2010 Budget Statement To Be Delivered At 3.30pm On Monday, 22 February
Minister for Finance, Mr Tharman Shanmugaratnam, will deliver the FY2010 Budget Statement in Parliament on Monday, 22 February 2010 at 3.30pm.

2. The Budget Speech will be broadcast ''live'' over Channel NewsAsia, with Chinese translation on dual sound mode, and over the radio by 938LIVE. A ''live'' webcast of the Budget Speech will also be available at the Singapore Budget website (www.singaporebudget.gov.sg) and on the REACH website (www.reach.gov.sg). In addition, the Budget Statement will be uploaded progressively on the Singapore Budget website as the speech is being delivered.

http://www.singaporebudget.gov.sg/press.html

Anyone have idea on budget allocation for Defence ?

Why don't we gasak how much the defence $ will be worth?

My guess is above $10 billion again. 1:1 payout. No split bets. Next Game!

This was last year's expenditure estimate.

http://www.mof.gov.sg/budget_2009/revenue_...e_Estimates.pdf

Budget estimate for this year will likely be officially released around 6-7pm today.

Personally, I think it will be around $11.5b to $12b (~5% increase as usual).

Past yr data:
FY03 $8.252b
FY04 $8.621b
FY05 $9.259b
FY06 $10.046b
FY07 $10.578b
FY08 $10.803b
FY09 $11.447b

Hey....where's the post by STARS ; he posted it around 1am +.......?

Just read before breadfast...what is happening?

the defence of singapore will continuously remain critical to singapore, due to our geographical size and location.

therefore, i expect the defence budget to registered an increase to be around 12 billion singapore dollar.

this is to meet additional fundings for new hardwares like the TERREX, perhaps additional F-15SG as well as new air defence missiles.

singapore defence budget as TCH says, should be consistant... and not subject to the economic cycle.

with the economy now on the mend... its my personal opinion the govt will continue to run a small budget deficit for this year... while keeping ready to provide futher assistance should an unforseen turn for the worst occur.

while singapore govt did run budget deficit in previous years, especially last year... singapore budget deficit is not funded by borrowing, as i recall finance ministers words...

i therefore expect the govt to continue to fund the budget deficit through NIR.

i also believe the govt might reduce several stimulus package, costing 5 billion dollars last year ... which will help reduce the strain on the budget deficit.

i do not expect corporate tax to drop this year... but there is a possibility GST might just go up 1% coupled with an equal drop in personal income tax...while maintaining several rebates scheme for singaporeans.

while various ministries subsidies for PRs and FWs, such as healthcare and education would see huge reductions.

smoke and alcohol tax may also rise in view of the upcoming IRs...

But this is a double edged sword..the more we allocate for defence, the lesser we allocate for other economic purposes.

that is not entirely true.

in the past people tends to believe that more guns automatically mean less butter... and many advocates the reduction in defence spendings to reallocate resources to other social economic spendings.

this is true for undeveloped economies, where the demand and needs of other sectors such as infrastructure, basic sevices like healthcare and education remains poor and out of reach to many people... coupled with limited govt revenue... the picture is clearly a competing needs vs limited resources.

but the facts is... defence spending is part of govt spending, in developed economy it accounts for a significant level of GDP...and it has many beneficial ripple effects economically and socially as well, similar to education and healthcare....on top of providing deterrence against potential enemies.

take the defence industries for example... many US giant companies are either major defence companies or are involved in the defence industries one way or the other, such as banks providing funds and transaction services, raw materials from iron industries, special technical skill worker from schools and institutes, technology from research labs.... down to basic food (farmers), healthcare (doctors), insurance, banking and housings(construction) for workers who serve in the defence and related industries.

in simplified form, defence spendings has many effect on the economy;

1.reducing unemployment rate (by keeping more soldiers employed),
2.increase demands for goods (retail industries, housing, cars, travel.......too many to list)
3.increase demands for services(banking and insurance)

in short... an employed soldier is as good as an employed civilian, both will create new demand and spendings which will ripple through the entire economy.

wat is of great concern for a developed economy and modern day defence spending is one of allocation of resources.

spend too much on defence, and it could increase the cost of production of other industries, either through raising wages (competing for workers), raw materials prices that would hurt competitiveness.

too little spending on defence, could lower private sector salaries (its a fact that private sector salary is actually benchmark against public salary) .... good for the boss and "competitiveness".... bad for you and me, but it also translate into general reduction in demands for housing, cars, insurance and other services including haircut.

so... its a question of balance... not a question of more guns or butter as others would like you to believe.

in conclusion, defence spendings, like education spending and healthcare spendings are all part of govt spending, reducing defence spendings would have identical macro effect as a reduction in govt spending on education and healthcare... only difference is the sectors of the economy that would be affected.

during this period of economic uncertainly, its preferable to have an expansionary budget deficit... that means increase govt spending and reduce taxes to stimulate the economy...

of course... if the country dont have a significant defence industry... then obviously a substantial amount of defence spending is gonna become outflows... thankfully we got ST and i personnally thinks its the best time for SAF to buy more ST products such as TERREXT, BIONIX, FORMIDABLE and down to basic SAR-21 and bullets.

however this year...

with the global economic crisis coming to an end... i am expecting a major focus by our govt in making a leap to take advantage of the current situation in several sectors.

exploiting our flexibility to race ahead of other countries while they are still tied down by their respective problems.

one of the sectors the govt might focus on would be banking.

