1985: $1.25b deficit

1986: $0.5b deficit

IF BUDGETS are financial medicine in a downturn, the ones in 1985 and 1986 were bitter pills.

The period saw the most severe recession in a decade, but the Budgets presented by then-finance minister Richard Hu were notably short on immediate sweeteners.

Instead, they focused firmly on 'longer-term issues': increasing productivity, encouraging trade and growing the financial services sector.

In 1985, Dr Hu slashed the employers' Central Provident Fund contribution rate from 25 per cent to 10 per cent.

Later in the year, a series of modest off-Budget measures were issued.

When the downturn continued the next year, the Government cut personal income tax rates across the board and handed taxpayers a 25 per cent tax rebate.

The corporate tax rate was also reduced and property tax rebates given for commercial and industrial space. Property and hospitality players were offered targeted help and tax incentives were given to venture capital companies, fund managers and pioneer companies to set up here.

But there were no cash handouts for recession-hit households in 1985 or 1986, and little to address the issue of mounting retrenchments.

In 1985, the Government, in fact, raised road taxes and petrol duties, and in 1986, it announced plans to reduce permanent staff in ministries and statutory boards by 10 per cent over the next five years.

Prime Minister Lee Hsien Loong recently referred to Singaporeans having to 'take the medicine' in 1985, saying the upcoming one will have 'a bit more sugar coating'.

'That year in 1985, there were no goodies. Not one. People listened carefully, they understood the issues. The medicine worked,' he said.

This article was first published in The Straits Times on January 17, 2009.