United Nations Public Service Awards Case Studies

Grave Economic Crisis, With Severe Threat to Employment

In early 2009, Singapore faced a severe economic threat as a result of the global financial crisis. Due to our small open economy, the impact of the sharp fall in external demand was expected to hit us hard.
At the time of the Singapore Government Budget for 2009, GDP was projected to contract by between 2% and 5%. This was subsequently revised to a contraction of 6-9% at the depth of the recession. While Singapore had started from a position of low unemployment, we expected retrenchments and unemployment to rise sharply given the severity of the downturn.

Singapore Needed a New Policy Tool for a New Challenge

In previous recessions, pro-employment policy initiatives had primarily taken the form of a reduction in the employer contribution rate to the Central Provident Fund (CPF), Singapore’s national social security system. This had the effect of lowering employment costs and supporting job retention.
However, the fundamental problem Singapore faced in early 2009 was not one of wage competitiveness but a slump in global demand. As such, there was no need for an across-the-board cut in wages, which might also have been difficult to restore in the aftermath of the crisis. A broad-based wage cut would also curtail consumption and exacerbate the economic situation.
The alternative of a corporate tax rebate would have limited assistance to companies as only 30% of Singapore companies need to pay income tax. In particular, many small and medium enterprises (SMEs) pay little or no tax, and would not benefit from a corporate tax rebate. On the other hand, they are the ones that require most help with cash flow.

What is the initiative about? (the solution)
The Jobs Credit scheme was introduced in the Singapore Budget 2009 as a temporary and extraordinary measure to encourage businesses to preserve jobs in the severe downturn. Under the Jobs Credit scheme, employers would receive a cash grant comprising 12% of the first $2,500 (about US$1,670) of the wages of each employee on the CPF payroll. Jobs Credits would be given to employers in four quarterly payments (at the end of March, June, September and December 2009) to help reduce their costs of employing local workers during the crisis. The key benefits resulting from the Jobs Credit scheme were: a) Incentivising businesses to keep workers. The Jobs Credit scheme was generally assessed as having helped avert major job losses. Prior to the introduction of the scheme, Credit Suisse analysts estimated that up to 300,000 jobs (or 10.2% of total employment) might be lost during the downturn, with 100,000 of those jobs held by Singaporeans. Despite the sharp fall in our GDP resulting from the global recession, unemployment went up only moderately from 2.5% in December 2008 to 3.3% in June 2009, while local employment actually increased by 7,000 jobs in the same period. This was also, in part, due to the fact that external demand had held up better than expected because of the collective efforts of governments to stimulate their economies. b) Helping businesses with cash flow. Reducing the immediate loss of jobs was the most direct but not the only benefit of the Jobs Credit scheme. Companies received the Jobs Credit payments based on the number of local workers they employ but the money they received could be used in any way to help their business and employees. Anecdotes abound of how businesses had used the money to avoid wage cuts or reduce the scale of wage cuts; to invest in their people through training; to pass on the savings to consumers; or to pay suppliers on time. c) Stimulating the economy. Furthermore, the scheme amounted to a significant fiscal injection (S$3.6 billion over four payments or 1.4% of GDP) that would have had a multiplier effect on the economy and thereby helped support more jobs. Footnote - The Central Provident Fund (CPF) is a comprehensive social security savings plan which aims to provide working Singaporeans with a sense of security and confidence in their old age. It is administered by the Central Provident Fund Board, a statutory board under the Ministry of Manpower. Under the CPF Act, every registered employer needs to sign up for a CPF account for every new employee with CPF Board. With the CPF, employees set aside part of their wages every month for their old age, while employers play their part by ensuring CPF contributions are paid on time.

