Thursday 26 February 2015

Reactions to Budget 2015

S&P gives Singapore top unsolicited rating following Budget 2015 announcement
Ratings agency Standard & Poor's notes that investments in the S$68.2 billion budget "significantly outsize" the S$705 million transfers to households, and addresses both longer-term fiscal challenges and immediate health and transport constraints.
Channel NewsAsia, 24 Feb 2015

The Republic's Budget for Financial Year 2015 "shows the strength of the government’s institutional and governance effectiveness", and would keep Singapore's credit strong despite its ageing population, Standard & Poor’s Rating Services (S&P) said in a media release on Tuesday (Feb 24).

A day after the Budget was announced by Deputy Prime Minister Tharman Shanmugaratnam, the ratings agency issued a top AAA unsolicited rating on Singapore. The unsolicited rating should not be interpreted as a change to the country's Credit Rating or Rating, said S&P.

While the Government forecast a projected Budget deficit of S$6.7 billion in the fiscal year ending March 2016, S&P said it estimated that "the general government account will remain in surplus over the fiscal years ending March 2015 and March 2016", after accounting for revenue not reported as part of the Budget.

S&P noted that investments in the S$68.2 billion budget - including efforts to boost innovation, skills training, as well as funding to meet the needs of Singapore's ageing population - "significantly outsized" the S$705 million transferred to households. “These measures should help maintain Singapore's credit strengths even as the population ages at one of the fastest rates in Asia."

Added S&P credit analyst Yee Farn Phua: "The Singapore budget focuses on longer-term fiscal challenges even as it addresses the immediate capacity constraints in transport and health services, areas that will see significant increases in spending."

Middle-income families cheer Budget benefits
Measures that help ease the rising cost of living particularly welcome
By Rachel Au-yong, Lim Yan Liang And Walter Sim, The Straits Times, 25 Feb 2015

MIDDLE-INCOME families, a key target of Monday's Budget, were happy yesterday with the range of benefits for them, even as some noted that the measures were clearly aimed at specific groups.

People who stand to gain significantly appear to be the "sandwiched class", with young children to take care of and elderly parents to support, according to interviews with 20 individuals.

Their household incomes range between $5,000 and $15,000, a level that is above the bottom 20 per cent but below the top 20 per cent of resident households.

They say the measures that stood out in helping ease the cost of living include the halving of the monthly $120 concessionary maid levy for those with children or elderly parents, the removal of fees for all national examinations, top-ups to children's education accounts and the 50 per cent personal income tax rebate for this year, capped at $1,000.

But these moves that help reduce their expenses lack the feel-good factor of getting a direct cash handout, some said.

Indeed, in some cases, the raising of the salary ceiling for Central Provident Fund (CPF) contributions from $5,000 to $6,000 will cause their take- home pay to dip, even though their retirement savings will get a boost.

Still, many appreciate the help to cope with higher living costs.

Among them is tuition centre owner Matthew Soh. The 39- year-old has two maids to help care for his three children, one of whom, a four-year-old boy, is autistic. With the lower concessionary maid levy, he will save $1,440 yearly. "I'll plough the savings into my son's therapy," he said.

Mr Soh spends almost $4,000, or almost one-third of his total household income, on courses and speech therapy for his son.

Similarly, sales executive Ridzuan Jaffar, 32, welcomed this year's top-up of $600 to each of his three children's Child Development Accounts - a savings account in which the Government will match amounts saved by parents dollar-for-dollar up to a specified limit.

The $600 will pay for about two months' of the pre-school fees for each of his five-year-old twins, a boy and a girl. He also has an 18-month-old daughter.

The help for middle-income families was even acknowledged by those who have yet to start a family.

Business development manager Mabel Yeo, 29, feels she would worry less when she and her husband decide to have children.

"Giving money one-off for a newborn child may not be an adequate incentive, but a lower maid levy and more affordable childcare encourage dual-income parents to continue working without being burdened by crucial childcare arrangements," she said.

Singles like financial consultant Benjamin Ong feel the Budget's family-oriented approach does not affect them.

The 29-year-old bachelor, however is pleased with the 50 per cent tax rebate this year, which will benefit 1.5 million individuals who pay personal income tax.

But he finds this is offset by the raising of the salary ceiling for CPF contributions and an increase in petrol duties.

For Mr Ong, who earns $6,000 a month, the higher CPF salary ceiling means he takes home $200 less every month, even if it means more for his retirement later.

Nee Soon GRC MP Patrick Tay acknowledges the take-home pay for some will drop. But he pointed out that this goes to a worker's retirement savings, to which employers will also be contributing more.

"This increase both ways means more money for monthly housing loan payments, tuition loans for their children's university education," he said. "In short, it means more CPF savings you can use in the future."

Mr Ong is also worried about an increase in petrol duties, as he expects oil prices to rebound: "We don't know how long they'll stay down, but when prices rebound it will be an additional cost burden to drivers like me."

But many of those interviewed acknowledge the thinking behind the Budget is broadly consistent with that in previous years, and feel it is fair that the least well-off should get more.

Mr Soh, the tuition centre owner, pointed out that the Government has always been generous.

Drawing attention to the 2009 Resilience Package, which set aside $20.5 billion to save jobs and stimulate bank lending, he said: "When the economic crisis hit, the Government gave a lot of money to companies."

"They have been consistent with the giving, but this time, they targeted the right crowd," he said, referring to the middle class that has been hit by higher living costs.

Lawyer Michael Chia, 44, who has his own practice, expects his bottom line to be affected by the higher CPF salary ceiling and increased contributions to elderly workers.

But Mr Chia, who lives in an executive flat with his homemaker wife and four children, considers this a necessary trade-off.

"Previous Budgets have always looked at the 'ends' - the low-income, or businesses, and perhaps those in the middle have felt neglected, even as rising costs impact them," he said.

Others are glad that in Singapore's Jubilee Year, there is some encouragement to the better-off to give to worthy causes.

Finance manager Alice Lim, 44, who lives in a four-room flat with her husband and has no children, cited the higher Jubilee Year tax deduction of 300 per cent for donations, up from 250 per cent.

The couple make about $5,000 a month and she donates $500 a year to a few charities. "I'm glad for the increased tax rebate. But saving money on tax should not be the main motivation."

Added Mr Chia: "At the end of the day, we must not forget that the more privileged have a greater social responsibility."

Progressive Budget makes fiscal sense
By Aaron Low, Deputy News Editor, The Straits Times, 25 Feb 2015

BUDGET 2015 has been hailed for being yet another progressive Budget, a continuation of a series of so-called Robin Hood Budgets in recent years.

Indeed, the Budget this year is one of the most progressive ones yet. But it is progressive for a good reason: It makes fiscal sense.

In truth, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam had already flagged the Government's intention to move the fiscal system towards a much more progressive one, compared with the years before.

In a 2013 interview with this newspaper, he stated that the Cabinet had become "left-of-centre".

The Budgets in the past few years, including this year's, clearly indicate that this position has been firmly entrenched.

A slew of support measures also point to a Government paying serious attention to the social welfare needs of an ageing nation: higher Workfare Income Supplement payouts, the introduction of a mega $8 billion Pioneer Generation Package of health-care subsidies last year and the introduction of lifelong universal health insurance, MediShield Life.

This Budget adds a crucial, hitherto missing plank to the social safety net: an allowance for the aged.

The Silver Support Scheme will pay on average $600 every three months to the elderly poor. It is yet another reminder that the Government intends to patch gaps in the social safety net.

On a macro level, overall government financial expenditures have also moved towards being more progressive and inclusive.

In 2009, the Government spent about 43 per cent of its total expenditure on social development, or about $18.1 billion.

In the budgeted government expenditures for financial year 2015, social development spending rose to $32.1 billion, or about nearly half of the total $68.2 billion government outlay.

Security and external relations spending also rose, but at a much slower pace. In 2009, the Government spent about $14.4 billion on security and external relations, or about 34 per cent of its $41.8 billion total expenditures.

This year, security and external relations took up just 27 per cent of total government expenditures, or about $18.6 billion this year.

Economic expenditure also rose to about 22 per cent of total spending for this year, up from about 19 per cent from 2009.

Government administration, the fourth source of spending, has remained more or less constant at about 3 per cent of total expenditures over the past six years.

