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10 Apr 2020
Economic downturn
Suggestion View - 437
Income relief loan - a working example

I prefer an income relief loan to be given to workers who are retrenched or suffer a drop of income during an economic downturn.

The attached paper shows how the relief loan can work. It is based on a sample of 1,000 workers and is projected over a period of 12 months of the economic downturn.

The total amount required for the relief loan for 1,000 workers is $13 million. If this is computed for 1 million workers (i.e. one third of the workforce in Singapore that is affected), the required budget is $13 billion.

This relief loan ensures that all the workers are able to maintain their income at 80% of the level for the past year and that the monthly income is sufficient to meet the living expenses.

This is a loan which has to be repaid. Some of the borrowers may be unable to repay them, so the loan has to be written off. If the default rate is 20%, the actual cost to the government is $2.6 billion.

The attraction of this scheme is that all the affected workers are placed at 80% of their previous level of income. Being a loan that needs to be repaid, they will be careful about using the money. It reduces the moral hazard.

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