The government's pandemic financial support packages come to an end this year. Although pandemic-specific packages have ended, the government remains committed to assist citizens through ongoing and new initiatives tailored to current economic conditions. Keep it coming!
Like most citizens I have been a recipient of several of these handouts. Have these been helpful? Many lamented about the inadequacies and likened it to the handing out of chicken wings and taking back a whole chicken when all sorts of rates increased. Well I belong to the miserable percentile that appreciates the financial relief that came my way. Does that translate to votes? Nah. It's a different matter altogether.
You didn't come here to listen to the same rinse and repeat trash. I cover issues from different perspectives, mostly views no one talks about. It's my way of adding value to a narrative.
First off, there are two different types of support schemes - one for the corporates and one for private individuals. For the business part, it has been done pretty much by all countries by way of special funds facilitated by central banks. This is essentially money printing to provide the liquidity. There was no bailout in the case of Singapore. Just cheaper and more accessible short term credits. The government provided some cashouts as relief for personnel costs to encourage employee retention.
I shall restrict my comments to the financial support for citizens. Here, Singapore is unique amongst nations. There was no fiscal spending. No funds came from appropriations out of revenue. The support was fully carved out of unappropriated funds from reserves. To this extent, the huge reserves managed by the sovereign wealth funds GIC and Temasek have been utilised, serving a need it was created for - for use on rainy days. In other words, Singapore was prepared for emergencies such as this.
There are many that say the payout was meagre compared to the vast reserves of the country. That is an argument for another day. I want to discuss the question of why not one lump sum single payment, why spread it over so many years?
Some years back when I was in the Philippines, I came into possession by somewhat unethical means, a nicely binded hard copy of Niccolo Machiavelli's "The Prince". Well, Picasso did say "Good artists copy. Great artists steal." Sully Tarnish puts it more succintly "Books are the only things worth stealing." I didn't exactly steal it, but let's just say I had it in a manner my mother wouldn't have been proud of. The Prince is a political treatise all aspiring politicians should read. I was introduced to a Filipino whose sister was trying for a mayoral race. In light conversation I suggested she should read The Prince. It led to my lending her the book, and alas, Cicero's "Ill-gotten gains will be ill spent" rings true. I never saw the book again.
The Prince suggests benefits should be distributed gradually to maximise their positive impact. This ensures subjects experience the ruler's generosity over a longer time period, thus fostering appreciation and loyalty. Was the pandemic cashout a typical Machiavellian policy?
On the other hand, punitive measures should be given with reduced duration, a quick one shot wham bang. Negative actions consolidated into one single event has high intensity but allows subjects to move past the harm more quickly and allow stability to be restored. Apparently the government did not heed The Prince's suggestion in the case of the GST and Carbon Tax rates.
When a state helicopter-dumps cash into citizens' bank accounts, there is a monetary policy consideration. At the individual level, it may be chicken wings. Consolidated at national level, it is a freaking giant chicken. Such a large sum creates a significant bump up in money supply, further amplified through money creation via the banking system, with various ramifications. Instead of one giant step, it has to be done in several smaller steps to smoothen out the monetary impact.
Textbook explanation is an increase in liquidity or money supply is inflationary. This must have tempered with the calibration of how much cashout to release each round. The government throws cash at us but is mindful not to fuel inflation.
In my opinion, liquidity alone does not cause the CPI (consumer price index) to rise. This has been proven in many countries all over the world in the past two or three decades. The era of low interest rates and central banks' massive buildup of their balance sheet (quantitative easing) where money is printed to buy back government securities, created tremendous liquidity but inflation had been at rather stable levels. Where did all this liquidity go? It went into the capital markets which caused mind boggling asset appreciation across various markets.
Inflation in the consumer market is a demand-supply function more influenced by the propensity to consume. A guy can only eat so much in a day. If he is given more cash he is not going for another meal.
So do we have a high propensity to consume? The financial packages were tailored to assist those in need to cope with the pressures of cost of living expenses. So it follows that the cashout went to majority of folks with a high propensity to consume. This is evidenced by the supermarkets like ShengShiong dishing out 8-month bouses to employees. It is obvious the financial aid package has an inflationary impact and thus the need to spread out the payments.
Unappropriated fundings require some cashflow management. The reserves are locked up in various assets. To monetise the assets requires certain planning and execution timeframe.
Lastly, I would think the "nanny state" mentality played a role in how the cashout is spreaded out and where folks should spend their money. Like a good dad and mom who does not want to give the kids too much pocket money in one go less they have carte blanche and squander on the unnecessary junkets, the government controls the spigot.
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