The spending pattern shows that the thinking behind the policies has clearly shifted, as it were, to the left.

But there is a more mundane reason for turning progressive: It pays.

Without higher taxes on the well-to-do, the Government will find it increasingly difficult to finance social spending demanded by citizens.

The move to include Temasek Holdings in the calculation of the Government's net investment returns (NIR) is an important one.

This will enable the Government to tap on the Singapore investment firm's unrealised and realised capital gains as revenue for its Budget and not rely on just Temasek's dividends.

But with increasing social spending, it is unlikely that investment returns alone will be sufficient to pay for rising expenditures.

To pay for increasing demands from an ageing population on things like health care and transport infrastructure, there is little choice but to turn to the rich to finance these expenditures.

Over the past few years, the Government has increased taxes on items such as alcohol, cigarettes and property.

This year, it took aim directly at rich people's incomes.

Marginal tax rates will go up for the top 5 per cent of income earners, who have an assessable income of at least $160,000, with the increases being larger for the highest earners.

Petrol duties were also jacked up, with car owners having to pay between 15 and 20 cents more per litre of fuel.

These are not just symbolic moves. Together with the inclusion of Temasek Holdings into its NIR framework, the Government can expect to generate 1 per cent of gross domestic product in additional revenues a year.

In simple maths, that's about $3.9 billion more a year, which Mr Tharman said will "provide sufficiently for the increased spending needs... till the end of the decade."

But he was quick to stress that Singapore cannot afford to keep raising taxes on the rich because the nation competes with others for mobile talent.

Some commentators such as Mr Grahame Wright, a partner at Ernst & Young Solutions LLP, said this could make Singapore's "competitive position" weaker for highly mobile senior executives.

Sure, there may be a small dent in Singapore's competitiveness, but it goes a long way to assure Singaporeans, especially the less fortunate, that their country is looking out for them.

At least till the end of the decade. And after that? The Government may have no choice but to resort to hikes in the more broad-based consumption tax, which would be a regressive measure.

But at least for the next few years, Budgets look set to remain progressive.

A bespoke Budget that is inclusive and futuristic
By Simon Poh, Published The Straits Times, 24 Feb 2015

Budget 2015 can be hailed as a bespoke budget that is unprecedented in many ways.

Unveiling it immediately after the Lunar New Year long weekend, Finance Minister Tharman Shanmugaratnam assumed the role of the 'God of Fortune' when he dished out hongbao goodies that are particularly targeted at the low and middle income groups as well as small and medium enterprises (SMEs) - very much in line with the entrenched 'inclusivity' theme set in recent years' Budgets.

As part of Jubilee year celebrations, Mr Tharman also threw in an enhanced 300 per cent tax deduction for donations made this year, a one-off 50 per cent personal income tax rebate for individuals and improved Goods and Services Tax (GST) vouchers for the lower income group and elderly.

But undoubtedly, the introduction of the SkillsFuture initiatives and Silver Support Scheme stand out amongst the benefits for individuals, even though these were already expected in the run-up to this year's Budget.

It is heartening to note that in the case of the SkillsFuture, in addition to giving a decent $500 initial credit to all Singaporeans aged 25 and above from 2016 to spend on future lifelong learning, infrastructure will be created to develop a professional core of education and career counsellors, enhance internships, facilitate job placements and match mentors with SMEs.

The Silver Support Scheme also did not disappoint when it was announced as a permanent scheme to benefit current and future lower income groups of Singaporeans when they retire. Although modest in quantum ranging from $300 to $750 per quarter, this sum is meant to supplement the bottom 20 per cent to 30 per cent of Singapore wage-earners.

What is noteworthy is that eligibility is based on a combination of lifetime wages, level of household support and the type of housing lived in. This is a great departure - and hence improvement - from past government transfers which are often based on income and housing alone.

Following the acceptance of the CPF Advisory Panel's recent recommendations by the government, Budget 2015 also endorsed the proposed increase in CPF contribution rates to benefit older workers aged 50 to 60. It acceded to the request for an increase in the CPF monthly salary ceiling, from $5,000 to $6,000. This, together with the extra interest for CPF balances of older workers, will largely benefit the sandwiched class to enable them to build up their nest egg.

But the announcement of an increase in the personal tax rates for tax residents with chargeable income above $160,000 from the Year of Assessment 2017 did surprise. Despite the fact that the move may slightly dent Singapore's ability to attract top talent to work here, it appears that the Government feels the timing is right to introduce these higher progressive rates.

On the SME front, those struggling with a tight labour market and high business costs may take some comfort from the SkillsFuture initiatives, which will come in handy given their often negligible training budgets.

While the absence of new measures to further enhance the Productivity and Innovation Credit (PIC) scheme as well as the removal of the PIC bonus will certainly disappoint a number of smaller firms, the simplified application process for the Capability Development Grant for projects below $30,000 will benefit more deserving companies. They should also gain from the two-year extension of the Wage Credit Scheme and the 30 per cent corporate income tax rebate, although they have to accept reduced benefits for these two measures as part of the plan to phase out the transition support package.

For companies which embark on internationalisation, the good news is that the double tax deduction for internationalisation will, in future, cover qualifying manpower costs. In addition, they stand to benefit from a concessionary 10 per cent tax rate for incremental income from qualifying internationalisation activities.

Another bright spot - Companies lobbying for an extension of the mergers and acquisition (M&A) scheme received more than what they asked for. In addition to an extension of another five years until 31 March 2020, the improved 25 per cent tax allowance, as well as the reduced 20 per cent shareholding qualifying criteria, should be particularly pleasing.

All in, this Budget has lived up to its hype of being forward looking whilst laying the foundation for a strong and inclusive social security system for Singapore.

The writer is Associate Professor (Practice) of Accounting at the National University of Singapore Business School.

The limits of using household data as a proxy for family
By Christopher Gee And Yap Mui Teng Research Fellow And Senior Research Fellow, Respectively, At The Institute Of Policy Studies, National University Of Singapore, Published The Straits Times, 25 Feb 2015

The Silver Support Scheme (SSS) announced in the Deputy Prime Minister and Finance Minister's Budget Speech on Monday is a significant addition to the country's social safety net, targeting senior citizens whose income generated over their lifetimes was too low to allow them to save sufficiently for their retirement needs and who lack family support.

The scheme is estimated to cost $350 million in its first full year of implementation, possibly covering 150,000 of today's elderly (about a third of the resident population aged 65 years or over).

Eligible senior citizens will receive $600 each quarter on average, with larger payouts going to those with greater needs.

More details of how the scheme will be implemented should be announced by the Ministry of Manpower (MOM) before the scheme takes effect in the first quarter of 2016, but some broad eligibility criteria were set out in the Budget Speech.

Three main tests are to be applied in combination: one's lifetime earnings as reflected in CPF contributions, especially those made before the age of 55; the housing type in which the senior citizen is living, with those living in five-room HDB flats and smaller qualifying; and household income.

Scheme eligibility will be automatically determined, with the MOM likely to use existing administrative data (CPF and Housing Board records) to make the assessment.

This will ensure the SSS payouts are made to the neediest seniors in an efficient manner, without the inertia or stigma that might arise in a more complicated system that depends on seniors having to apply for the scheme.

What level of household income will be used to determine if an elderly person is eligible for this SSS?

Getting the level right can help prevent the transmission of financial stress within families over the generations by ensuring that less well-off retirees do not become a financial burden on their working adult children.

But the use of household data gives rise to some issues.

The simplest test might be a simple computation of household income per capita, similar to that used already in the official statistics and in support schemes such as Public Assistance. It will be administratively easier to implement.

But it would be even better if the level of household income used is sensitive to whether the household has elderly or young dependents or special needs members.

Another issue to contend with is whether the household income criteria should take into account transfers from and to family members who do not live in the same residential address.

If the test does not take into account family transfers, seniors who get substantial family support from their other children or relatives living elsewhere would still be eligible for the SSS.

But then there may be other elderly households where a retired couple may be supporting other family members (their siblings, for example) not living with them.

A family-agnostic household income per capita test would mean that this couple would be excluded from the SSS.

While the household is a useful proxy for the nuclear family, familial structures are changing rapidly in Singapore's demographic landscape, creating new needs for social support which may not be apparent if the standard unit of measurement is that of the household.

