Singapore seen unveiling anti-recession budget

20 January 2009 0948 hrs (CNA)

SINGAPORE: Singapore's budget to be unveiled on Thursday should contain tax cuts and a hefty financial package to help the country weather what could be its worst recession since independence, analysts said.

As the open, trade-driven economy takes a sharp turn for the worse, the spectre of rising bankruptcies and mass layoffs is striking fear in a country long used to near-full employment and bustling economic activity.

"The Singapore economy is probably headed for its deepest recession since independence" in 1965, said Citigroup economist Kit Wei Zheng.

Officials might even take the unprecedented step of dipping into the country's multi-billion-dollar national savings, Senior Minister Goh Chok Tong was quoted as saying on Monday.

The government is announcing its budget one month early, underscoring the need to react quickly.

Prime Minister Lee Hsien Loong warned at the weekend that forecasts for the economy to contract by as much as two per cent this year would be further scaled down.

Many analysts believe the economy could shrink by three per cent, while some said the contraction could be even more severe. That would leave the economy in its worse shape ever, after 2001 when growth fell by 2.4 per cent.

The city-state became the first Asian economy to enter recession last year after problems in the US subprime, or higher-risk, mortgage sector developed into the worst global economic crisis since the Great Depression of the 1930s.

"The weather is so bad and we've always said the reserves are for a rainy day," Goh was quoted as saying in The Straits Times. "If this is not a rainy day, I don't know what is a rainy day," he said.

Experts, business executives and trade unionists have said they want an aggressive budget to cushion the impact of a worsening economic situation.

Loans to small businesses have tightened, and companies have laid off workers or slashed wages.

Macquarie Research said that, in addition to cost-cutting measures, it expects the budget "to include sizeable infrastructure spending and transfer payments to middle/lower income Singaporeans". It also expects the budget to include incentives for new growth industries and programmes aimed at upgrading workers' skills.

During previous economic crises the government responded with financial muscle. In the 1985 economic downturn, it unveiled about 2.5 billion dollars in fiscal measures, or 6.5 per cent of gross domestic product (GDP), while the 1998 Asian financial crisis saw fiscal programmes worth 12.5 billion dollars, or 9.1 per cent of GDP, Macquarie Research said.

The 2001 budget measures totalled 13.5 billion dollars or 8.8 per cent of GDP, Macquarie added.

Singapore's GDP in 2007 totalled 243.2 billion dollars (164 billion US).

Finance Minister Tharman Shanmugaratnam has said this year's "significantly expansionary" budget will emphasise help for businesses. Late last year, the government pledged 2.3 billion dollars in credit support for firms trying to survive the economic turmoil.

In a commentary published in The Straits Times, Citigroup's Kit said the budget should focus on easing financial stress on companies, improving cost-competitiveness, providing support for affected families and giving a modest demand stimulus to the economy.

This would translate into corporate and individual tax cuts, rebates on taxes and utility bills, financial doleouts and funding for the retraining of laid-off workers so they can find jobs in less-affected sectors, other analysts said.

Accounting firm KPMG suggested the government should reduce the corporate tax rate from 18 per cent to 17 per cent.

Kit proposed a wider two or three-percentage point cut that would "send a powerful signal of the government's commitment to maintain Singapore's competitive position and encourage companies to make longer-term investments in the country".

While the government should draw up a power-packed budget this year it should also reserve ammunition in case the recession gets worse and lasts longer, analysts said.

Singapore is Southeast Asia's wealthiest economy in terms of gross domestic product per capita, but its trade dependence makes it sensitive to problems in developed economies, particularly key export markets of the United States and Europe, which are also in recession.

- AFP/yt