VZCZCXRO3442
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGP #0080/01 0231031
ZNR UUUUU ZZH
R 231031Z JAN 09
FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 6297
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHNE/AMEMBASSY NEW DELHI 2187
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 SINGAPORE 000080 
 
STATE PASS USTR 
NEW DELHI FOR EHRENDREICH 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN SN
 
SUBJECT:  SINGAPORE LAUNCHES EXPANSIONARY BUDGET 
 
REF:  SINGAPORE 43, 08 SINGAPORE 1242 
 
¶1. (SBU) Summary:  Singapore's Finance Minister Tharman 
Shanmugaratnam unveiled an expansionary budget January 22 with 
S$20.5 billion (USD 13.7 billion) in new measures to help Singapore 
businesses and workers survive the economic downturn.  Tharman made 
clear the budget was not sufficient to pull Singapore out of 
recession but was rather aimed at preventing a sharper downturn and 
lasting damage to the Singapore economy.  The budget measures 
include a jobs credit scheme to encourage businesses to keep workers 
on payrolls, a reduction of the corporate income tax rate, and 
personal income tax rebates.  The budget incorporates an overall 
fiscal deficit of S$8.7 billion (USD 5.8 billion), the largest 
deficit the GOS has ever budgeted.  For the first time, part of the 
deficit will be financed by withdrawing from Singapore's deep fiscal 
reserves.  Local analysts were generally positive about the new 
measures and the support to vulnerable segments of the economy, but 
were realistic that the budget would in and of itself be unlikely to 
spark an economic turnaround.  The measures stuck to Singapore's 
normal practice of only granting temporary benefits to workers 
rather than constructing a permanent safety net.  End Summary. 
 
¶2. (U) Finance Minister Tharman Shanmugaratnam presented Singapore's 
FY2009 budget to Parliament January 22, unveiling a set of 
aggressively expansionary new budget measures designed to stimulate 
the domestic economy, cut business costs, and assist retrenched and 
low-income workers.  Singapore's export-led economy has been hard 
hit by the financial crisis and resulting slowdown in global demand 
and has already seen three consecutive quarters of negative growth 
(see reftels).  Tharman argued that Singapore's economic recovery 
depended on recovery in the rest of the world, and that there was 
little Singapore could do to promote its own recovery.  Although the 
budget includes some fiscal stimulus measures, the primary focus is 
to avert a sharper downturn, ease the hardship on companies and 
workers, and lay the groundwork for an eventual recovery. 
 
¶3. (U) Dubbed the "Resilience Package", the new S$20.5 billion worth 
of budget items weighs in at approximately 8.5 percent of GDP, the 
largest fiscal boost Singapore has used in a recession.  The 
Ministry of Finance estimates an overall budget deficit of S$8.7 
billion (3.5% of GDP) after taking into account a substantial 
increase in net investment returns and increases in endowments and 
trust funds.  (Note: Singapore changed its constitution in late 2008 
to increase the amount of investment income from its past fiscal 
reserves, managed by its sovereign wealth funds, that it could bring 
onto the budget.  This year the net investment income brought onto 
the budget will amount to S$7.7 billion, four billion dollars more 
than the previous year.)  In a first for Singapore, the Finance 
Ministry has received approval to cover S$4.9 billion of the deficit 
by drawing principle from Singapore's vast fiscal reserves, 
estimated to be in the hundreds of billions of dollars.  With the 
door open to drawing down its past fiscal reserves (over and above 
the allowed investment income from those reserves), Singapore may 
augment Budget 2009 with additional off-budget packages later in the 
year. 
 
¶4. (SBU) Local analysts were generally positive of the GOS's budget 
proposals, but realistic in what the budget could achieve in 
promoting economic recovery in Singapore.  Alvin Liew at Standard 
Chartered called it "a budget to help cope with the recession, not 
end it."  JP Morgan noted that although the budget was extremely 
expansionary relative to Singapore's past fiscal prudence, it was 
still relatively modest compared to other fiscal packages announced 
in China, India and Vietnam.  In their view, the budget should help 
cushion vulnerable parts of the economy, and may provide a boost 
toward the end of the first quarter of 2009 with a greater impact in 
the second quarter.  Nevertheless, JP Morgan this week revised its 
2009 GDP growth forecast to -4.0 percent from -2.0 percent, with 
many other analysts see further downside risks to growth prospects. 
 
