented times call for equally extraordinary measures, and the government duly delivered a proposed FY2009 Budget with its 'Resilience Package' to the tune of $20.5 billion and projected a record budget deficit of $8.7 billion or 3.5 per cent of GDP in FY2009 after dipping into the national reserves for $4.9 billion.

The key focus of this Budget was to help Singaporeans preserve their jobs, and this laid the basis for an unprecedented bold measure of introducing a Jobs Credit scheme. A key measure we expected in the FY09 Budget was a cut in the employer's CPF contribution rate. This did not happen. Instead, the government implemented the Jobs Credit scheme where cash grants are given to employers (12 per cent of the first $2,500) in four quarterly payments over the course of 2009 for retaining local Singaporean workers on their payrolls.

The Jobs Credit of 12 per cent of wages will be equivalent to a 9 percentage points CPF cut and returns cash to the companies at a crucial time. This move in our view will be significant to save jobs for Singapore at least in 2009, although the flip side is that it may exacerbate the tendency of companies to lower the axe on their foreign employees instead. So we may still see the acceleration in overall unemployment rate while the resident unemployment rate gets this extra protection during the current downturn.