GDP is recovering which means GST, profits collected has/will gone up so tax increases are not likely.

Defence allocation has always been a significant proportion of govt spending. The challenge has been to show that defence dollars are well spent. Its not just about buying white elephants like subs that can't submerge, planes that can't take off and ensuring that don't happen.

Its also about efficiency. Just because buying one item is good bang for buck doesn't mean there's another way to achieve that same bang without buying that item. That's trickier.

ya residing in australia ?

sorry I deleted it. Not too comfortable with leaving it around. Thought alot about it before I slept and immediately after I woke. Like what kotay once told me, always check your statistics and remember there is a fine line between military related stuff and politics.

Should consider the size of government debt, running budget deficits for most of the current political administration and likely long term financial outlays/commitment before guessing this year budget. I'm guessing flat or minimal inflation increase.

@icestorm

Consider the fact that we are not a military industrial complex like the us, relatively insignificant arms exporter and that our guys in green are mostly nsfs. These three factors alone are likely to take the bite out of the argument you're making.(which is interesting and does have valid offsets like dual-use technology) Money spent on defense may trickle back into the economy, but as a engine of growth and economic sector, it's still dependent on public spending. The day when it stops depending on government allocation, then maybe it will be a useful component to the economy, otherwise, to put it crudely, defense spending leads a parasitical existence. even the US military industrial complex (THE most successful military industrial base in the history of the world and flushed with export successes) is still dependent on US government spending. even big industry players like lockheed martin, exports or FMS sales only count for a small portion of their revenue.

As far as I know, history has yet to show a case where high long term military expenditures actually enriches the country in the long run (with the exception of imperial conquest and the inevitable overstretch and downfall)

another thing to note is, even if a large proportion of government debt is held by local institutions (i.e CPF etc et al) debt incurs interest. interest needs to be PAID. even if the debt amount itself can be rolled over, interest still needs to be paid. and the more we spend tax revenue on paying interest rates, the less we have to spend on other things. and given time, if this prolonged period of deficit spending continues, it will ruin us if we dont manage it carefully. if im reading it correctly, u mistake security risks posed by holders of singapore government debt (e.g the way china holds US treasuries) and the interest payments owed on these debts.

here's a good example in point, Japan's current government debt is 180% of GDP. by sometime in the mid 201X, debt repayments will consume approximately 60% of japanese tax revenue. with an ageing population and faltering economy, Japan is locked into a cycle of continued borrowing to fund its expenses.

the interesting thing about Japan is that, even though this high percentage of government debt, bulk of the holders of the debt are japanese (their national savings is 16 trillion USD, enough to bail out the US and pretty much most of the world debt). that is somewhat similar to the singapore debt holder argument you advance. except that we dont have that much in national savings and it still dosent change the fact interest rates have to be paid. still dosent change the fact that interest rate repayments come out of somewhere (taxation revenue).

and last time i checked, our government debt is 106% of GDP. 113% if you take this
wikipedia site data to be accurate. compare it to other countries. we are not exactly a model of fiscal prudence. and parliament recently approved upping it by about 70 billion dollars.

see : http://en.wikipedia.org/wiki/List_of_count..._by_public_debt
http://www.channelnewsasia.com/stories/sin...1020074/1/.html

can we avoid this scenario ? yes. measures of financial prudence must be taken. how can that be done ? the biggest single sector of expenditure (33% of all revenue) is defense.

id stop here. i dont want to turn this into a political issue (the ability to decide and determine who gets what when and how much). i reiterate, i got nothing against you or you as a person, this is just stating an alternative point of view and pointing out the holes in your argument.

cheers and happy cny.

Budget deficit is not real budget deficit cos MoF does fund transfers.

Government debt is not real government debt either. CPF monies goes towards buying government bonds which is government debt. Those monies are then channeled to Temasek/GIC which ends up as a government asset.

Last year and 2008 was pretty bad as it went for both Temasek and GIC and that had zero impact on the defence budget.

The biggest impact imho going forward for defence will be the F-5 replacement. 100 F-35s will cost US$25b or S$35b or more. Even amortised across 30 years will still add more than $1b to the procurement budget per year.

but what are the alternatives to this ?

as grunt points out, the gripenNG dosent offer any capability gains (might as well get more F16s)

the F15SG (due to its two engines, higher cost per flight hour) is unlikely to be any cheaper than F35.

Hi Stars,
Residing in SG not Down Under...

Comments was made..tot that the mods delete it!
no problem....

okie, let's wait for the Budget statement....

stars...

1. have you consider why singapore govt with many years of surplus would have such a high public debt to GDP ratio?

2. ever question why singapore with such a massive debt to GDP ratio still continuously gets AAA rating from various rating agencies?

