By Chua Mui Hong

THREE Ps define Budget 2009.

It is pre-emptive, effecting a decisive response to a looming recession before the worst is here. It sets many precedents - of a fiscal and policy nature. And it is a Budget that broke into the piggy bank of past reserves for the first time.

Finance Minister Tharman Shanmugaratnam's sober demeanour as he unveiled the ground-breaking Budget said it all.

The world is on the brink of the worst economic recession in 60 years since the Great Depression.

Every major economy is in lock-step recession.

Singapore faces its worst recession since Independence.

Exceptional circumstances require an extraordinary Budget, said Mr Tharman. And this is certainly 'no ordinary Budget', in his words.

It scores on superlatives: the biggest bonanza of $20.5 billion to help tide businesses and individuals over a downturn predicted to be both deep and long. The Government is chalking up its biggest-ever primary deficit of $14.94 billion or 6 per cent of gross domestic product (GDP). After investment returns and other transfers, the deficit is still $8.67 billion.

Two things make this a truly extraordinary, precedent-setting, pre-emptive Budget.

The first is that it is partly financed by $4.9 billion of past reserves, which requires the assent of the Elected President. Mr Tharman said the Government had made the case for a drawdown of reserves to the Council of Presidential Advisers and the President, the President had given his in-principle approval, and his assent would be sought after Parliament passes the Supply Bill.

This is the first time the so-called presidential 'second key' is being asked to unlock the nation's past reserves.

The drawdown is subject to parliamentary majority approval and the final assent of the President. No one seriously doubts that the cohesive People's Action Party-controlled Parliament or the President, who has indicated yea, will say nay.

The manner in which past reserves can be unlocked, swiftly, with decisions made away from the public eye and seemingly presented as a fait accompli, will raise questions in some Singaporeans' minds as to how robust the fabled 'second key' is.

It may seem churlish to make this point now, when a protracted downturn and massive job losses loom on the horizon calling for a decisive response.

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.