Wednesday, February 04, 2009

Measures to stimulate the economy

First posted on 22 Nov 2008

Most countries adopt the following measures to stimulate a slowing economy:
> capital spending, e.g. build infrastructure, roads, bridges, etc
> reduce tax, i.e. consumption, income or profit tax
> give cash cheques to consumers to spend

Which method is better? I believe that a combination of measures are necessary. A lower rate of consumption tax (e.g. GST) will encourage people to spend and will stimulate the economy. Cash cheques for consumers may results in some of the money being saved, and not used for spending. But it can help the cash flow of the lower income people.

So far, no country has adopted the following measure (which is my preference):
> give a credit line to consumers at a low rate of interest - subject to a cap.

This credit line, which is given to someone who has lost a job, can help to pay the mortgages and meet the monthly expenses. It reduces borrowing on credit cards or other sources that can add to the interest burden. This credit line will encourage the people with jobs to continue their normal spending (as they do not need to increase their savings in case of retrenchment). More details in this article.

In many countries, there is no need for this relief loan as the retrenched workers can get unemployment benefit. This scheme is important for many Asian countries that do not have unemployment insurance.
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8 comments:

  1. AnonymousNovember 22, 2008 9:18 PM

    "18 Nov: MR TAN Kin Lian organised yet another rally last Saturday, this time to assist investors to redress their injustices over the collapse of the Pinnacle Notes 9 and 10 series by Morgan Stanley. Too many people are taking advantage of the situation to get back money from what they knew was a risky investment....

    Source: http://www.straitstimes.com/ST%2BForum/Story/STIStory_303479.html

    Dear Chua Sheng Yang,

    We do not know you but we cannot standby and watch while you go lambasting Mr Tan Kin Lian as if you have a sword to grind with him.

    Now, if Mr Tan is as bad as you make him out to be when he was CEO of NTUC, how about showing the same level of disdain toward PAP’s Mr Tharman Shamugaratnan?

    Mr Tharman was a convict, convicted under the official secrets act while he was director of MAS. The PAP was able to ‘move on’ with his conviction, ignore it, gave him a place in PAP, and mind you a very high place at that, got back his job at MAS with very a much improved package with autonomous authority over the same institution that charged him for revealing secret information and being made the Minister for Finance that looks after our national reserves."---i received this partial article from friends.

    I really don't understand why is that such a thing happening??Why is he getting all the credits for doing bad things(correct me if i am wrong, i am just curious)?
    sorry but i dunno y u r attacked but some people get scotfree..

    ReplyDelete
  2. AnonymousNovember 22, 2008 10:21 PM

    Apease folks

    Theres a reason theres a Chua Sheng Yang

    if one pause to think, maybe for a while or so, one will realise the REASON behind his existence.

    Then theres nothing to be angry about anymore.

    Isnt that rite Blog OWner

    ReplyDelete
  3. AnonymousNovember 23, 2008 9:52 AM

    Dear Mr Tan, thinking further about your suggestion to extend credit to unemployed people, do you think such a scheme would encourage people to stay unemployed? one incentive to go for a job search is because of lack of money and if that is partly resolved by the loan, would that lead to complacency? also, if such a credit line would to be extend limitlessly...would it add on to the debt burden of individuals no matter how low the interest rates? of course i'm sure with some tweaking perhaps we can overcome these issues but these are just my two cents thoughts.

    ReplyDelete
  4. hongjunNovember 23, 2008 6:13 PM

    I also hope to see the current S$8,000 limit for combined household income eligible to buy a HDB flat to be increased. This rule is there for donkey years! Singapore government should move with the current standard of living and increase this limit like how they have increased utilities bills so easily.

    Cheers
    hongjun

    ReplyDelete
  5. AnonymousNovember 24, 2008 6:40 PM

    The Hong Kong Legislative Council subcommittee was expected to start its investigation into the Lehman minibond debacle in late January, its chairman said on Monday. ...

    ReplyDelete
  6. Donaldson TanNovember 24, 2008 8:59 PM

    Anonymous (9.18pm),

    It is true that our Minister of Finance is an ex-convict. The crime was committed in 1992, when Tharman was director of the economic department of the Monetary Authority of Singapore.

    http://www.iht.com/articles/1993/10/22/sing_0.php

    ReplyDelete
  7. AnonymousFebruary 05, 2009 5:30 PM

    Mr Loh Hon Chun,

    I suggest to keep the status quo. Raising the ceiling will only push up the HDB prices which make it not affordable to many low-income families. I think there are still plenty of low-income families here. Please do not compete with them.

    On the other hand, government should consider lowering the land cost (a significant portion in the pricing of sale of properties) and make it more affordable for families whose family income is more than $8,000 to purchase private properties.

    ReplyDelete
  8. AnonymousFebruary 05, 2009 11:16 PM

    Lowering the GST will stimulate spending at this extraordinary crisis time, I am not sure? But lowering GST as an cost cutting to help the citizen is definitely not good as it only benefits small group of people.

    Mutual Sharing
    http://mutual-sharing-frog.blogspot.com/

    ReplyDelete