Resilience Package Targets Jobs 
------------------------------- 
 
¶5.  (U) The budget focuses on five key goals, each with its own 
price tag:  preserve jobs for Singaporeans (S$5.1 billion), 
stimulate bank lending (S$5.8 billion), improve corporate cash flow 
and competitiveness (S$2.6 billion), help households (S$2.6 
billion), and improve infrastructure, health and education (S$4.4 
billion).  The budget includes a combination of additional 
expenditures and tax cuts. 
 
¶6.  (U) Jobs for Singaporeans:  The key measure under the budget's 
plan to preserve jobs is a job credit scheme which will provide a 
cash grant to employers equivalent to 12 percent on the first 
 
SINGAPORE 00000080  002 OF 002 
 
 
S$2,500 of the monthly salary for each employee.  The program is 
restricted to employers who contribute to employees' Central 
Provident Fund, Singapore's compulsory social security savings plan. 
 The GOS will issue the cash grant quarterly to encourage companies 
to keep employees on the payroll rather than shedding workers to cut 
costs.  Tharman said the program would be temporary but could be 
extended if the need continued.  The GOS will also increase an 
existing subsidy for retraining programs from 80 percent to 90 
percent of the program cost.  Tharman also announced the GOS's 
intention to hire 18,000 more civil servants. 
 
¶7.  (U) Stimulate Bank Lending:  Although Singapore banks have a low 
non-performing loan rate and are in general healthy, banks have 
become risk-averse.  To improve the flow of credit, the GOS will 
agree to cover a greater share of any losses from loan defaults. 
Under its new Bridging Loan Program, the GOS will raise the share of 
losses it covers from 50 to 80 percent for qualifying loans of up to 
S$5 million (up from S$500,000 previously).  To keep trade flowing, 
the GOS will also share losses of up to 75 percent for trade 
financing loans for one year. The government set the budget for 
these two programs at S$5.8 billion, equivalent to 2.1 percent of 
total bank loans outstanding as of November 2008. 
 
¶8.  (SBU) Improve Competitiveness:  The GOS reduced the corporate 
income tax from 18 to 17 percent.  Citigroup analyst Kit Wei Zheng 
described the tax cut as a key measure to narrow the tax gap with 
Hong Kong, a competitor with Singapore as a corporate hub. 
Additional measures to help viable companies stay afloat amid the 
current crisis include a 40 percent property tax rebate for 
commercial and industrial property, a rental rebate of 15 percent 
from government-linked industrial and commercial property agencies, 
and a freeze on all government fees and charges for a year. 
 
¶9.  (SBU) Help Households:  Measures to help households cope with 
the current economic situation include a doubling of Goods & 
Services Tax (GST) credits that households will receive in 2009, 
rebates on rentals and service and conservancy charges for those in 
public housing, and a 40 percent property tax rebate on 
owner-occupied residential property.  The middle-income group was 
not left out, with the GOS giving a 20-percent income tax rebate for 
2009, capped at S$2,000.  Citigroup's Kit said he was disappointed 
that there was no cut in personal income tax rates and said he would 
have liked to see a tax holiday for residents who lost their jobs in 
2008 or 2009. 
 
¶10.  (U) Improve Infrastructure:  To enhance competitiveness in the 
longer term, the GOS intends to increase public sector construction 
projects from S$15 billion in 2008 to S$18-20 billion in 2009.  Many 
of these projects were already in the budget for future years but 
are being brought forward to help stimulate the economy.  The GOS 
will also increase spending on education by 60 percent over the next 
five years and spend S$4 billion on healthcare improvements over the 
next five years. 
 
Comment 
------- 
 
¶11. (SBU) This budget was a record size for Singapore, but was not a 
significant break from the past in terms of structure.  As local 
analysts privately pointed out, the only permanent measure announced 
was the tax cut aiding the corporate sector rather than developing a 
more permanent and dependable social safety net for individuals. 
All programs targeted to workers, including tax rebates, are limited 
to one year.  This is unlikely to give Singaporeans enough comfort 
to maintain their level of consumption.  The only new philosophical 
ground in this budget is the draw down of fiscal reserves managed by 
Singapore's sovereign wealth funds.  The GOS has realized that the 
rainy day that the government squirreled away these funds for has 
now arrived, but is still content with providing flimsy umbrellas 
rather than permanent shelters.  End comment. 
SHIELDS