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H2 Econs [Macro] 3 Essential Policies from SG Budget 2016

June 5, 2016

 

As Singapore faces global economic headwinds of a slowing China, anemic growth in the West and increasing competition in the region it has become increasingly important for governmental policy to prime Singapore for a more challenging economic climate. Unsurprisingly, Budget 2016 has been set out to address these challenges. Here are 3 of the most important aspects: 

 

1) SGD19 Billion on Development Expenditure - Expansionary Fiscal Policy

 

The government has committed a massive SGD19 Billion on development spending to boost the G component of AD on items such as developing the new Sengkang General Hospital, building new hawker centers and upgrading of public transport assets. This is to cushion the cyclical weakness of falling AD due to weaker global economic growth and help to mitigate the short-term negative effects on economic growth and unemployment. 

 

2) SGD4.5 Billion Industry Transformation Program (ITP) - Supply Side Policies

 

Following the Productivity and Innovation Credit (PIC) Scheme launched in 2010 that provided the first push towards greater automation among SMEs (notice all the iPad ordering systems in restaurants?), the government has taken even greater steps to encourage more innovation to raise productivity in Singapore. In order to reduce our dependence on foreign labor and maintain economic competitiveness, productivity and efficiency growth is an integral growth channel for resource-strapped Singapore.

 

Significant programs under the ITP include a SGD1.5 billion top-up into the National Research Fund and SGD450m that will go into supporting the development and deployment of robotics in sectors such as healthcare, manufacturing, construction and logistics. 

 

These initiatives are also examples of supply-oriented demand-side policies as government spending is directed at improving the productive capacity of the economy to achieve potential growth and improve export-competitiveness by developing new comparative advantages. 

 

3) Skillsfuture and Techskills Accelerator Initiative - Supply Side Policies

 

Another major risk as Singapore undergoes economic transition is structural unemployment. With one of the highest labor participation rates in the developed world (68% vs G7 highest of 66% according to World Bank data) Singapore is highly dependent on her only major resource - people. Hence structural unemployment is a massive economic concern. 

 

To mitigate the impact of the changing labor market, the Techskills program seek to train and retrain workers to meet the complex demands of the Infocomm Technology (ICT) sector while the Skillsfuture program is a broader initiative for workers above 25 years old to pick up new skills that could help them secure better jobs. Both initiatives seek to equip workers with relevant skills to prevent the risk of structural unemployment as certain traditional industries decline and workers get laid off. These programs ensure that these workers could be re-employed more easily.

 

Conclusion

 

The Budget 2016 is a textbook prescription of supply-oriented demand side policies to provide solutions to both the short-run and long-run economic issues that Singapore could face. By combining expansionary fiscal policy with interventionist supply-side policies, the government sets the stage for continued economic success across the various macroeconomic goals. Naturally, the use of exchange rate policy in the medium term is also an important and necessary tool to tackle AD fluctuations. 

 

Buzzwords:

 

Cyclical Weakness - When AD is on the downtrend of the business cycle 

 

Productivity - How much output can be produced given a certain amount of inputs

 

Economic Competitiveness - The ability to attract MNCs for investments and to produce high-demand exports 

 

 

 

 

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