We may therefore have to develop a better understanding of familial relationships and connections by collecting and analysing family-oriented data.

Such data can complement existing household-based administrative data sets to permit more nuanced delivery of social and community support.

PAP Seniors Group suggests monthly Silver Support Scheme payouts
Channel NewsAsia, 25 Feb 2015

The PAP Seniors Group (PAP SG) said it welcomes the 2015 Jubilee Budget for Singapore announced on Monday (Feb 23) by Finance Minister Tharman Shanmugaratnam, but said it seeks clearer roll-out plans.

In a statement on Wednesday, the advocacy group for senior citizens' issues within the ruling People's Action Party expressed approval for tweaks to the Central Provident Fund (CPF) system as the restoration of CPF contribution rates for workers aged 50 and above.

"The move is not only timely but a necessary complement in enhancing retirement adequacy. At the same time, it removes the current stigma faced by older workers who feel that their contribution is less valued compared to their younger counterparts," PAP SG said.

It also praised the Silver Support Scheme that will target the bottom 20 per cent of Singaporeans aged 65 and above, saying it would give "greater peace of mind". "The S$300 to S$750 that they will get every quarter is certainly a welcome relief," PAP SG added.

However, the group suggested that the Government consider monthly payouts instead of making them quarterly. It also called for flexibility in considering the the three factors in determining eligibility for the scheme - lifetime wages, levels of household support and type of housing. This is so as to not disadvantage seniors who may be asset rich but cash poor - for instance, those living in bigger flats. 

"We note that there are so many different measures coming on board to benefit older Singaporeans covering a wide spectrum of areas including healthcare, employment, retirement adequacy and housing. It is difficult for older Singaporeans to see them in one coherent whole," PAP SG said. It suggested that Government agencies work the details into an all-in-one information kit, to give the elderly a complete picture of how their welfare is being taken care of.

Households welcome Budget 2015 grants
By Chan Luo Er, Channel NewsAsia, 24 Feb 2015

The Budget announcement on Monday (Feb 23) has promised more support for low- and middle-income households. Families with children will get account top-ups while a new scheme will add to incomes of the elderly after retirement.

Households Channel NewsAsia spoke to said they welcomed the grants, adding that they will go a long way.

Mr and Mrs Poh Liang Siah have four children aged between one and nine. The sole breadwinner, whose work is based on commission, said topping up of the Child Development Account (CDA) is good for emergencies as his income is not fixed.

Mr Poh said: "It is especially useful for the CDA because we can use it for the kids' healthcare, for their spectacles and even for a visit to the dentist."

Mrs Poh left her job five years ago to home-school their children, and a maid is essential for the family, she said. "Initially it was S$120 that we had to pay, now it is S$60. By lowering the maid levy, it really reduces the burden on our family."

The Government also announced top-ups to Edusave accounts. But Mr Poh hopes for more flexibility in the use of the money.

Said Mr Poh: "Unfortunately, because we are home schooling our kids, there are some restrictions placed on things we can use the funds for. Perhaps the Government can look into areas that they can open up, where we can use the funds even though we are not in mainstream schools."


Separately, the new Silver Support Scheme aims to help the bottom 20 per cent of Singaporeans aged 65 and above. Seventy-four-year-old Lee Sang earns about S$700 a month as an assistant at a mobile library in Pasir Ris. He supports his 72-year-old wife, and 40-year-old daughter who is currently unemployed.

Mr Lee said his expenses come up to about S$1,000, which means he has to dip into his savings every month. So, the minimum S$300 he and his wife will each get every quarter under the Silver Support scheme, will cover basic expenses.

He said: "I am happy because I can buy some food, and if there is enough money, I do not need to draw out from my savings fund. I can save for my future use."

One economist said the Silver Support Scheme is the most direct way to help senior citizens cope with the cost of living. He said the additional 1 per cent interest on the first S$30,000 of CPF savings for those aged 55 and above next year is also helpful.

Assistant Professor Walter Edgar Theseira from the Economics Department at Nanyang Technological University, said: "1 per cent may not seem like a lot to people on a year-to-year basis, but on a compound basis, it could make a big difference.

"I believe the Government has stated that for retirees, it could mean S$40 more a month from their CPF Life payouts. So that is quite a substantial difference for lower income CPF members."

Asst Prof Theseira added that the increase in the CPF salary ceiling from $5,000 to $6,000 will also help middle-income members increase their retirement savings.

Relief for parents coping with rising bus fees
By Pearl Lee, The Straits Times, 26 Feb 2015

PARENTS with primary school- going children who receive financial aid from the Government welcomed the transport subsidies announced in the Budget on Monday.

Students on the Ministry of Education's (MOE) financial assistance scheme can use the subsidies to defray public transport expenses. Primary school pupils on financial aid can also use the subsidies to pay for their school bus fees.

The subsidies, said Deputy Prime Minister Tharman Shanmugaratnam on Monday, will help cover at least half of a student's transport costs. Details about how these subsidies will be given to parents and in what form will be announced at a later date.

But parents are already looking forward to the extra help to cope with rising bus fees.

Ms Pia Rozario, 41, for instance, welcomed the support. The single mother pays $440 in school bus fees each month for her two children, who are both on the MOE's financial assistance scheme.

"I'm very pleased with the announcement. I really need it," said the student care teacher who earns about $1,500 each month.

She added that school bus fees for her 11-year-old son have been rising by $5 to $10 each year since he was in Primary 1. Her daughter started Primary 1 this year. Both children are in St Hilda's Primary School.

School bus operators often increase fees when a new school year begins, with increments ranging from $5 to $20.

Operators say that with rising business costs, it is hard to keep prices low for parents and students without making losses.

"Vehicle insurance gets more expensive every year. You pay about $500 more each year even if you were not involved in an accident," said Mr Terence Chua, who runs DelMe Transport Service and provides school bus services to three primary schools.

"Fuel prices dropped only recently, but they have always been pricey. You have to pay drivers a reasonable salary too, or else they will not take up the job," added the 32-year-old, who has been in the industry for eight years.

Buses run on diesel and are not affected by the increase in petrol taxes, also announced on Monday.

Mr Wong Ann Lin, chairman of the Singapore School Transport Association, said that for many bus companies, ferrying pupils is less profitable than transporting factory workers living in dormitories.

This is why some companies have to raise school bus fees.

"The association tries to help small firms survive by helping them raise school bus fees and making bulk purchases for fuel and insurance," said Mr Wong, 66.

He added that his bus company, which counts three primary schools as its clients, has had to increase fees in the last few years by about $10 or $20 to cope with rising costs.

"The transport subsidies for students is good news for bus firms too, as firms can charge parents a price that will allow them to profit," he said.

Delaying levy hikes buys time, but locals still shun some jobs
By Marissa Lee And Chia Yan Min, The Straits Times, 25 Feb 2015

THE Government's move to delay levy hikes for foreign workers has bought time for companies, but many said it will not solve the problem of attracting locals to certain jobs.

Dr Ho Nyok Yong, president of the Singapore Contractors Association, said the current monthly levy of $550 for a construction worker with basic skills already accounted for a quarter of the total cost of hiring him. Had the hike kicked in, the levy would have risen to $650 a month.

Manufacturers got a bigger break than most as the levy hikes for work permit holders in the sector were pushed back two years.

But Mr Jackie Lau, managing director of Seng Heng Engineering, sees this as only a "buffer" period to revamp his bolts-and-nuts- making business for the "new norm" of high foreign labour costs. "There's no point hoping that (the levies) will decrease," he said.

Mr Lau suggested using some of the levy revenue to offset salaries for hiring new local staff.

"Small and medium-sized enterprises (SMEs) have a hard time hiring local staff because we don't pay as well as multinationals," he said. So a new approach has to be taken to help SMEs find local workers, he said.

Mr C.K. Wong, managing director of oilfield equipment maker HME Technologies,agreed that the broad Budget measures did not address the deeper issue of how to get locals to join his industry: "The levies are meant to get you to look for locals. Our problem is employing locals - and we have not solved that problem."

While being spared foreign worker levy hikes this year, the services sector will still have to comply with stricter quotas when the existing workers seek to renew their work permits.

Ms Loo Pei Fen, head of marketing for tech retailer Challenger, had hoped for incentives that would draw currently inactive locals back to the labour force.