3. what do you think are the breakdown components of our PUBLIC debt?

4. and how are our public debt different from US and japanese public debt?

secondly...

as you noted... singapore defence spending constitutes a massive 33% in total government expenditure... the US are probably lower then us.

if 33% of government spending is NOT substantial... i dont know wat is...

lastly... our govt biggest concern is the unemployment rate... lowering govt spending by lowering defence spending would without a doubt raise unemployment rate either directly or indirectly through ripple effect across the economy.

furthermore... even transfering defence spending to other sectors of govt spending would have the undesirable effect of raising unemployment rate due to structural unemployment.

http://www.singaporebudget.gov.sg/speech_toc/index.html

Next...what does the picture looks like?

well.. the home affair got a 7 percent increase in budget from 2.949 billion dollar to 3.175 billion.

the defence spending was relatively unchanged at 11.445 billion, 4.1% GDP (compare with 11.447 billion in 2009)

updated... :lol:

check your PM.

FY10 defence budget. S$11.455b.

Only $8m increase from last year.

alamak... typo... weasel is correct... paise... :P

Immaterial increase but likely that's a signal (slowdown but no drop in defence). Its still sizeable but looks like additional major procurement may be on hold at least for this year.

With many overseas training detachment and "deployment" commitments , I'm not surprised if SAF have already been asked to managed with lower operational budget

SAF 3G transformation is nearing the end.
As always, the only service that will still be taking the largest portion of the pie is RSAF.
IMO, i see more F-15SG and more missiles being placed in the basket

I think so too..

I forgot about the air force skyhawk replacement trainers. That's probably in the budget.

http://www.singaporebudget.gov.sg/revenue_...F%20AEE2010.pdf

I guess this is it. SGD11.5 Billion, just a "mere" SGD8million increase. With most procurement having paid and delivered last year, I suppose there shouldn't be any key spending news for this year. A notable focus in spending increase is at their Public Relations & Exercises. Hmm, does that mean the top realised something is wrong??? Or does this 'exercise' actually mean something else?

nooo this year we have to procure 350 MLC30 tanks to replace the "already replaced by Leo" AMX-13s ;@)

These are actually more economic issues then political, though politics does play a part.

I would say, that with so many years of surplus, we have such a high public debt to GDP because of the CPF. The more we put in there ( due in part to a growing good economy), the more government bonds the CPF has to buy because CPF mainly invests in safe products, which is Government bonds.

Which does lead us to qns 2. We're rated triple A, but then again the US with it's MASSIVE MASSIVE trillion dollar debt is rated triple A as well.
A credit rating is issued mainly based on past history, economic power/stability, as well as monetary policy, amount of debt and few other factors.
Most countries with a stable economic and political situation will gather a triple A rating. A rating for countries is normally used by investors as a tool to gauge if the country is safe to invest in. You'd need to screw up royally for a country to get down graded ( Greece =P)

Our public debt is different due to sheer size of economies. People/investors tend to trust big economies more then smaller one's.
Also like stars said, Japan has a very high savings ratio and alot of their debt is internal. Meaning it's owned by their own people, thus making it less "risky" to outside influence.
Also the typical Japanese has a higher savings then most countries. So their risk of default on loans in lower.
Basically they are just more prudent with money, unlike the free spending American's
Honestly the only reason their still triple A rated is most likely the shock of a downgrade would just screw the world over really. Which is why China has not dumped US debt. Economics, whole books can be written on that so i shall not say to much on it.

I have no idea of our public debt break down, i think most of it is with CPF or Temasek lol.

Yea i believe the US military spending as a % of GDP is lower then us, however i believe that does not include their special budgets.

33% is a huge chunk to be honest.

I do not believe lowering govt spending on defence would raise umemployment. Why? Because most of this high ticket items are foreign made( F15's,subs,tanks etc etc.) This actually means an outflow of money from our economy into theirs.

If the government transfer's defence spending to other sectors, depending on the policy and what sectors, it would actually have a desirable effect of raising unemployment. There is no argument that govt spending increases economic activity and spending hence leading to more jobs. it's a matter of where that money goes. Out or In?

A small example would be say the purchase of F-15's
1billion spent. Most goes into production and procuement of parts and systems. Which is made in the USA. Meaning the money flows out of Singapore into the USA

Training then? surely we would employ more pilots and techs to keep those planes flying? Yea sure, but for the initial stage, they train in the US, once again, money stays in the US.
When they do come back, then yes, there will be some money staying internally and generating benefit for our economy.

Contrast this with spending that money on giving MNC's tax breaks to the tune of 1 bil.
You get a foreign company investing in Singapore, leading to improvements in infrastructure (new factories or buildings needed) which leads to new jobs. You get actual new jobs created from said companies (hiring people to do actual work)
And because of that you get lower unemployment which leads to more consumer spending and increases in taxes(indirect and direct). Money actually flows from the foreign company into the local economy rather then the other way round.

That said, I do believe we should spend what is needed to maintain our independence and not skim on that. However i do disagree with the point you've brought up that defence spending in Singapore's context affects unemployment that much.

