Reserves drawn upon

But this is the first time past reserves will be drawn upon, and it will set the tone for future decisions.

The way in which this is done, the circumstances which lead to this move and the justification for it create expectations for future decisions.

One unintended signal set by this precedent is that it is better to draw down on past reserves than use up current ones.

The Government could have funded the $4.9 billion from current reserves accumulated since the 2006 General Election, which means it still has at least $4.9 billion available. The Finance Ministry yesterday did not disclose how much it still has in store from current reserves.

The Government chose to tap into past reserves rather than use up current reserves, presumably to keep some ammunition for the months ahead.

This is tantamount to saying that reserves can be used for pre-emptive social spending, not just as a last resort. Pre-emptive tapping into reserves is a departure from this Government's rhetoric that one exhausts one's own resources first, and seeks assistance from others only as a last resort.

Will individuals come to expect 'pre-emptive' subsidies to help them overcome difficulties, rather than use up their own savings first? After all, they can say the Government tapped on past reserves for Budget 2009 when it still had money from this term to spare.

There may be good reasons to do so given the coming storm, but the Government will have to explain why it took this approach during debate on the Budget, which begins from Feb 3.

The other extraordinary measure is the Jobs Credit Scheme. This pays employers 12 per cent of workers' wages up to $2,500 a month. It is in effect a wage subsidy to employers, to help them reduce business costs and persuade them not to retrench workers.

It is an innovative policy measure, different from traditional measures targeted at the worker, such as the Workfare Income Supplement for low-wage workers.

A supply-side wage subsidy benefits employers. The idea has pedigreed advocates, notably Nobel prize-winning economist Edmund Phelps. In theory, workers benefit from keeping their jobs. In practice, no one can compel companies to share the cost savings with workers, or even to keep workers on their payroll.

The sad truth is that as the recession bites, even the $4.5 billion for the Jobs Credit Scheme will not save all jobs.

Reaction to the Budget last night was generally positive, with businesses in particular hailing it as responsive to their needs.

This is well-deserved, given the enhanced credit facilities, a 1 percentage point cut in corporate tax to 17 per cent, and tax breaks to ease cash-flow.

The corporate tax cut sends a strong signal to the investor community that Singapore is well-fortified fiscally, able to cut taxes, finance deficits from its own savings and still spend on future infrastructure - at a time when other governments ransom future generations to finance today's stimulus packages.

While businesses have reason to cheer, the surprising thing is that not more was done for individuals. The 20 per cent income tax rebate, capped at $2,000, is exactly the same concession as that given last year in rosier times.

This year, lower-income households get more rebates and all households will get double the amount of goods and services tax (GST) credits - but these amount to just a few hundred dollars a year.

While billions are spent on employers in a large gamble to help save jobs, almost nothing more is being done for the jobless. This group benefits from the training programmes rolled out - but they get no additional relief in the interim, despite some suggestions pre-Budget to tweak Workfare to cover the jobless.

This raises the very likely possibility that when the recession deepens and more jobs are lost, individuals will be the target of more help.

For Budget 2009 is only the beginning. After all, these are exceptional times and more abnormal help may be needed off-Budget.

This article was first published in The Straits Times on January 23, 2009.