Monday, January 26, 2009

Singapore Budget 2009: Wage Credit

Regarding the employer's CPF contribution reduction in the Budget 2009, I have coined this synomyn LPO-RPI. It means Left-Pocket-Out, Right-Pocket-In.

The budget attempts to 'save jobs' by having a wage credit for companies. Up to 12% of the first $2500 of wages will be subsidised by the government. It seems like a really innovative approach at the first glance.

I have a different take altogether. In the nutshell, nothing has changed for the common man actually.

In this wage credit, the government tops up the remaining employer's CPF contribution. This top-up amount is taken from the CPF. After topping up the employer's contribution, it goes back to you and back into your CPF account. And ultimately back into the government's hand.

Simply:
CPF (can't touch this) -> Wage Credit -> You -> CPF (can't touch this)

All in all, there is nothing to 'dip into the reserves' coz it's all transparent to you. It's like using your own money to fund yourself.

CPF is not like an account where you can withdraw at your whims and fancy. Neither were you given cash. So I do not see how the budget has helped a common man in this aspect. The only advantage it has is the employer pays less CPF contribution. How that constitutes to you saving your job is yet to be seen. I hope it does.

However this employer CPF contribution policy is also set by the government. So if companies feel the pinch, isn't it because this government's policy has created such scenario? Wouldn't it be better if the employer's CPF contribution be part of a worker's pay?

I do not want to dwell into past histories of the benefits of the CPF. There are a few angles to look at it.

Basically I do not think this Budget 2009 was impressive. One would have thought 'rainy days' might demand a more radical approach.

Let's hope I am wrong.

14 comments:

Anonymous said...

We dun know if we would actually "dip into the reserves" as our beloved gahmen tend to underestimate income and overestimate expenses. And does not includes income from land sales. etc.

Besides, any1 with more than 2 brain cells will already know that the budget sucks.

Therefore, you should do the decent thing and post only the good, nation-building stuff.

Please use the following templates:

http://kwayteowman.blogspot.com/2009/01/on-budget.htm

Or

http://aaron-ng.info/blog/not-a-budget-budget.html

Kaffein said...

To Anon 4:55pm,
Sorry still don't buy it. It doesn't help anything when the government takes from your fund and give it back to you.

It's not as if you have additional increase, like for every $100, the government tops up $10. So why should I be happy about it.

The government can adjust the land cost anything and get back every single cent, or even more since most Singaporeans have their CPFs tied to housing.

I still say nothing has changed. Except for the fact that the employer doesn't pay for your CPF so much now. I never said it was a bad budget, I did say it was nothing impressive. As mentioned too, whether this will help SG citizens will soon be seen.

Kaffein

Kaffein said...

Unless you are being satirical, then I apologise.

:)

Kaffein

Anonymous said...

i like the

CPF (can't touch this) -> Wage Credit -> You -> CPF (can't touch this)

pse keep up the good job of raising awareness of fellow singaporeans in the coming year!

Chee Wai Lee said...

I am more confused by the budget than knowing enough to say whether it sucks or not.

Right now, I do not even understand *how* they need S$4.9 billion from the reserves when they have an estimated shortfall of S$11.0 billion based on (my interpretation of - I'm not well grounded in economics) the numbers released (you can see the links to the released details from my blog).

One reader is trying to help me out. I just wished our news organizations would take the effort to translate those numbers into rationale that a layman can understand and at the same time, try to verify or reason about.

Kaffein said...

Chee Wai wrote> I am more confused by the budget than knowing enough to say whether it sucks or not.

Kaffein> Sama-sama feeling.

CW> Right now, I do not even understand *how* they need S$4.9 billion from the reserves when they have an estimated shortfall of S$11.0 billion based on (my interpretation of - I'm not well grounded in economics) the numbers released (you can see the links to the released details from my blog).

Kaffein> Yeah read your post. I'm not really good with numbers, so I won't comment.

CW> One reader is trying to help me out. I just wished our news organizations would take the effort to translate those numbers into rationale that a layman can understand and at the same time, try to verify or reason about.

Kaffein> If it's so easy, then the ministers wouldn't be getting their million dollar salaries, would they? But I agree budgeting is a whole lot of complexity. There are a lot of assumptions and rouned figures. Anyway, I do hope this budget will meet to Singaporeans needs.

Kaffein

The said...

You are right - the job credit does affect the salaried man - it is neutral. But it does lighten the load of the businesses. The only "positive" aspect about the job credit, relatively speaking is that it didn't subtract from the wage earner's salary. If you remember that in past crises, the government was quick to cut CPF contributions. What happens is that those who are servicing their mortgages partly though CPF contributions are adversely affected.

This time round, I guess they realise that the property bubble is also bursting, which is why they are not cutting the CPF contributions. I guess half a loaf is better than none.

ravi4u2 said...

Could the Budget have initiated measures that would have targeted workers directly in addition to trying to save jobs? Is this an opportune time to have initiated measures like unemployment insurance; which will be a means of temporary income for eligible workers who become unemployed through no fault of their own and who are ready, willing, and able to work?

It cannot be deduced that Unemployment Insurance is not appropriate for a highly industrialized Asian ‘tiger economy’ like Singapore. South Korea the first country to be identified as a ‘tiger economy’ has a (un)employment insurance scheme which was first put into place in 1 July 1995. The unemployment scheme was further extended rapidly in the wake of an unprecedented economic crisis in 1997.

My thoughts on Budget 2009: http://singaporesocialactivist.blogspot.com/2009/01/governing-first-world-country-with.html

Kaffein said...

What you have mentioned is fantastic, Ravi!

However I do not think it will be implemented in Singapore because it protects the workers too much, and perhaps encourage them to be lazy? That has never been LKY's intention.

Anyway, why would the ministers bother so much since they are paid so high and protected so well? Who is going to pay for the reimbursements? CPF? GIC? Temasek? They'd rather put the golden eggs in some failing institutes than to help the common man on the street.

Anything that dip into the reserves is a no-no. So much that when the government finally dipped (I'm still not sure if they actually did it since they had so much surplus over the years, if you include land tax), the whole media brays about it. Wow... as if the government had single-handedly coughed out their own monies to setup the reserve. Isn't the reserve the blood and sweat monies of the common man?

That's one of the reasons I don't feel the budget is impressive.

Kaffein

Anonymous said...

A good budget should be transparent and easily understood.

In normal times, it should be balanced. A huge surplus is NOT good. It means the gahmen has taxed too much or spent too little on US (the lesser mortals). SWFs is inherently a bad idea. The money would have been better spent to develop a more resilient domestic economy and not one addicted to foreign investments.

In bad times, u have a deficit. Overly large deficit(reckless spending) is of course bad. but forget the number. the deficit is not as important as how effective the budget will be. Since our economy is now so dependent on external factors, the wage credits or whatever will have less impact than what Obama decides to do. The money is better spent to ensure the development of the population (education, healthcare, not defence) and ensuring the people dun become desperate and start burning incompetent MPs.

Anonymous said...

I'm not in favour of unemployment insurance because it's unclear who will underwrite the insurance. If a private insurer offers the insurance, it will have to reap some profits from the system, which means charging higher premiums to the govt or taxpayer. If the govt underwrites the insurance, the question is how to prevent abuse of the system so that unemployment insurance expenses from the budget don't spiral over the coming years. Conceptually this sounds good but schemes to help those in need directly should also serve the same purpose.

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