Budget Chat 2 – Dr Basant K. Kapur

With reference to today’s ST “Making the case for GST roll-back” editorial by Dr Kapur, his principle position is:-

Singapore’s fiscal policy is too supply oriented.

I disagree with Dr Kapur in the following areas. Whether the budget measures are too supply-sided or demand-sided could be a matter of perception.

Keynes gave us fiscal policy measures to manage Aggregate Demand.

Aggregate Demand = Consumption (C) + Investment (I) + Government Spending (G)

My position – When I analyse the headline measures of the Budget, they are as much demand-sided as supply-sided.

  • For the Job Credits Scheme, it is primarily aimed at maintaining the job/income for many and hopefully translate to Consumption. This is a more indirect but maybe sustainable) approach to Consumption as compare to Government just crediting your accounts with some monies. This simple-putting-money-into-your-pockets idea is also done in the form of GST credits.
  • Unfreezing Credit by provding loan guarantees – While this is a way to keep the cash flow going to pay wages, it could be viewed as a means to encourage domestic Investment demand.
  • Double GST rebates – Dr Kapur called for GST roll-back ie. reverse the 2% GST increase to stimulate domestic demand. He argued that negative “real-balance effect” of higher prices due to higher GST would curb Consumption. My views – Would the Double GST rebates achieve the same? Or as GST rebates (and Job Credits schemes) are only given to Singaporeans, does it imply that the postive impact on demand (if any) would be more muted as compared to a GST roll-back to all residents? I hesitate to agree with Dr Kapur until I am given some info on the cost to businesses in changing GST/CPF rates up and down.
  • $20billion on Construction project – Is this not a direct prescription of Keynes where we would count the intended expenditure as Government Spending (G) and/or Investment (I)? Dr Kapur is asking for 2%/$1.8billion GST roll-back. May I have your view on $20billion thingy too? While the Contractors will be happy first, I am sure when they spend the money they earn, the rest of Singapore will be happy too.
  • The longer term spending on Education, Healthcare, Marriage, Parenthood and Green theme – I would agree with Dr Kapur that these would be more supply-sided initiatives.

Other Dr Kapur’s key views to share:-
The biggest thing that is weighing down on Consumption is Housing. Given the high owner occupied properties and “high” property prices, a lot of purchasing power is directed at maintaining our place of residence.


  1. Dear Mr Wong, about the $20 billion constrution projects, I am very skeptical about this injection will boost the AD of the GDP. No doubt it will increase the AD but it may not maximise the multiplier effect. This construction project will benefit constrution firms, contractor firms, raw material wholesalers, logistics company and other subcontractors. However I believe there will be more capital outflow. For example, raw materials are bought from overseas, subcontractors workers constitute at least 30% of foreign workers and many other hidden costs are flowing back to either the authorities for some reasons or the money are transacted in overseas when SGD is weaken so much. These monies are not filtered to the residents at a faster rate. I must emphasize this is based on my limited knowledge but I hope to see every single cent paid by the people is fully maximized and benefit the local residents.


  2. Hi Wyatt,I do appreciate your view. Nice to hear from you.We have got a very open economy. Leakages ie. any money pump primed the Singapore economy may end up priming other countries.Our roads are built by foreign workers. Our vegetables are from Malaysia and Indonesia.. Alternatively, we can also that by making our neighbours rich, there would be a positive impact to Singapore.Hope…


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