"I would've liked to see some measures in place to encourage stay-at-home mothers to rejoin the workforce, either on a part- time or full-time basis," she said. "In this tight labour market, we need as many Singaporeans and permanent residents as possible to contribute to the labour force."

Nevertheless, Ms Loo said Challenger's recruitment policy "has always been to hire Singaporeans and permanent residents first", and the tighter quota will reinforce this. The company has 179 foreign workers and 273 Singaporeans or permanent residents on its payroll. The temporary freeze on levies will help offset rising business expenses, she added.

Businesses welcome move to defer increase in foreign worker levies
By Patrick John Lim, Channel NewsAsia, 24 Feb 2015

The move to defer a planned increase in foreign worker levies this year has generally been welcomed by businesses trying to cope with rising business costs.

In his Budget speech on Monday (Feb 23), Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam said there had been progress in tightening the flow of foreign workers into Singapore in recent years. And this gives the Government room to adjust the pace of its measures.

Some industry observers have said this will give companies time to transform their business models. 

A recent survey showed that rising labour costs are a key concern among local businesses. They said this is due to high foreign worker levies and a manpower crunch.

With the economy expected to grow at a modest pace, firms are struggling to contend with slowing external demand and cost pressures. So the move by the Government to defer the increase in foreign worker levies this year is seen as a reprieve.

According to industry watchers, it also provides much-needed breathing space for companies in their restructuring efforts.

Said Mr Ryan Chioh, honorary secretary of the Singapore Manufacturing Federation: “The Singapore Government has been trying to get companies to innovate and be more productive, but to change takes time.

"I think staying the course in foreign worker levy will actually help companies stabilise their costs a little bit, and within these two years, they can also transform their business models as well."

Foreign worker policies have been progressively tightened since 2010, with the aim of reducing reliance on foreign workers and improving worker productivity. However, some observers have pointed out that labour costs are just one component of overall business costs, and that companies may need help in other areas.

Mr Chiu Wu Hong, tax partner at KPMG, said: "These are very good initiatives being introduced. These will to a great extent, reduce the cost of business. What we were hoping to see was maybe certain measures to cater for the high rental costs, which is something that maybe the Government can look into in the future."

Excluding construction and foreign domestic workers, the net inflow of foreign workers slowed down to just over 16,000 in 2014 - compared to 60,000 in 2011. In the construction sector alone, the growth was around 10,000 in 2014.

Nominated Member of Parliament Randolph Tan noted: "This is the first year where we are possibly seeing a growth in foreign manpower coming in below the growth in local manpower; it has taken five years to reach this point in time.

"If there is a concern I have, it is that we may need to leave the door open to go the way of increased levies again, if the growth in foreign manpower again starts to go up and starts to overtake the growth in local manpower."

In his Budget speech, DPM Tharman said it remains crucial that Singapore reduces its reliance on manpower, and find new and innovative ways to do business. 

Employers welcome new Earn and Learn scheme
By Ng Jing Yng, TODAY, 25 Feb 2015

A new programme for fresh polytechnic and Institute of Technical Education (ITE) graduates to go on paid apprenticeships and earn industry-recognised qualifications has been welcomed by employers, who felt it could help secure a talent pipeline for their sectors.

But for the SkillsFuture Earn and Learn programme to work, there must be a rigorous selection process so companies can identify good candidates, and guidance from the Government on how to structure such initiatives to benefit all parties, employers said.

They also cited challenges such as limited manpower at smaller companies to provide proper mentorship, and acknowledged that trainees continuing their paper chase for higher qualifications could be a challenge.

The Earn and Learn programme was announced by Finance Minister Tharman Shanmugaratnam in his Budget statement on Monday (Feb 23), as part of the SkillsFuture plan to drive lifelong learning. It will see graduates matched with suitable employers and undergo training and mentorship, while studying for industry-recognised qualifications.

Employers told TODAY that trainees should be in the firm for at least a year to acquire the needed skills. Home-Fix DIY managing director Low Cheong Kee suggested one-and-a-half years, so trainees can have broad exposure from serving customers in the store to human resources, to appreciate the workings of the retail industry.

The current internship length for students - anything between six weeks and five months - is too short, said employers, and full-time staff are not motivated to mentor them. Bliss Restaurant and Catering owner Christine Loh said: “After training them (interns) in one area for weeks, they will have to leave.”

CKE Manufacturing enterprise development manager Kwan Li Feng called for common training guidelines, to introduce a degree of consistency among companies.

Playware Studios Asia chief creative director Siddharth Jain said the gaming industry might not have a good reputation as a fair internship employer. “In the long run, having some sort of training structure will help everyone to work towards the same end,” he added. Noting that trainees who do not perform could affect business projects, he called for a robust selection process that allows employers to screen trainees.

Mr Tharman had said on Monday that trainees and employers would receive “substantial support” from the Government. Mr Low said the subsidies could be used to send trainers for accreditation. “The subsidies can also go towards helping us to create self-learning tools such as online learning programmes,” he added.

Students interviewed recounted internship experiences that varied in quality and felt there should be more oversight on firms involved in the Earn and Learn programme. They also said that pursuing higher education would still be their ultimate goal.

Ms Loh noted that young workers are always keen to advance, if not for higher qualifications, then for larger, brand-name companies. Adding that she would not mind the graduates leaving her firm after they are trained, she said: “We see it as our social mission to train the staff and we want them to do well, and there are many who eventually move on to better things and pay their way through higher education as they work with us.”

She added: “Of course, with the financial subsidies (from the government), it will help to defray training costs and allow us to provide more perks to retain them or pay them at a more competitive rate.”

Giving local firms the nudge to grow overseas
By Lee Su Shyan, Money Editor, The Straits Times, 25 Feb 2015

BUSINESSES may be reluctant to leave the safety of the nest, but Monday's Budget should offer a good enough nudge to get them to spread their wings.

A multi-faceted suite of measures were unveiled to encourage firms to move to the next phase of restructuring, to support them in innovation, for them to give some thought to venturing overseas instead of remaining constrained by the small domestic market here.

The incentives range from tax concessions to direct financial support and tweaks to existing schemes.

These measures are certainly welcome. Last week, I had argued that it's time for Budget 2015 to refocus fiscal incentives and attention on growth after several years of rather social-oriented Budgets.

A renewed focus on growth and long-term structural measures can help keep Singapore competitive. After all, growth is vital as Singapore needs a vibrant economy to achieve and support many of the Government's plans.

I had argued that measures are needed to support internationalisation to further encourage firms to expand overseas and grow their revenue.

In this respect, Budget 2015 certainly delivered.

Tax benefits for larger companies going offshore are being offered in a new International Growth Scheme, while Spring Singapore will pilot a venture debt risk-sharing programme. It will put its money where its mouth is and take on some of the risk of the debt issued by banks to high-growth - read probably unprofitable - firms.

Companies can also get help in other aspects of developing a business such as tapping on Capability Development Grants to get funding for innovation activities such as brand development.

In recognition that buying up rivals may be a faster way of growing, there are now enhanced tax deductions given for mergers and acquisitions.

And firms that set their sights further afield can do so with more confidence after the Budget introduced measures to ease the cost burden of operating at home.

Firms will be able to offset a portion of their wage bill via the Temporary Employment Credit scheme.

There was even good news in the once no-go area of foreign worker levies. After years of the productivity push where levy hikes became the norm, bosses across the island must have given a collective "ah" to hear that the increases due in July will be deferred for a year.

That interval takes into account that firms struggling with a slowing international market need breathing space. It also recognises that it takes time to adapt to these changes, yet keeps the economy on the restructuring path.

Much like a coach charting a course of action for an athlete, the Budget demonstrated that much thought had been given to laying out a growth blueprint for firms.

Granted, growth cannot be guaranteed, but firms have been given a reasonable hand of cards in this Budget.

It is up to them to seize the moment and play it well - innovate at home, and venture overseas.

Helping SMEs succeed at M&As
By Michael Teng, Published The Straits Times, 26 Feb 2015

THIS week's Budget announcement on higher tax allowances for mergers and acquisitions (M&As) is heartening. It raises the tax allowance for acquisition costs from the current 5 per cent to 25 per cent of the acquisition value.

Companies will be able to claim M&A benefits for acquisitions that result in at least 20 per cent shareholding in the target company, down from the current threshold of 50 per cent.

