Populist policies might risk the public purse and financial discipline

Year: 2020

This post is written as a brief comment to an article published on The Business Times titled: HDB mortgage late payment charges suspended till March 2021 (1 October 2020).

“While FMG acknowledges that an increasing number of heartland households will face financial constraints in the coming months, we disagree with the government’s doubtless well-intentioned policy.

First, households should have been prudent and maintained balance sheets to see them through the crisis. Thus this intervention creates moral hazard.

Second, the broad-based rather than needs nature of the policy is populist and lazy. It means that both those in need and those not in need benefit at the aggregate cost to the public purse.

Third, as 80% of Residents live in Public Housing Estates, this is a non-trivial concession.

Financial discipline is a principle that should apply and undergird Government, Household and Individual conduct. These indulgent and indiscriminate measures only encourage profligacy, an erosion of self-reliance and pushing on a string on the fiscal purse.

Adverse selection means that good actors will bear the weight of those less prudent. In the future, there will be fewer good actors as the expectation is that the government will always pick up the tab of contingent liability as it increasingly becomes populist.

The end of this story is not difficult to determine.”

– Devadas Krishnadas