Also if anyone has anything to say/add/correct please do so =) im all ears, though please be polite yea?

The public debt figure can be found here.
http://www.singstat.gov.sg/stats/themes/ec.../ess/aesa44.pdf

S$52b is comprised of short term treasury bills issued by MAS predominantly for cash flow purposes. Out of the S$230b remaining, $150b are comprised of 4% interest special bonds issued to CPF. The figure is reported in CPF annual report. The bad part is that the Govt is no longer willing to issue the 4% CPF bond and intends to peg this to the normal long term govt bond rate. Hence CPF special account/medisave interest will likely be lower when the peg is removed.

The remainder is presumably public bonds/stock sales. MAS website publishes the full list of bonds/bills issued.

http://www.sgs.gov.sg/sgs_data/data_auction.html

This appears to be translated on the liabilities side into amounts deposited with GIC which manages SG monies (however there may not be a direct link as this is only recognised as amounts owing by GIC. GIC accounts was of course a major concern of Prez OTC previously).

Why Singapore has a super credit rating? One only has to look at the govt revenue and expenditure accounts/balance sheet (published with the budget).

http://www.singaporebudget.gov.sg/revenue_...ab%20EE2009.pdf

Government debt is part of the Government securities fund account which only comprises ~$294b. However, if one sees the assets side, its $615b in assets (of which ~$60b sits in US treasury bonds). The balance cash sits in the consolidated fund $170b+ ($118b in cash) and numerous other funds that have been earmarked for certain purposes (but may not be actually used and can be channelled in emergency to other purposes).

Singapore defence spending is substantial but unlike US, this is funded every year by actual taxes not debt. So actually Singaporeans are investing in security through government spending.

Lowering defence spending may not necessarily increase domestic unemployment as substantial sums are paid to foreign suppliers eg ~$5b to Boeing for 24 F-15SGs. It will increase domestic unemployment if govt doesn't buy from ST engineering though. More importantly, lower defence spending will have a direct impact on security. If Singaporeans can afford security, why not?

@I0I-5,

thanks for explaining abit of my points but i PMed icestorm my response. but im disinclined to discuss this further on a public forum for reasons id state below

@weasel1962

Morning bro,

was reading the link you posted. 1st link dosent state the further breakdown of the types of local debt. not too sure if this is too dated, but i think it complements your first link.

http://www.singstat.gov.sg/pubn/reference/...blicfinance.pdf

i think this is the one that shows the 52 billion SGD in short term T bills and 200+ billion in longer tenure bonds (greater than one year)

still digesting the data, please forgive me if the analysis seems offhand and shallow.

even if you put the assets and securities together, thats approximately S$900 billion ? the debt ceiling was raised from S$250 biillion to $320 billion, likely that new bond issues will push total debt to upper limits of that range. thats more than your securities. how liquid are the assets ? assuming that they all can be sold at zero loss, that is still likely to place national debt somewhere between 30-35% of total available national funds. will taxation or other forms of revenue grow more than the outflow of funds/interest payments on this debt ? what proportion of this debt is long-term financial commitment ?

distribution of the funds dosent take away the fundamental problem of repayment of interest owed. taking away foreign talent and migrant influxes, whats the likely medium to long term impact on our tax base. given the introduction of CAFTA, long term regionalisation plans of singaporean companies (double taxation agreements that negate taxation revenue) and a likely hollowing out of our manufacturing base, can we afford such spending ? my fear is that we could end up like the japanese debt trap. we have the reserves, we have the financial cushion to prop us up, but we end up with spiralling public debt because we cant pay off the interest owed and need to borrow more to fund increasing socio-economic demands (narrowing the income gap, topping up CPF as babyboomers retire, healthcare and associated expenditure)

the way i see it, the tax base is likely to shrink. GDP in the medium-long run is likely to stagnate or grow slowly (maybe hence why SM goh was saying about switching or considering using GNP figures). spending has to be prudent to avoid getting caught in a debt trap. its not called the rich country disease for nothing.

mind if we continue to discuss this in the kopitiam or via PM ?

my main reason is this, economics is the art of understanding how a system distributes goods and services. politics refer to the who decides who gets what, when and how much. its no longer a discussion about long term military spending, but rather a political discussion about whats the long term outlook of our economy and is our current system and ways of spending, sustainable in the long run.

cheers

No need to PM or kopitiam cos its all publicly available figures. Military might is a function of economic strength (total defence). No need to delink.

Your link item 17.7 ties to the link I provided on external debt with a 1 year lag. Total debt is only $291b provisional for 2009. 17.8 is the MAS figure which likely includes the CPF bonds.

Asset liquidity isn't an issue. CPF repayments only happen at age 55. With minimum sum, CPF repayment will be further spread out until death (for CPF life). As minimum sum increases (which it will), the debt pressure for repayment is reduced.

CPF bonds is what the govt owes CPF board members ie you and I, so that's a liability not asset. Hence its in the liability component. Assets are what the funds are used for (mainly to GIC for investment). So that's $615b in assets and $615b in liabilities (which is double entry for accounting). Of the $615b in liabilities, that includes $291b in debt, so that's a net difference of $324b+ that is not borrowings.