Who proposed the solution, who implemented it and who were the stakeholders?
Collaborative Conceptualisation The complexity of the modern economy meant any successful countercyclical strategy requires both whole-of-government collaboration and private sector buy-in. The Ministry of Finance’s (MOF’s) processes for involving relevant government agencies and the private sector in formulating the Budget are well institutionalised. These range from a defined work stream of developing, reviewing and fine-tuning the budgets of individual Ministries, to pre-Budget consultations with businessmen, subject experts, unionists and other key stakeholders in Singapore. The development of the Jobs Credit scheme illustrated MOF’s longstanding commitment to inclusive consultation. The need to ease business costs in an environment of declining revenues and support employment were recurrent themes in pre-Budget dialogues. MOF worked very closely with the Ministry of Manpower (MOM) on the structural elements of the Jobs Credit scheme. Efficient Implementation MOF intended for the Jobs Credit scheme to be implemented in a manner that posed minimal administrative burden to recipients. MOF collaborated with the Central Provident Fund Board (CPFB) and the Inland Revenue Authority of Singapore (IRAS) to use existing employment and salary data from CPF contribution and tax filings, in order to compute and distribute Jobs Credit payouts. This avoided the need for burdensome declarations from companies. In fact, companies received their Jobs Credit payouts automatically, without the need to submit any application forms. Multiple agencies were also involved in communicating the initiative to the public, to ensure the Jobs Credit had the optimal impact. After the Budget announcement, MOF and the Ministry of Manpower (MOM) worked closely with all the stakeholders to further explain and clarify the scheme. The success of the roll-out is evident in how businesses lauded the relevance and impact of this move. Mr Terry D O’Connor, CEO of Courts (Singapore) Ltd, a major retailer in Singapore, said this was a “fresh and innovative approach to balancing long-term needs of citizens in relation to their CPF, ageing and medical care whilst relieving payroll pressures for businesses at the sharp end of most businesses”. Whole-of-Economy Partnership for Success The Minister for Finance, Mr Tharman Shanmugaratnam, had consistently reiterated that the success of the Jobs Credit scheme required the private sector to collaborate with the Government to achieve the objectives that were in the best interest of all parties. The Government could take in feedback, set clearly defined policy objectives and commit substantial resources in support of the business sector. However, it would not have control over hiring and retrenchment decisions of employers. The Jobs Credit’s success was testament to the resilience of Singapore’s economy, with companies responding positively to the Government’s initiative.

Describe how and when the initiative was implemented by answering these questions
a. What were the strategies used to implement the initiative? In no more than 500 words, provide a summary of the main objectives and strategies of the initiative, how they were established and by whom.
Strategy 1: Act with impact In formulating the Jobs Credit scheme, the Government had decided to err on the side of impact instead of caution. The impact of the crisis was unprecedented in its swiftness and scale. At the same time, all the major regions of the world experienced economic decline simultaneously — making this the first truly global recession in the post-war period. In view of these unique challenges, the Singapore Government recognised that the scale of the new countercyclical economic measures had to be correspondingly bold. Strategy 2: Act with a long-term view The Jobs Credit scheme had to balance short-term needs and long term goals. In order to achieve this subtle balance, it was vital for programmes of such generous scale to be temporary. Hence, the Jobs Credit scheme had definite end date articulated upfront, with a review mechanism taking into account economic conditions to ensure orderly exit. As the economy stabilised, the Government assessed that it would be timely to phase out the Jobs Credit scheme and adopt more targeted measures to support economic restructuring and enhance productivity. Therefore, in October 2009 after the third Jobs Credit payment, the Government announced its decision to extend the Jobs Credit scheme for six months by providing another two, stepped-down payments in March and June 2010. The phased withdrawal of the Jobs Credit scheme would allow companies more time to be on even keel and prepare for an eventual economic recovery. Strategy 3: Act with speed and efficiency The global crisis triggered by the collapse of Lehman Brothers in September 2008 had impacted Singapore economy more adversely than expected. With the economy sliding into recession, it became clear to MOF that decisive action had to be taken to help businesses save jobs. By January 2009, the Jobs Credit scheme had been formulated and introduced. To ensure the effectiveness of the Jobs Credit scheme in helping businesses with cash flow, the first Jobs Credit payment was made in March 2009, two months after the announcement of the scheme in January 2009. During this tight two-month window between announcement and implementation, MOF collaborated with the Central Provident Fund Board (CPFB) and the Inland Revenue Authority of Singapore (IRAS) to leverage upon established processes and mechanisms such as the CPF system to minimise implementation lag time. Strategy 4: Act in partnership A timely response need not also be reactionary. Due to the volatility of the situation, it was essential not to launch schemes on the scale of the Jobs Credit scheme without careful assessment. In formulating the Jobs Credit scheme, MOF had worked very closely with the Ministry of Manpower (MOM) on the structural elements of the scheme, and actively sought private sector feedback through pre-Budget consultations with businessmen, subject experts, unionist and workers. The same cohesiveness was been reflected in the execution of the scheme. Multiple government agencies monitored the impact of the Jobs Credit scheme, evaluated private sector feedback, and shared policy-relevant information across agency boundaries.

b. What were the key development and implementation steps and the chronology? No more than 500 words
To ensure the speedy implementation and payout to businesses, the first Jobs Credit payment was made in March 2009, two months after the announcement of the scheme in January 2009. During this tight two-month window between announcement and implementation, the following implementation steps were taken: • 22 Jan 09 – Announcement of the Jobs Credit scheme • February 2009 – Development and testing of the Jobs Credit computation programme and the Jobs Credit payment system • Early-to-mid March 2009 – Computation and audit of the Jobs Credit quantum to be paid to each business Late March 2009 – Payment of over $900 million of Jobs Credits to more than 100,000 businesses through electronic payments and cheques The computation and distribution of Jobs Credit was executed with minimal or no administrative burden on the recipients.