However, it is not clear whether the acquisition costs include the cost of post-merger integration (PMI), which is critical to the success of M&As.

M&As can help small and medium-sized enterprises (SMEs) in a number of ways:
- Potential synergies with another firm to exploit economies of scale;
- Increased market share through a horizontal merger;
- Control of manufacturing or selling processes through a vertical merger;
- Diversification;
- Reverse merger, where private entities can become publicly traded companies without the expenses and time involved in an initial public offering;
- Globalisation through cross-border M&As as SMEs are often too small to globalise on their own.
Smaller firms can also combine through M&As to supply to multinational corporations and large local companies to fulfil orders on a sustainable basis.

M&As offer SMEs opportunities for significant inorganic growth.

When planned and executed properly, M&As increase the new entities' profits and return greater value to shareholders.

Yet, the sobering reality is that several studies have found only about 30 to 50 per cent of M&As are successful in increasing shareholders' values.

There are challenges in identifying and buying the right companies, paying the right amount and unlocking value from the newly combined entity through PMI.

PMI involves activities that are carried out after an M&A deal is closed.

During a merger exercise, companies often focus on pre-merger issues such as strategic, financial and legal fit, and neglect PMI issues such as cultural, technical and operational fit.

The latter is often the cause of a merger's failure.

What can be done to increase the odds of successful mergers?

The key lies in the effective execution of the PMI.

General Electric and Pfizer have successfully implemented many M&A cases because they focused on PMI.

Besides ensuring operational fit, close attention should be paid to melding the corporate cultures of the entities coming together.

This is especially so where local SMEs are involved in cross-border M&As.

Traditionally, after the M&A deal is closed, the acquiring firm will often deploy its own managers - who may not have merger experience - to take the lead in executing PMI activities in the newly merged entity.

They tend to restructure the acquired operation, rather than the acquiring company to which they belong. That may not suffice for ensuring a successful integration.

This approach also often runs the risk of intimidating staff of the acquired firm and may result in loss of key talent.

A new approach is to introduce independent integration consultants to facilitate the integration. Such trained specialists will be more objective.

The only downside, however, is that they are outsiders and will need to be orientated towards both merging companies.

There are not many such specialists in Singapore. They will recommend restructuring both the acquired and acquiring companies to maximise shareholder value.

The staff of the acquired firm will likely feel more comfortable dealing with these independent integration consultants.

To increase the success rate of PMI, these integration consultants should be involved from the beginning of the M&A process, which should not be viewed as separate and distinct from PMI.

To encourage more M&A activity among SMEs here, it is important that an M&A centre be set up with government support to serve as a service hub to coordinate the M&A ecosystem.

This centre can help to facilitate links between potential investors and SMEs, and experienced independent PMI consultants.

SMEs that need to find potential buyers can turn to the M&A centre for help, since many SMEs shy away from announcing that they are looking for a buyer.

As the economy continues to restructure, local SMEs must continue to anticipate and respond to changes in the business environment to remain competitive and grow.

Economic crises tend to trigger a surge in M&A activities.

Now, SMEs need to gear up and be prepared to participate in M&A activities that will help them scale up, in good times and in bad times.

The writer is the assistant secretary-general of the Singapore Manufacturing Federation.

Dropping Reits' stamp duty concessions helps level playing field
By Goh Eng Yeow Senior Correspondent, The Straits Times, 25 Feb 2015

THERE was a predictable moan from real estate investment trust (Reit) managers and tax experts over the Government's decision not to extend the stamp duty concessions for Reits on the purchase of local properties after they expire on March 31.

It would add another 3 per cent to the costs of Reits acquiring properties here and make it more challenging for them to grow their portfolios, they complain.

Yet, as Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam noted in his Budget 2015 speech, the stamp duty concessions "were intended to enable the industry to acquire a critical mass of local assets as a base from which Reits can expand abroad, (and) this has been achieved".

One might also add that the move would level the field for other players in competing with Reits to acquire properties in Singapore.

In 2005, when the stamp duty waiver - together with a slew of other tax incentives - were given, there were only five Reits listed here with a total market value of $9 billion.

That has since grown to 28 Reits and six stapled securities - an asset class which involves a Reit "stapled" to other forms of investments - with a total market capitalisation of $67 billion.

But despite bulking up in a big way in the past 10 years, Reits have continued to chase property deals in the small congested Singapore market rather than try to use their financial clout to land prized catches overseas.

According to Ms Christine Li, director of research at Cushman and Wakefield, six of the top 10 investment deals last year involved Reits buying properties locally, worth a total of $4 billion in transaction value.

Several Reits are also 100 per cent Singapore-focused.

These include well-known names in the market such as CapitaMall Trust.

A few, such as Far East Hospitality Trust, are said to have a pipeline of local assets lined up for injection by their respective sponsors.

That said, the Government is going to extend income tax and goods and services (GST) tax concessions which Reits currently enjoy.

The implied message, one concludes, is that, going forward, Reits should try to buy from overseas to grow their portfolios.

With the extensions, Reits will continue to enjoy tax exemption on qualifying foreign-sourced income, a reduced withholding tax of 10 per cent on its payouts to foreign institutional investors and GST remissions on business expenses for Reits with overseas assets.

Ernst and Young tax partner Lim Gek Khim said: "For Reits investing in overseas properties, this would facilitate more overseas acquisitions and encourage the listing of cross-border Reits on the Singapore Exchange."

In its Think Singapore report, Citi Research noted that allowing the stamp duty concession to expire was a less damaging removal of a tax incentive given to the Reit sector.

This is because it is a transaction-based tax that would not add to the ongoing tax burden to the Reit or the Reit investor.

The impact of removing the stamp duty waiver is slight enough "not to create too un-level a playing field that would lead Reits to favour overseas acquisitions where stamp duties may still be payable in any case", it added.

Reaching out to every Singaporean and SME
By Lennon Lee, Published TODAY, 24 Feb 2015

Budget 2015 sets itself up as one that charts Singapore’s future for years to come. Emphasis on deepening skills and encouraging innovation relevant for the future, investment in economic and social infrastructure and assurance in retirement due to our aging population formed the core theme of this year’s Budget.

The slew of measures announced in this year’s Budget underpins a call for small and medium enterprises (SMEs) to restructure and transform themselves from value addition to value creation through an innovative and collaborative culture. It is imperative for SMEs to embark on innovation and R&D with assistance extended from this year’s Budget.

SMEs choosing to carry on traditional business models by relying on foreign labour will face more and more challenges ahead as their competitiveness will continue to be eroded in the global marketplace.

A significant feature of this year’s Budget is SkillsFuture. It is an initiative that empowers every Singaporean to take ownership of his or her career path. While the impact of SkillsFuture may not be immediately felt, the initiative should result in SMEs having access to a local talent pool that possesses deep skills and expertise relevant for the future.

One of the common issues SMEs face is that they are not able to attract and retain talent due to the lack of structured training programmes and career paths compared to multinational companies (MNCs). The SkillsFuture Earn and Learn Programme matches Polytechnic and ITE graduates with employers for structured on-the-job training and mentorship leading to industry qualification. This provides an avenue for SMEs to access, train and retain these skilled graduates.

Broad-based productivity measures such as the Productivity and Innovation Credit (PIC) will remain in place till 2018. The PIC has helped to support basic levels of innovation and automation generally aimed at replacing labour due to a tight labour market.

For SMEs looking at innovative ways in doing business, they can consider tapping on SPRING’s Capability Development Grants (CDG) that provide up to 70 per cent cost subsidy. The Finance Minister has indicated that the application process will be simplified for projects costing below $30,000. It is a more targeted approach to achieve productivity growth that has stagnated for the last few years.


A bold measure was announced in the Budget to encourage high-growth high-risk SMEs to benefit from the venture debt risk-sharing programme. The programme aims to allow SMEs in high risk sectors such as medical technology or cleantech to secure financing which may not be possible under traditional bank financing arrangements.

To encourage internationalisation and growth of promising SMEs through mergers and acquisitions (M&A), SMEs can benefit from the new International Growth Scheme. This Scheme grants a 10 per cent concessionary tax rate on incremental income from qualifying activities, as well as an increase in the M&A tax allowance from 5 per cent to 25 per cent of the value of acquisition from acquisitions of at least 20 per cent (previous threshold was 50 per cent) shareholding in the target company. This recognises that SMEs may not be able to acquire large stakes in their expansion strategies.