It is an interesting comparison between the CPF scheme and the social security system operated by the US (which is treated as govt revenues and not debt).

Interest repayment is definitely not an issue. SG's interest on debt due to its strong credit rating is something like 2.3% or less (lower for short term bills, that's why the CPF special account interest rate will drop once the de-peg starts next yr. I am one of the requestors for the continuation of the peg which the govt thankfully gave an extension this year).

Debt amounts will definitely go up. Net CPF contributions are almost $20b a year and this money has to go somewhere. It would have been higher if not for Singaporeans using CPF to pay for housing (which is currently a balance of $139b+ and doesn't enter the equation directly). Since the govt issues bonds to CPF for this, so that the CPF money is channeled to the govt for re-investment, the debt amounts should go up every year (and its a long term debt as one works for 30+ years before reaching 55 and CPF life payouts only kick in from 65).

Tax base will definitely not shrink going forward. The govt shifted taxes over to GST which is less subject to economic variations than profits taxes eg income tax so that will be pretty constant. Personal income tax can only go up as salaries go up whilst income tax bands remain the same. Property taxes collections have increased (and will do so due to certain changes which in this case, I wouldn't discuss even via PM). Only corporate tax is the variable and corporate tax rates seem to have gone as low as it gets. Add in ERP, casino taxes...

The outlook for defence budget, barring a huge economic collapse which won't happen, will be steady on the uptrend. Too bad a lot of people take good budget governance for granted.

i see what you mean. the debt is a sort of "churning" (repeated reinvestment of) CPF monies into CPF monies + returns via SG government. just clarifying. when u mean the FY08 figure of ~255 billion (17.8) likely including the CPF bonds, you are referring to the high yield 4.5% special bonds right ? the rest of the government bond is undertaken to service "normal" CPF interest rates?

dont agree on such a rosy outlook though. the whole machine still hinges on continued global and singapore growth. stagnate or experience a period of lost decade like Japan and we would be in trouble. the sheer quantity of the debt makes even a cycle of low growth potentially destabilizing. (1-2%)

high housing prices will inevitably affect disposable income and that will hurt or limit what extent we could possibly grow consumer spending to. can we grow consumer spending to larger amounts without growing credit card loan growth/affecting household debt-income ratio ?

is such a regressive tax policy politically acceptable or socially practical in the medium-long run ? is it only going to undermine gini coefficient and income distribution, creating a whole set of problems in itself. what about dependency ratio and the shrinking local population ?

gaming tax revenues may be overestimated. the 90cents paper had a analyst crunch resortworld's numbers for daily takings (based on what MM reportedly said of 7.7 million SGD a day) thats only the equivalent of a mid-sized casion in macau. whilst its still early days yet, this could forebode ill.

what direction of developmental growth and what kind of costs will it take to get wherever we are going in future ? just looking at the onenet project and the marina coastal expressway will tell you the costs (1 billion SGD per km of the expressway- makes me shudder whats the ERP charges going to be like). how valid is the "build it and they will come" model, will today's investment in animation, biotechnology, clean energy and pharmaceuticals pay off tomorrow ?

i can agree with tax base growing (ceterius paribus, as per normal scenario) , but i (can) see the base growing (in amount) but likely to become narrower not broader.

I now understand what you mean about such high debt level being relatively unimportant, given the component breakdown of the debt, relative to our assets and securities holdings . even with good budget governance, i still think, this is a uncertain phase of our development and that its a precarious position to be in and the debt trap is something that we have to be very careful about.

data on CPF bonds is per note 7 here.

http://mycpf.cpf.gov.sg/NR/rdonlyres/BF763.../Financials.pdf

CPF bonds only account for a part of the public debt. The balance is likely for other purposes eg providing liquidity to banks which is indicated here.

http://www1.worldbank.org/finance/assets/i...vt_bond_mkt.pdf

MAS is afterall the Singapore central bank ie lender of last resort as well. see note 13 for where the money for MAS goes. This is likely the foreign reserve.

http://www.mas.gov.sg/about_us/annual_repo...0082009/75.html

Thanks to Stars, 05 & weasel...hey good posts...open up many highlights.

I agree with the last line
".......The outlook for defence budget, barring a huge economic collapse which won't happen, will be steady on the uptrend. Too bad a lot of people take good budget governance for granted......"

thank you for the links. interesting read. i never knew SGS trading facilities existed.

I think there is really uncaused worry about current debt levels. We are still pretty much at normal debt levels.

Also, debt is what fuels the current global economic and financial systems. Truth is, without debt, there would be no interest, no interest, meaning no sense in lending. No lending, meaning no capital, no capital meaning no business to manufacture and build stuff or offer services for profit. The entire capitalist system requires debt and interest to run.

In fact, just rank the countries according to external debt levels and you'd notice something interesting. The countries with some of the highest debt, also have some of the highest standards of living. The lowest also being some of the third world economies. Interesting correlation right?