c. What were the main obstacles encountered? How were they overcome? No more than 500 words
The main obstacle that was faced in the design and implementation of the Jobs Credit scheme was concerns of gaming and abuse on the part of employers. These concerns ranged from employers artificially inflating the wages of workers, to the inclusion of phantom workers on their payrolls. To prevent and detect such abuses, anti-abuse measures were built into the scheme, both at design and the implementation stages. For example, in designing the scheme, the payout attributable to each individual was capped to prevent companies from abusing the system by adding the same individual onto their payrolls. In implementing the scheme, payroll data was also screened to systematically identify unusual increases in payrolls, with verification checks being made on these employers. The Government could have put in place more stringent checks to ensure minimal gaming. For example, we could have required employers to submit audited data. However, the Government’s key concern was to deliver the Jobs Credit quickly and efficiently in the midst of a very urgent economic situation. Hence, the risk management approach outlined above was preferred.

d. What resources were used for the initiative and what were its key benefits? In no more than 500 words, specify what were the financial, technical and human resources’ costs associated with this initiative. Describe how resources were mobilized
Given that the Jobs Credit scheme was a temporary and extraordinary anti-crisis measure, the Government decided to fund the scheme separately from the regular Budget. The Government had however chosen not to borrow, so that we would not have to burden either current or future generations with the need to repay our spending on the Jobs Credit scheme. Instead the scheme was funded from our past Government reserves which have been accumulated to meet severe contingencies like the global financial crisis. Tapping on past reserves gave confidence to Singaporeans and investors that the Government was responding to the crisis with all the necessary resources at its disposal. The amount of Jobs Credit disbursed in 2009 totalled S$3.6 billion. To implement the Jobs Credit scheme, the Government budgeted about S$9 million (about US$6 million) for administrative costs. The S$9 million budget – which would cover mainly the costs of infrastructure, manpower, IT solutions and postage required to administer the four Jobs Credit payments – was amounted to only a 0.25% of the S$3.6 billion Jobs Credits disbursed.

Is the initiative sustainable and transferable?
The Jobs Credit scheme was designed as a temporary measure to help Singapore companies preserve jobs during the sudden and severe economic downturn, and yet at the same time allow for necessary economic restructuring to take place as the economy recovers. Therefore, the scheme was not meant to be a permanent or long-term scheme, and was also financed in a fiscally sustainable way using accumulated Government reserves rather than from borrowing. The scheme addresses a concern that many countries faced during the downturn. Therefore, the scheme is transferable across jurisdictions. However, jurisdictions intending to implement a similar scheme in future crises need to either have access to timely payroll information, or be prepared to put in place a robust system to reliably collate such data.

What are the impact of your initiative and the lessons learned?
Positive Impact of the Jobs Credit Scheme The Jobs Credit scheme was designed to help employers with their cash flow, while providing an incentive to retain workers. A survey conducted by the Ministry of Manpower (MOM) from May to July 2009 showed that the scheme was having a positive impact in helping companies and workers cope with the downturn. About 3 in 4 (73%) companies which had earlier plans to lay off workers reported they would postpone or reduce the number of workers to be laid off, as a result of Jobs Credit. Given that Jobs Credits were given to employers as a generic cash grant, quantifying the comprehensive impact of the Jobs Credit would be difficult as employers could have used the money to support their businesses in many different ways. Nonetheless, whichever way companies had used the Jobs Credit payments, the scheme amounted to a significant fiscal injection that would have had a multiplier effect on the economy and thereby helped support more jobs. Principles for Success In the face of the global financial crisis, the Government believed that the best way to instil confidence in this crisis was to help Singaporeans stay employed and retain their ability to support their families. Hence, the Jobs Credit scheme focused on helping business retained workers by alleviating business costs through a fiscal injection. While the Jobs Credit scheme had been positioned as a unique short-term measure in response to the unprecedented crisis, policy formulation was still based on fundamental principles – to act with decisiveness, swiftness, efficiency and cohesiveness while taking a long-term view.


Institution Name:		Ministry of Finance, Central Provident Fund Board and Inland Revenue Authority of Singapore
Institution Type:		Government Agency
Contact Person:		Alvin Moh
Title:		Head (Economic Strategy)
Telephone/ Fax:
Institution's / Project's Website:
E-mail:		alvin_moh@mof.gov.sg
Address:		100 High Street, #10-01 The Treasury
Postal Code:		179434
City:
State/Province:
Country:		Singapore

The Problem

Solution and Key Benefits

Actors and Stakeholders

(a) Strategies

(b) Implementation

(c) Overcoming Obstacles

(d) Use of Resources

Sustainability and Transferability

Lessons Learned

Contact Information