The Budget and what it means for S'poreans

By Aaron Low, The Straits Times, 8 Apr 2013

EVERY year, usually in February, Singapore's Finance Minister presents Parliament with one of the most important economic and political documents of the year: the Budget.

He also gives a speech to Parliament to explain the Budget.

The document is an accounting of the Government's expenditure, such as building MRT lines or paying civil servants, and revenues, mostly taxes collected from firms and individuals.

It is also a means for the nation's leaders to communicate the biggest policies of the day.

It is a closely watched event, with the media and analysts scrutinising every detail of the document. Many Singaporeans watch it live via various platforms.

In other countries, especially in European nations such as Italy, Spain and Portugal, Budgets have taken on much greater significance as these countries are heavily indebted to foreign investors.

They have to adhere to strict rules about how much more they can borrow and what they are supposed to spend their funds on. Break a rule and it could mean the collapse of an entire economy, with foreign funds drying up.

By contrast, Singaporeans do not have to worry about whether the Government is facing trillions in debt, or preparing to implement tough austerity measures.

Instead, the main question on many Singaporeans' lips is: "What's in it for me?"

'Robin Hood' Budget

IN A trend that Europeans can only dream of, the Government has been dishing out tax rebates, cash gifts or Central Provident Fund (CPF) top-ups to citizens almost every year for the past decade. This is because the Government has been able to bring in surpluses - where government revenues and investment income exceed expenditure - on a fairly regular basis.

Between 2000 and last year, there were about five years when the Budget was in deficit - meaning expenditures exceeded revenues. The other seven times, the Government recorded a surplus.

In 2011, just before the General Election, the Government recorded $4 billion in overall surpluses. That same year, the Government gave out $3.2 billion in cash gifts, bonuses and rebates to individuals and families.

Called the "Grow and Share" surplus-sharing package, it was one of the largest baskets of "goodies" given out by the Government.

Annual deficits are funded from the accumulated surpluses over the current term of government. But by the end of each five-year term of government, the Budget has to be balanced.

This year, the Government recorded operating revenue - which includes personal and company taxes - of $55.2 billion. In addition, investment returns came in at about $7.65 billion.

After deducting for expenditure, transfers and endowment fund top-ups, the Government logged a very decent surplus of $3.85 billion.

Transfers include Goods and Services Tax vouchers, service and conservancy rebates as well as CPF top-ups.

But whether a resident has received anything from the Government would depend very much on whether he was in the rich segment or the poor segment of the population.

If you were in the top 10 per cent of income earners, chances are, you would have got very little from the Government. In fact, the rich are being more heavily taxed, especially if they are in the habit of buying big cars and investing in expensive properties.

Higher-end investment properties will attract heftier tax rates. The cost of a big luxury car, such as a Mercedes-Benz, will jump by tens of thousands of dollars.

It wasn't for nothing that some dubbed the Budget this year a "Robin Hood" one.

It was a lot more generous to lower-income earners, who have been struggling to raise their wages in the past few years.

For instance, the Workfare Income Supplement (WIS), in which the Government gives cash and CPF top-ups to low-wage workers, was strengthened.

Maximum WIS payouts will rise by between 25 per cent and 50 per cent for workers aged 45 and above.

The salary ceiling for those eligible for WIS will also be raised to $1,900 from the current $1,700.

Other measures will help students from lower-income families, starting from pre-schoolers.

Among other moves, $72 million will be pumped into the Opportunity Fund, which gives schools money to help less well-off pupils have the chance to learn new things.

Even when it comes to the corporate world, policies announced to transform the economy had a clear social objective.

Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam made this clear when he spoke about the massive three-year Transition Support Package worth $5.3 billion for businesses.

The centrepiece is a $3.6 billion Wage Credit Scheme. The Government will co-fund for the next three years the wage increase of Singaporean workers earning up to $4,000 in monthly gross wages.

This is to help firms struggling with the rising costs of doing business as well as to nudge bosses to give higher pay increments for low-wage workers.

Apart from the redistributive slant of policies, there was also a clear signal that the Government will not flinch from its stated goal of reducing the reliance on foreign workers.

