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Saturday, 24 January 2009

Recession inevitable

THE generous Budget unveiled yesterday, with $20.5 billion in recession-targeted spending, will probably add between 1 and 2 percentage points to Singapore's economic performance this year.

But economists said this has already been factored into their negative growth forecasts and will not pull the nation out of recession. Even with the record deficit this year, the economy is officially tipped to shrink between 2 and 5 per cent.

'The Budget is an extraordinary package for the gloomy road ahead. However, we are facing a global phenomenon, a problem too large for this unprecedented Budget to resolve,' said DBS economist Irvin Seah.

OCBC economist Selena Ling, who is predicting that the economy will shrink 2.8 per cent this year, said she would have expected a 4 per cent contraction without the massive fiscal stimulus.

Still, she thought the Government 'could have been more generous in terms of helping individuals directly'.

'A lot of the measures were biased towards helping companies because they expect that what helps companies will help individuals,' she said.

'They've prioritised saving jobs as they key theme this year, so they are thinking that as long as you have a job, you're okay.'

There was little help directed at white-collar workers, who belong to the 'sandwiched' middle-class.

Personal income taxes were not cut alongside the 1 percentage point reduction in the corporate tax rate. Instead, taxpayers were given a 20 per cent income tax rebate, capped at $2,000.

This was 'a bit disappointing' as it was exactly the same measure given out last year, during the good times, said Standard Chartered economist Alvin Liew.

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