Where does debt come from? Who loans the money? Much of debt is based on loans that are made by either other countries or international financial institutions. Again, if not for interest and ROI, the there is no sense in lending. In other words, countries with high debt, also tend to receive the most foreign direct investments.

If there is one thing true about this global economic and financial order, is that debt is here to stay. So don't sweat it.

But if you ever see US debt dropping... you might wanna start worrying. Then again, I'm pretty sure theres gonna be some hotshot banker out there that decides that US bad debt is a star buy in the long run.

chope ! work in progress.

no offense intended here dude, think of it as a continuation of our wednesday discussion.

operative word here being, normal. subject being debt levels. issue discussed: uncaused worry.

Im taking this issue to task simply because i disagree with the fundamental assumption being made here. that this is "normal".

what is normal, which standard/baseline reference can we use to determine what is normal and how do we know, what is normal ?

firstly we have to work backwards. to understand normal, normal is a relative concept, which means we need to compare and understand the basis of debt levels and what do they mean.

secondly, we need to identify how can we compare baseline references, given that statistics can differ when compiled by whom and using what methods, e.g the Congressional budget office estimates democrat healthcare plans will reduce the US deficit 100 billion a year, relative to the republican healthcare plan to save 68 billion a year, and cover 12 times as many people, we need to ask, how do these numbers get floated out and who creates this numbers.

for the singapore government deficit, the numbers here are provided primarily by stat board and MAS. we know whats the breakdown of debt, we know whats the quantity of debt. but there are still incomplete data that prevents us from reaching a conclusion, how dangerous are these debt levels.

we dont know what proportion of total public debt is used to "churn" CPF interest rates and what percentage of debt is used to fund liquidity. (although i acknowledge that the CPF link weasel put up, helps towards understanding this breakdown) the detailed fiscal year 2009 report is not out yet and a breakdown of how much of last year's singapore stimulus (half from reserves and half from deficit spending) is yet to be certain. note other factors such as the government agreement to guarantee all bank borrowings has not been taken into account. this is likely to be something significant on the balance sheet.

that is the "known" unknown breakdown of our debt. now to move on to the size of the assets that we possess

while weasel advanced the argument if you look beyond securities (which i considered solely in an earlier argument) and consider the amount of assets that we have and available sinking/consolidated funds, debt is a small proportion of total national funds and that should the dire need arise, we have the capability to bail it out and move on. looking to the future, he argues that this debt is nothing to worry about as ceterius paribus, growth as per normal should be able to pay off this debt as our tax base grows.

whereas my argument brings in a non-economic assumption, that implies an uncertain future, as to whether our economy will grow "as per normal", which makes it likely that the tax base will stagnate and this will trigger the debt trap, where government income (taxation revenue) is lower than expected and interest repayments consume a larger proportion of government income. this could go several ways, which would be to either tax and repay, borrow more and continue as per normal and default and dont pay (screwing up the economy). as the last option is a null option, either the first option or second option is going to be a hard choice to make. my assumption is that we will take the second option, which leads to spiralling public debt.

the fundamental problem with both lines of reasoning is, it sidesteps the size of debt issue and whether is it normal, and instead, looks at whether is it repayable (both making non-relevant assumptions about economic growth) [although i acknowledge that weasel's explanation of the breakdown to be implicitly saying that and indirectly answering that because of this distribution, relative to our assets and how money raised from debt used is different, the debt is less likely to be a long term problem relative to other public debts (notably run by Japan and the US] which i agree.]

the subsequent part of this post looks at the size of the debt (relative to other public debts and relative to the size of our economy) and why it will still be a problem. [and in the process, addressing your uncaused worry bit]


normal, relative debt and why should we should bother what level is it at

just excerpts from the IMF/world bank guidelines on governing public debt
http://treasury.worldbank.org/bdm/pdf/PDM_...001_english.pdf
http://treasury.worldbank.org/bdm/pdf/PDM_...Exec%20Summ.pdf

understanding why we have debt and the inherent risks with debt.

for us, the payments are domestic and not external. but we have to remember that we are a global city plugged into the world. anything goes wrong or some minor screw up somewhere in the wheels of the global financial system and things happen to our economy. the sheer degree of external dependence and how it affects our tax base, relative to the size of our (largely domestic) debt will be a major factor in our economy.

at the current moment, borrowing money is fine because interest rates are low. but what happens if it isnt ? what happens if the rates have to go up ? what if we pile on longer term borrowings (10-20 years). can we afford to pay the higher interest rates ?

lets take the size of borrowings to be 300 billion. at the moment we have something like 50 billion short term t- bills. relatively cheap to borrow. approximately another 200 billion in relatively short (1-5 years) at interest rates of 1-2% and a small portion of it (4-5% for the CPF long term special account interest). what happens if these proportions changed ?

theres a chunk somewhere in there that talks about scaling back of government securities and its negative impact on liquidity. while we cant completely cut off our SGS and liquidity functions, question is, where do we draw the line on national debt ?

while SGS bonds and securities broaden and deepen our financial markets. the fundamental nature of our economy makes for limited macroeconomic tools and policies. what kind of risks are we incurring by accumulating large public debt ?