Moves to tighten foreign worker policies started in 2010 and the Government has continued to rein in the growth of foreign worker numbers.

This year was no exception. But instead of targeting only unskilled workers, this year the Government took aim at the mid-skilled and higher-skilled workers by raising the salary requirements for both categories.

This was, as DPM Tharman put it, to level the playing field for locals looking to compete with foreigners for jobs.

He also addressed growing concerns that the middle class was feeling the squeeze due to higher costs of living. The best way to help them is not by reducing costs but by making sure their incomes continue to grow, even as the Government moves to ensure that the overall tax burden on them is low, he said.

There will also be a major review of health-care financing, with the Government promising to pick up more of the costs of health care, he said.

The moves to increase social spending have led some to ask if the Government is tilting to the left to become socialist. But another question that has been raised is: How will the Government pay for all of this?

There is a limit to raising taxes as businesses and wealth earners are mobile and can relocate to lower-tax regimes. Singapore's tax base is also shrinking as its population ages and there are fewer workers.

That is the biggest question on the minds of economists such as OCBC economist Selena Ling.

"It's fine to say spend on this and that but how is the Government going to raise the money to pay for all of this?" she said.

"And is there an objective for social policies like Workfare? Are we content at stopping at the current salary cap of $1,900 or will it be raised higher to, say, $2,500?"

Whatever other social policies the Government adopts, it should not and cannot sway from the one guiding principle it has held to all these years: living within one's means.

THE SINGAPORE PERSPECTIVE
Prudent or heavily in debt?

By Aaron Low, The Straits Times, 8 Apr 2013

SINGAPORE'S conservative fiscal spending has been lauded as a shining example of prudence, but a quick check online may bring one to data that points to the country having one of the world's highest debt to gross domestic product ratios.

For instance, the CIA World Factbook lists Singapore as having public debt equivalent to 105 per cent of its GDP, the 14th highest in the world.

Why the discrepancy?

Singapore's public debt as listed by CIA, and other websites, is gross debt, not net debt.

To understand the difference between the two, consider this: Say two men both borrow $1 million each. The first has no other asset, so his gross debt and net debt are the same: $1 million.

The second man actually has $1 million in his bank account, but took up a $1 million loan for investment purposes.

His gross debt is $1 million. But his net debt is zero.

So there is a big difference between a man with no money who borrows $1 million to spend, and a man with $1 million in assets, who borrows the same amount to invest.

Singapore has not borrowed to finance its spending since the 1980s, a critical fact that is often ignored by these statistics.

Singapore does issue debt but for very different reasons.

One type of debt that is regularly issued are the Singapore Government Securities, which are issued to develop the domestic debt market.

The other is the Special Singapore Government Securities, bonds issued to the Central Provident Fund (CPF). The bonds issued in this case are to pay the CPF interest rates that CPF members get on their savings.

The Finance Ministry says on its website: "All borrowing proceeds are therefore invested. The investment returns are more than sufficient to cover the debt servicing costs."

Under the Constitution, the Government cannot spend the monies raised from both sets of securities. In fact, Singapore is one of 14 countries which continue to hold the highest AAA rating level from the various credit-rating agencies.

Singapore's Constitution also stipulates that the Budget must be balanced over the term of government. Any leftover surpluses at the end of the term of government will be locked away as past reserves. And if there is a need to dip into the past reserves, the President must give his consent.

So far, the Government has dipped into the past reserves only once. In 2009, it obtained the President's approval to draw down $4.9 billion from past reserves to fund special schemes in the light of Singapore's worst recession since Independence.

These included the Jobs Credit Scheme, which subsidised the wages of Singaporeans, and the Special Risk-Sharing Initiative, which helped companies get access to credit.

The actual amount taken out from the reserves amounted to $4 billion. But in 2011, after a strong economic recovery in 2010 boosted tax collections, the Government put the money back into the reserves.

This is the second of 12 primers on various current affairs issues, which will be published in the run-up to The Straits Times-Ministry of Education National Current Affairs Quiz.