Resisting populist pressures

THE public must understand that the Government has been courageous in sticking to sound budgeting principles and balanced policies in the 2009 Budget, instead of giving in to populist demands.

We have heard calls from many quarters, including trade chambers on behalf of small and medium enterprises as well as big corporations, that employers' Central Provident Fund (CPF) contributions and the existing Goods and Services Tax (GST) be cut. CPF and GST cuts would at best be inappropriate and premature, as they are untargeted and blunt policy instruments.

More importantly, the current economic difficulties confronting companies here are not due to loss of competitiveness but lack of external demand; not so much due to the rising cost of credit but its availability as financial institutions shun risks.

The sound approach is not to pump-prime the economy indiscriminately.

We know that for every dollar spent here, only 40 cents are retained as domestic consumption, with limited multiplier impact. Unlike China and Japan, which can stimulate their economies with enhanced domestic consumption, Singapore cannot do so readily.

Significantly, the Government did not cave in either to demands from the public for welfare benefits to be institutionalised.

It must manage unrealistic expectations and ensure people understand that massive one-off short-term measures - such as those Minister of Finance Tharman Shanmugaratnam announced yesterday - cannot be repeated during normal times. The global financial environment in the foreseeable future is likely to remain volatile, with prospect of recovery for major world economies uncertain.

Dipping regularly into our hardearned national reserves on a massive scale is not sustainable. It should be remembered that the Government needs to deliver an annual 3.5 per cent return for CPF savings, no matter how hostile the global financial markets are.