while basically less risky as all our debt is domestic held (no external, only internal) , from a security pov and other states have less leverage over us or over how we control the economy. it dosent mean that we are exposed to no risks. we have our own (contextual) set of risks. we cannot escape the fact that we are a nodal global city plugged into a global network. if singapore inc is screwed by external events, the singapore govt revenue and expenditure too will suffer. consumption and company taxation are all income dependent. what if the external economy tanks (china implosion, US economy falters) and there is a global great depression II, what will that mean for OUR debt ?

thats why the debt trap to me, is a real and very present danger. the sheer size of our debt means we could be locked into a long cycle of repayment (with little hope of getting out of it unless we implement austerity measures and/or the painful choice of tapping into our national reserves, which, given their size currently, wipe a significant portion of them out.)

the case for sound budget deficit management and perhaps a lower national debt limit

if you take a look at the link, it advocates a system of checks and balances, comprising guidelines, transparency of accounts, who and what is this debt for. this is the most dangerous thing about our debt. our system works against it. accountability, transparency, the lack of strong/credible opposition voices to ask why and disclose why this debt and push for what is it used for.

we have a debt limit, but do we have explanations of what this debt is for and why should we be concerned about this debt and how can this debt be managed in the long run (or is it a threat at all ? -which is the question that lies at the heart of it all- ). do we have a concerted national debt strategy and plan ? there are accountability and transparency issues here.

this is not a anti-government rant but rather a matter of fact approach to the issue at hand. the potential for misunderstanding the system and its mismanagement is huge. while i acknowledge that thus far, governance has been good, does the size of national debt make it even more risky and dangerous in the medium-long run ? can we (or rather, are we taking) take good governance for granted

just look at the size of limits that others are putting on their own respective national debts. do we need to worry about the size of ours ? (although there are differences as ours is internal and no external debts. this i acknowledge)

US debt and the coming american crisis

Thirdly, the point you make generalizes and glossess over what kind of debt. There's national , public/institutional and household debt. Sooner or later, if the us dosent get it's economic fundamentals right, by spending within it'S means, it's a house of cards that will collapse. The logic under the bush ii administration that debt is inconsequential in a unipolar world, is flawed. Simply because unipolarity Is underpinned by economics, not just hard power.

this is grossly oversimplified but the fundamental bushoctrine of spending on hard power and hoping that the benefits materialize in the economy hasnt materialized. look at the indicators, china being the world's largest auto-maker, US losing its lead over industrial capacity (one in which it won over from britain and kept it that way for a century) and long term growth (1.9% average per annum over the past 10 years)

why do people want to or still continue to bankroll US spending ?

its partially because of hard power and the US security role that anchors global stability and prosperity. but i would argue the main reason is economics. they bankroll the US continued deficit and expenditure because if the US economy tanks, so will everyone's economy. this is economic interdependency at play here. they have a vested interest in seeing the US economy work. they have a vested interest in US economy thriving and continuing. but the US cannot take this for granted.

should china emerge as a emerging alternative engine of economic growth (and some argue that it has), will US treasury bonds and t-bills be attractive ? can americans consume at their current rate given average household debt and individual credit card debt ? its interesting to note that at the peak of the financial crisis, EU ministers publicly voiced hopes that some of china's stimulus package would trickle down to the EU economies.

debt means leverage. debt means you are spending something which you havent earned. debt means enjoying the benefits of it now and paying it or passing the buck to someone later or deferring payment till tomorrow. tomorrow eventually comes. it's just yesterday's future.

companies can accumulate debt, households can accumulate debt and governments can accumulate debt. at the end of the day someone has to pay for it. even if its not today's generation, it might be tomorrow's generation. but it still has to be paid. the alternative, to default and go back to zero, is the economic equivalent of being nuked and going back to the stone age (essentially cutting off and severance of all economic linkages with the world). debt has a way of sticking around. even if politics and administrations change, money owed is money owed. just look at UK war debt to america. just look at how iraq is trying to reclaim money from france over the undelivered mirages.

while in our case, the debt undertaken is not because we are living beyond our means like the US, it still has to be paid. dosent change that fundamental fact that it has to be paid. im not against the argument that it boosts liquidity and helps economic growth. i just dont agree with reckless fiscal irresponsibility like the US and risks that come with having such a large public debt to GDP ratio.

btw, your statistics about GDP per capita and debt levels (public debt) dont concur. the only ones that do are japan and singapore. and in both cases, high national savings would explain the exception rather than them being a norm. extrapolating from your correlation, zimbabwe ought to be an economic powerhouse. cant say that this correlation is valid

I forget to add in one point which I found interesting.

If debt repayment becomes an issue, SG government actually has an easy tool to manage this. By increasing CPF contribution rates, citizens save more and government gets an instant cashflow boost.

Unlike US where increasing social security rates will actually increase the tax burden (as social security payouts has no link to contribution), hence that's why no one dares to address this. CPF is an individual savings process. What one puts in is in theory what one is entitled to take out (eventually). So putting more in at any point in time is more of a cash flow management issue.

