By Tan Khee Giap

THE Government has adhered to one broad and correct approach in its efforts to redistribute financial resources since 2003: the targeted approach. This is more effective than the administratively convenient one-size-fits-all approach. I would like to comment here on how this approach has been applied in the Jobs Credit Scheme and in the decision to dip into the national reserves for fiscal year 2009.

The scheme - a 12 per cent subsidy of the first $2,500 of the wages of Singaporeans and permanent residents - is superior to an across-the-board CPF cut. The latter would benefit employers at the expense of employees; the former will reduce job losses.

However, the Jobs Credit Scheme is not targeted in application. To be effective, it should discriminate between big corporations and small- and medium-sized enterprises (SMEs). Wage cost as a proportion of total costs is lower in big corporations (15 per cent) as compared to SMEs (40 per cent). Given this disparity - and the fact that SMEs employ many more people - the scheme should be targeted to benefit SMEs more than big corporations.

Debate has recurred as to what should be the circumstances under which the Government should be allowed to use the reserves. Senior Minister Goh Chok Tong has defined three broad principles or the ' three No's' (see previous page) for dipping into the reserves.

My suggestion is for Parliament to stop at these qualitative three No's and avoid explicitly identifying quantitative guidelines or specific indicators for when the reserves can be used. Any attempt to do so - any attempt at specifying particular indicators of economic distress before the reserves can be tapped - would amount to a one-size-fits-all approach. More importantly, it would put the elected President on automatic pilot.

As future exceptional events are highly unpredictable, we must instead rely on citizens to vote in responsible governments to exercise sound judgment on how best to accumulate, manage and deploy our hard-earned reserves.

The writer is Associate Professor of Banking & Finance, Nanyang Business School, and Co-Director, Asia Research Centre, Nanyang Technological University.

This article was first published in The Straits Times on February 03, 2009.