Government has also heeded SMEs’ cries for help to cope with rising business costs and a tight labour market, by extending the Wage Credit Scheme to 2017 and the 30 per cent Corporate Income Tax Rebate for Years of Assessment (YA) 2016 and 2017, both of which form part of the Transition Support Package first introduced in Budget 2013.

In addition, SMEs that employ foreign workers will get a reprieve from higher foreign worker levies as the previously announced hikes will be deferred. The current levy rates for work permit holders in manufacturing sector will remain unchanged up to 2016 as well. These are welcomed measures as they provide breathing space for SMEs to continue to restructure their businesses.

This Jubilee Budget will be remembered as one that took bold measures to shape the future of all Singaporeans (including the middle income group or the “sandwiched class”), as well as all Singapore businesses especially the SMEs. The Government has created a platform in building our future. It is now up to each SME to take ownership of its own destiny.

Lennon Lee is Entrepreneurial & Private Clients Tax Partner at PwC Singapore.

A ‘hongbao’ Budget that gives, and takes too
By Ang Lea Lea, Published TODAY, 24 Feb 2015

Delivered on the fifth day of the Lunar New Year, there was no doubt that many were expecting Deputy Prime Minister and Minister for Finance Tharman Shanmugaratnam to give out “hongbaos” in Budget 2015. The Budget did not fall short of expectations on the “giving” front. But what surprised many was that the minister did some “collecting” as well.

Listening to Mr Tharman’s speech, many would have been alerted to the words “we must, therefore, strengthen our revenue base”.

So what tax rates will be raised? We know it will not be the Goods and Services Tax — at least not for this year. The usual sin taxes would hardly qualify as something that strengthens the revenue base. Could it be corporate income tax?

Mr Tharman kept everyone in suspense while revealing all the “hongbaos”. Finally, just as he was wrapping up the speech, out came the big surprise — the top personal income tax rate will be raised by a further two percentage points to 22 per cent. This means there will be a five-percentage-point difference between the top personal tax rate and the corporate tax rate, which remained at 17 per cent.

There are other tweaks to the tax-rate structure to make it more progressive. This calibrated move is to get greater revenue contributions from high-income earners without sacrificing Singapore’s competitiveness in a big way.

It is a bold move that bucks the global trend.

In the EY 2014 Outlook for Global Tax Policy survey, of the 61 jurisdictions surveyed, 57 had reported no change in their top personal tax rate since 2013. Only two reported increases. Another two reported decreases. The two jurisdictions with increases are Mexico and Sweden. But they are not our close competitors.

Our closest competitor is Hong Kong. The top personal tax rate of Hong Kong, at 17 per cent, is five percentage points lower than Singapore. But it does not have a progressive rate structure.

Hong Kong taxpayers hit the top rate of 17 per cent at an annual income level of approximately S$20,000. Singapore taxpayers hit 17 per cent only at an annual income level of approximately S$160,000 to S$200,000. That said, the higher top marginal rate may have a psychological effect on the cost of doing business in Singapore.

It is not uncommon for multinationals to consider top marginal tax rate in their evaluations of whether to locate their regional headquarters in Singapore or Hong Kong.

As expatriate tax costs are often borne by the companies, it increases the costs of doing business in Singapore. However, top marginal tax rate is but only one of the many factors that should drive decisions on investment locations.

In that light, the change to move towards a more progressive tax structure is a right one. Considering the personal tax structure in totality, Singapore remains competitive in the region.

While the high-income earners may have to cut back on the “hongbaos”, given higher taxes in 2017, businesses, especially small and medium enterprises (SMEs), have much to cheer about.


Introduced in Budget 2013, the 30 per cent corporate income tax rebate capped at S$30,000 was given to all companies, including registered business trusts for tax years 2013 to 2015.

The extension of the 30 per cent corporate income tax rebate by a further two years to cover tax years 2016 and 2017 is much welcomed. However, the cap is lowered to S$20,000 to benefit mainly SMEs.

The corporate income tax rebate is computed on the tax payable. Therefore, companies that are not paying taxes will not be able to benefit. Such companies may consider deferring capital allowances claims or planning their group loss relief to maximise the corporate income tax rebate.

The tight labour market and rising labour costs have been the top concerns of SMEs. It is thus heartening that Budget 2015 has included various extensions and enhancements of schemes that were introduced, over the years, to help companies manage their labour costs. These schemes include the Wage Credit Scheme, the Temporary Employment Credit scheme and the Special Employment Credit scheme.

For example, the extension of the Wage Credit Scheme for another two years (2016-17) to co-fund wage increases will help cushion the impact of cost increases. Although the co-funding is reduced from 40 per cent to 20 per cent, the extension goes a long way in helping SMEs as they restructure to move up the value chain.

SMEs often find it hard to retain good workers. However, a stable and dedicated workforce is key to growth. The extension of the co-funding will help SMEs make themselves more attractive employers.

To encourage SMEs to innovate and look beyond the domestic market, Budget 2015 also enhanced various existing tax incentive schemes such as increasing the level of support under grants of IE Singapore, expanding double tax deduction to salaries of Singaporeans posted to new overseas entities, and simplifying the applications for certain grants of SPRING Singapore.

The Government also introduced a new International Growth Scheme, where qualifying companies can enjoy a concessionary tax rate of 10 per cent for a period not exceeding five years on their income from qualifying activities.

It is hoped that the qualifying conditions and the application process would be kept simple. The feedback from many SMEs has been that while tax schemes are good in intent and purpose, they are sometimes too complex to understand and administratively burdensome.

Clearly, SMEs are a key focus of this year’s Budget and rightfully so if they were to future-proof their business. After all, SMEs are an important part of Singapore’s economy as they make up 99 per cent of our companies, employ 70 per cent of our workforce and contribute 50 per cent of our GDP.

The overall message has been consistent over the years: Singapore needs to transform to secure its future. Singaporeans need to develop deep skills and capabilities through a culture of lifelong learning. Companies need to innovate and internationalise.

Echoing Mr Tharman’s message in Budget 2015, it is time to go beyond value adding. We must be innovative and create value to propel Singapore to the next jubilee.

Ang Lea Lea is partner, Tax Services at EY in Singapore. The views reflected in this commentary are hers and do not necessarily reflect the views of the global EY organisation or its member firms.

The push for innovation and internationalisation
By Tay Hong Beng, Published TODAY, 24 Feb 2015

The late Steve Jobs of Apple once said that “innovation distinguishes between a leader and a follower”. If Singapore is to lead against its competition, then surely greater innovation must be the key to Singapore’s economic growth over the next decade.

In this year’s Budget speech, the word “innovation” appeared a grand total of 27 times while ‘productivity’ was used 20 times. It seems that the tide of focus has finally shifted from promoting productivity to encouraging more innovation.

Even more encouraging is that much of the focus on productivity and innovation is now in relation to growing local enterprise, with multinational companies receiving little mention in this year’s Budget.

As Deputy Prime Minister and Minister for Finance Tharman Shanmugaratnam noted, the next phase of Singapore’s restructuring will see increased support for all efforts to innovate and internationalise – whether from upgrading basic solutions or in achieving breakthroughs.

The Budget proposal therefore outlines plans to support everything from technology research to product development and the creation of new brands as well as their related marketing.


New this year is an analysis to understand the seemingly lacklustre results from the productivity drive of the last five years.

The Minister noted a stark difference between productivity growth in industries which competed internationally, as opposed to those such as construction, retail and F&B which only operated domestically.

Clearly, there seems to be a two-speed economy where it came to productivity. Growth rates averaged 5 per cent per year for the former, as opposed to under 1 per cent for the latter.

This year’s Budget thus attempts to kill several birds with one stone – promoting productivity by encouraging quantum growth through innovation and adding internationalisation as part of the recipe for this economic growth.

Mr Tharman also noted that Singapore’s tight labour market with its 2.9 per cent rate of unemployment in 2014, must surely be a motivator in itself for companies to seek alternative sources of human resources.

Local businesses are therefore free to manage their costs by achieving greater productivity, or for some sectors where more cost effective, seek lower labour costs through investments in regional ASEAN markets.