In US, medicare and social security are the biggest components of expenditure (38% and projected to go up to 46% in 2020). Due to the delink, contributions will not match payouts by 2019 and will run out by 2047. Either way, US govt is screwed cos no one dares to sanction a tax increase or a benefits cut.

SG doesn't share US debt or budgetary problems.

dont mind me asking (no relation to my earlier post)

wont that be short term relief ? you basically take more money to pay back debt but you cut back disposable income affecting consumer spending, company expenditure (assuming employers liability go up as well)

we dont share the same degree of debt and budgetary problems. but we share the same root problems that are going to create our own kind of debt and budgetary problems

healthcare expenditure hovers about 1-1.1% of GDP in our case. an ageing population and increased dependency ratio is likely to push this up.

social security benefits go out to pay for unemployment, disability and retirement benefits. while we do not have an equivalent program, the likely expansion and strengthening of social programs such as workfare (to combat income inequality), comcare (to act as a social security net for those who fall through and give monthly handouts/allowances for various reasons) and other social related expenditure that fall under MCYS and the community development councils (CDCs). these are socio-political developments that we cannot discount.

on a side note. i realized that there is no real way to divorce size of debt and ability to repay. but while the ability to repay is a future thing/projections and size of debt is an issue we can actively address here and now, are we hampered by what is available ( extent of information, knowledge of how it works and scale) in our understanding ? is it an exercise in futility (understanding the un-understandable ?) [given that imf/world bank experts get it wrong most of the time in their own policy prescriptions, predictions and understanding] [sheer irrationality of ordering and catgeorizing something which is by nature chaotic and unorderable/the free hand of the market]

In theory, its short term relief but its a up to 30+ year deferral (cos CPF payouts is later depending on age but more contributions for those younger). Adjustments both ways (ie to reduce contributions later) can be made to offset the increases too which would neutralise the position.

Of course the underlying position is important. If all govt monies are routed to fund projects like the GIC-Peter Stuyvescent project in New York, then basically that's pouring money into a financial drain. But that's supposed to be an exception rather than the norm (portfolio management theory).

Medical care is not a SG government expense. Medical expenses (including medishield and eldershield) are via medisave which is personal contribution. There are government subsidies to hospitals but that's limited. The bulk of medical expense is still very much private funded. Insurance plays a bigger part. Private insurance eg Aviva (myshield)/NTUC (incomeshield) has health insurance that works as a healthcare expense aggregator. However, co-ops such as NTUC work towards managing expenses by providing a benchmark for true private insurance providers.

Obama's healthcare reforms are precisely trying to achieve the SG model eg public comparables (such as coops which is the equivalent of NTUC) which is very strongly resisted in the US because that will lower healthcare costs and insurance profits.

Just a couple of days back, premiums are already jumping.
http://www.reformer.com/ci_14441682?source=most_viewed

SG also operates public hospitals/polyclinics that offer lower cost medical coverage (just have to wait long queue). Different model in US. If no insurance, "die lah" is a real possibility.

disagree. just looking at public health sector.

subsidies depends on your income (after what mr khaw did...) and on what bed class. if you stay in a C-class bed, 60% of your total medical expenses is paid for by the state. the remaining 40% is payable for via medisave and cash. cant recall the subsidy rates for B1 and B2 but A class beds are 100% non-state subsidized. given that A class bed only account for a small proportion of available beds (and there's been an expansion of C class wards), state subsidy of healthcare is likely to increase as the baby boomers go into retirement.

aside from patient subsidies, you have expenditure on infrastructure. look at the current situation. you have the big 3, tan tock seng, SGH and NUH, followed by the satellite 3, with 1 in operation and 2 being built up, CGH, Khoo teck phuat (in yishun) and Jurong general hospital.

i think expense is only one part of the equation. the bigger equation is that cost is borne by the state. not the individual health clusters (which mr. khaw boon wan recently questioned the viability of this model and pushed for a greater breakdown to regional health clusters). the current organisation of SG healthcare into the singhealth and NHG clusters is organized around the concept of competition to reduce costs, but from what ive heard of from internal sources, the two major hospitals that are fisically sustainable (read, actually being able to break even, not make supernormal profit) are TTSH and SGH. every other health institution is not able to recoup its costs from patient revenue and drags down overall fiscal solubility of the individual health clusters . the institution that ends up absorbing the debt from these clusters is MOH and by extension, the SG government.

even if some form of healthcare reform does manage to make the current health care system workable (in the sense, fisically self-sustainable, minimal state funding), we cant ignore demographics and demand. there will be a increased need for healthcare workers, eldercare facilities so on and so forth that will divert human resources and money, towards non-productive economic activity. (net drain rather than contributing to the economy, increased dependency ratio)

the only way to arrest this would be to grow, long term sustainably, both our population and economy. going back to the debt, expenditures like these compete with other needs (basically society, security and economy). the way i see it, social expenditures are likely to increase. ceterius paribus, given finite revenue and the need to repay debt, we cannot dont grow if not we might fall into a debt trap. the other likely compromise would be to cut expenditure. and the biggest sacred cow of all here is defense.