How timely this is, given the advent of the ASEAN Economic Community later this year which also promises greater cross-border labour mobility.

Other measures announced this year reinforce this theme. Examples include the enhancement of the Double Tax Deduction for Internationalisation scheme to cover salaries for Singaporeans posted overseas as well as the new International Growth Scheme tax incentive to help Singapore businesses venture abroad

While not specifically targeted at internationalisation, enhancements to tax allowances from 5 to 25 per cent for companies making acquisitions and the extension of this Mergers and Acquisitions scheme introduced in 2010 for another five years is as Mr Tharman noted, a ‘useful strategy for many companies to acquire scale, attract talent and compete effectively overseas’.

Nevertheless, it is somewhat disappointing that while incentives to promote innovation is the right step forward as Singapore matures from a value-adding to a value-creation economy, the Budget contained no specific measures to recognise home grown brands that have the potential to inspire newer brands.

Building strong Singapore brands is a key factor in internationalisation. It would have been a much more complete package if there were a new tax incentive to recognise and promote strong Singapore internally generated brands.


Rather unexpectedly after some years of declining personal tax rates worldwide, Singapore joins a rare club of countries which has seemingly gone into reverse gear.

Come Year of Assessment 2017, the highest rate of personal income tax will be 22 per cent. In comparison to Singapore’s oft-compared competitor Hong Kong – which has a highest personal income tax rate of 17 per cent - a 3 per cent gap now widens to 5 per cent.

While at first sight baffling as it makes Singapore less tax competitive relative to Hong Kong in attracting top talent, the reality is that these changes will only affect local and international talent with taxable incomes above S$160,000 per year.

This means that for taxable incomes of about S$250,000 per annum, the additional tax payable is S$400. For an income earner of $800,000 per annum, the changes mean an additional S$10,400 in taxes.

Representing an effective tax rate of about 19.5 per cent, this is still very attractive when compared to individual tax rates of other developed nations.

The reality therefore, is that most taxpayers in this tax bracket are likely to consider these marginal increases in view of other considerations. These include air quality levels, availability of childcare, traffic and other quality-of-life considerations.

Any impact on attracting and retaining these taxpayers to live and work in Singapore may only be known over the longer term.

Tay Hong Beng is Head of Tax at KPMG in Singapore.

Costlier petrol 'unlikely to change driving habits'
By Adrian Lim, The Straits Times, 25 Feb 2015

WHILE petrol prices have risen following the Government's hike in duties, motorists are unlikely to give up their rides just yet, experts said.

This is because the recent oil slump has kept pump prices lower than usual and will help mitigate the tariff increase for now.

Independent oil consultant Ong Eng Tong said oil prices may recover in the next five years when the shale oil supply from the United States drops.

On Monday, Finance Minister Tharman Shanmugaratnam announced during his Budget speech that the duty for premium grade petrol will increase by 20 cents to 64 cents a litre, while that for intermediate-grade petrol will go up by 15 cents to 56 cents per litre. The move is to discourage car usage and reduce carbon emissions.

Pump operators reflected the higher duties within a day, with the most popular grade of petrol, 95-octane, now costing between $2.01 and $2.04 per litre before discount, up from $1.85 to $1.89.

SIM University's urban transport management expert Park Byung Joon said the petrol duties are embedded in the pump price, making such a hike less effective compared to other taxation measures to discourage people from driving.

Also, compared to the outlay for a new car (usually about $130,000) an increase of $6 to $8 a week in petrol is negligible, he added.

But experts note that higher petrol duties may lead some drivers to look for alternatives to tighten their purse strings. Singapore Management University Assistant Professor Terence Fan said: "It is conceivable that some motorists may downgrade their petrol choice to save costs."

Drivers whom The Straits Times spoke to said they were unlikely to change their travel patterns.

Bank executive Jay Lim, 37, said: "I'm not sure for what price I would leave the car at home, given that I've already sunk so much money to own it. But I'd be much more keen to try the alternative of public transport if it were less congested."

There will always be new things to learn, says 69-year-old coach
By Jacqueline Woo, The Straits Times, 26 Feb 2015

SWIMMING coach Vincent Poon reckons the Government's call for learning at every age bodes well for the country to grow as a whole - and he feels he should continue learning, given that he is still working at the age of 69.

He told The Straits Times yesterday: "It's definitely a good thing to encourage people to keep learning.

"Everything around us is constantly evolving, and there will always be new things to learn."

Mr Poon was described by Finance Minister Tharman Shanmugaratnam in his Budget speech on Monday as an exemplar of "the spirit of what we are creating in Singapore".

Mr Tharman was referring to the spirit of "finding something that we think we can be good at, persevering over the years and taking pride in it, and passing the passion on to the next generation, so that we keep moving up".

Mr Poon's thirst for learning set in at an early age. At six years old, he taught himself swimming at the old Mount Emily swimming pool by attentively watching and emulating others.

"It was just a lot of observing, and then trial and error," he recalled with a laugh. "My parents were very busy with their spray-painting shop then, and didn't have time to look for a professional coach for me.

"But I liked swimming from young - I still do - and so I just kept trying (until I got it right)."

Mr Poon's self-taught skills allowed him to become the captain of the swimming team when he went to Beatty Secondary School, where he received an award for swimming more than 20km non-stop over a 12-hour period.

A road accident fractured his right leg when he was 19 and left him with a permanent limp, but it did little to dent his passion for the sport.

He began his coaching career about two years after the incident and today counts Asian Games gold medallist Joseph Schooling, 19, among the many students he has taught.

Mr Tharman said that Mr Poon would often "dive underwater to watch Joseph and help him improve his technique".

Even today, Mr Poon is not resting on his laurels - he visits the library regularly to read up on ever-changing methods in both swimming and coaching.

"It's all about experimenting to see what works (for you) or not, and doing your best," he said.

Seeing his students, like Mr Schooling, do well is more than enough to spur him to become a better coach.

"Joseph has a lot of potential and passion for swimming, and he tries very hard," he said.

"You'd need that type of character to become anything."

Singapore still a draw for top earners
Despite hike, its personal income tax rates are still lowest in region
By Grace Leong, The Straits Times, 26 Feb 2015

EVEN with this week's tax hike for top earners here, Singapore still has the region's lowest personal income tax rates after arch-rival Hong Kong.

Experts agree that even after this rise, the Republic will, for now, stay attractive to top talent and the ultra-wealthy from abroad.

In its Budget 2015 on Monday, Singapore announced income tax rises for the top 5 per cent of taxpayers to help fund social spending for the poor and the elderly.

The marginal personal income tax rate for those earning above $320,000 a year will rise to 22 per cent next year, from the current 20 per cent. Smaller rises apply above $160,000 a year.

The changes will start with income earned next year - that is, taxes to be paid in 2017.

This move will widen the gap with Hong Kong, which has a flat tax rate of 17 per cent for income above HK$120,000 (S$21,000).

Hong Kong, in its 2015 Budget unveiled yesterday, said it will not raise personal income tax rates and proposed a 75 per cent tax rebate capped at HK$20,000.

Opinions vary on what Singapore's hike in its top rate of tax would mean for the nation's competitiveness. Mr Leon Kwong Wing, head of KhattarWong's tax and private client division, said the corporate tax rate, which is unchanged, remains a more important consideration than personal income tax.

"The income tax hike hits the highest-paid executive, but not high-net-worth individuals per se," he said.

The tax hike will likely affect only a part of a company chief executive's overall income, as many get capital gains and dividends from their shareholdings, which are tax-free in Singapore, he said.

"While a wealthy individual may relocate here, his sources of wealth tend to remain offshore. As an individual, he is fully exempt from tax on any offshore gains or profits, even if he brings the money to Singapore. There is also no gift tax and no inheritance tax," Mr Leon noted.

The wealthy who relocate here often pay taxes only on consumption, such as goods and services tax, property tax on luxury residences and duties on alcohol, tobacco and motor vehicles.

Their wealth and income are generally outside the scope of taxation in Singapore, he noted.

Sakae Holdings chairman Douglas Foo, whose personal annual income is above $500,000, said the tax hike is "still manageable". "We are still competitive because there is no change to corporate taxes. As far as the income tax hike is concerned, we should take it in a positive light and accept it, because we have a very comfortable living environment," he said.

"Our (income) tax rate is not as high as other countries, like Japan, which is about 40 per cent.

"But we have to calibrate our tax rate carefully against other economies in the region, so as not to become less attractive to top talent and investors."

Mr Jay Krause, head of international law firm Withers in Singapore, said the Republic offers "important strategic and geographic business advantages that many of its rivals cannot".

Apart from taxes, factors including the efficiency of a country's government system, infrastructure, the education system, housing, environmental risks and security also play a role in relocation decisions.

Mr Gerard Ee, chairman of the Singapore Institute of Accredited Tax Professionals, called the tax hike a surprise for some. "While Singapore's top marginal income tax rate for individuals remains relatively low at 22 per cent, it remains to be seen if this change will affect its competitiveness in attracting top talent," he said.

One key question is whether the tax hike will be followed by increasingly higher taxes over time.

Mr BJ Ooi, partner and head of global mobility services at KPMG Singapore, said: "If this trend continues, there may come a point when our competitiveness in attracting the right talent will be severely dented."

'Further shift to the left' in Budget
By Marissa Lee, The Straits Times, 26 Feb 2015

ECONOMISTS have detected a further shift to the left in national policy in this year's Budget.

The Budget, unveiled on Monday, made the income tax system more progressive and brought in a scheme to help the bottom 20 to 30 per cent of elderly Singaporeans, they said.

The Silver Support Scheme gives quarterly payouts averaging $600 to the poorest seniors.

It is "conditional on need, not work", and goes further than the Public Assistance safety net as eligible seniors are enrolled automatically, said Nanyang Technological University economist Giovanni Ko at a post-Budget forum organised by the Economic Society of Singapore at the Grand Hyatt Singapore yesterday. "Each of these characteristics is possessed by some existing scheme and the amounts here are not groundbreaking, but goes quite some way towards implementing a basic pension.

"It's a huge step forward in terms of inclusiveness... and indicates a slight softening of the ideological stance of the Government," he said. "Until now, the Government was very much focused on talking about the need to be self-sufficient."

In his Budget speech on Monday, Deputy Prime Minister Tharman Shanmugaratnam spoke of "collective responsibility", and of "strengthen(ing) the Government's redistributive role... to benefit lower- and middle-income Singaporeans".

OCBC economist Selena Ling also called the Silver Support Scheme "a further step to the left", though she added that Singapore's model of social security is unlikely to go down the path of Western welfare models.

"Over the last five years, the Government has taken steps that ideologically would have been taken as sacred cows," said Ms Ling, citing schemes such as Workfare and the Wage Credit Scheme which top up the incomes of lower-wage workers.

But she disagreed it was a "Robin Hood Budget", as some have called it, as it helps not just the poor but also the middle class. Also, businesses still got "much bigger" transfers than households.

"(The Government) hasn't forgotten the business-friendly side of things," she said.

And while Robin Hood steals from the rich to give to the poor, "$400 million isn't going to get you very far when you're staring at a deficit position of over $6 billion", said Ms Ling, referring to the $400 million additional tax revenue the Government expects to collect yearly from the rise in income tax rates for top earners.

A major part of the projected deficit is due to the development of Changi Airport Terminal 5, and top-ups to the National Productivity Fund and National Research Fund.

CIMB economist Song Seng Wun said that Singapore could sustain a move towards more progressive policies that "squeeze the wealthy... primarily because Singapore remains quite an attractive place to do business in".

Such a move would continue a process that started in 2013 when property tax rates for expensive homes were raised, said Mr Song.

Paying for that surge in Budget spending
By Chan Kok Hoe, Published The Straits Times, 26 Feb 2015

BUDGET 2015 calls for a massive $11 billion rise in expenditure on the previous year.

While substantial grants are planned for the middle class, the poor and elderly, innovative businesses and workers keen on skill mastery, a large proportion of the increased spending has gone towards improving Singapore's transport and logistics infrastructure.

Development expenditure will increase by more than 40 per cent over FY2014 and is expected to grow to $30 billion by the end of the decade. By then, overall spending will have reached 19.5 per cent of gross domestic product.

How does the Government plan to pay for all of this? For the current Budget year, the Government has eschewed tax increases, choosing instead to run a deficit of $6.7 billion, or 1.7 per cent of gross domestic product (GDP).

Both the corporate income tax and the goods and services tax (GST) are unchanged. A sizeable $717 million rebate will result in personal income tax receipts falling in FY2015. While top personal income tax rates are due to rise in 2017, this is designed to raise only sufficient funds to cover the $350-million-a-year Silver Support Scheme (for the elderly poor).

Deficit spending is made possible because the Government holds ample current reserves. Indeed, the report on FY2014's fiscal position reveals a substantial boost to current reserves. The Government incurred a deficit of $130 million, which was $1 billion smaller than initially estimated. The FY2013 Budget surplus has also received an upward revision - it is now $5 billion, rather than $3.9 billion.

That revisions tend to improve the fiscal position is unsurprising. The Government has a track record of being prudent and conservative in its Budget estimates, often underestimating revenues and overestimating expenditures. But it is worthy to note that the revision for FY2014 is considerably lower than the $1.5 billion to $3 billion that analysts from OCBC, DBS and UOB had expected.

It also marks the third consecutive year of declining revisions. It is likely that the Government has improved the accuracy in its estimates, though the fact that 2014 economic growth was almost exactly as projected also helped.

These upward adjustments boost current reserves to about $15 billion, which is more than sufficient to finance the $6.67 billion projected deficit.

The remaining current reserves could help finance another Budget deficit in FY2016, but not beyond. This is because the next general election must be held by January 2017, and current reserves must be transferred to past reserves when the Government's current term ends.

Temasek boost to budget revenue

THE bulk of the needed revenue increases beyond FY2016 will come from higher net investment returns contributions (NIRC).

Under the Net Investment Returns (NIR) Framework in the Constitution, the Government is allowed to draw up to 50 per cent of the long-term expected returns on investments managed by GIC and the Monetary Authority of Singapore, plus up to 50 per cent of investment income from other sources, including dividends issued by Temasek Holdings.

Higher NIRC, together with the adjustments to top personal tax rates, will add yearly revenues equal to 1 per cent of GDP. Since the NIRC for FY2015 is estimated to be $8.94 billion, this suggests that the Government expects the NIRC for FY2016 to be close to $13 billion, or about 3 per cent of GDP. This would make the NIRC a larger contributor to revenues than the GST.

This dramatic rise in the NIRC comes from including Temasek Holdings in the full NIR Framework.

Instead of drawing from Temasek's dividends, the Government will now use Temasek's long-term expected returns to compute its contribution. This includes consideration of dividends, but also of realised and unrealised capital gains. The substantial addition to the NIRC reflects the large capital-gains component of Temasek's equity-dominated portfolio returns.

Will tax rates rise in FY2017?

THE larger NIRC, together with increases in revenues from an economy growing at 3 per cent a year, will be sufficient to pay for the increased spending. But without additional revenues, the Government may no longer be able to run sizeable Budget surpluses.

Because the Constitution disallows it from borrowing to pay for expenditures, and it cannot tap past reserves without the President's approval, the Government needs to run Budget surpluses to generate fiscal breathing room.

Unless the economy is unusually buoyant or long-term net investment returns recover to pre-2007 levels, there is a decent chance that the Government may have to revisit the issue of raising tax rates in FY2017.

The writer is an economics lecturer at the National University of Singapore.

An inclusive and progressive package
By Devadas Krishnadas, Published TODAY, 26 Feb 2015

There has been considerable interest in the details of the Budget delivered by Deputy Prime Minister Tharman Shanmugaratnam on Monday, especially the additional social investments such as the Silver Support Scheme. But there are two planes of meaning to this Budget that we should consider to better understand its significance.

First, as a small country with an outsized economy and strategic geo-political links, Singapore needs deft political leadership that can distinguish between the noise and signals in an increasingly crowded public space, and go beyond being responsive to providing leadership with vision.

What does the Budget tell us about how the Government is running the country?

The significant and structural commitments in healthcare, education, public infrastructure and retirement financing needs of Singaporeans are a continuation of a persistent theme in recent Budgets. Collectively, they reflect an ability to anticipate future challenges and a willingness to tackle them in the present with well-resourced policies and plans.

In Budget 2015, the Government has shown that it is prepared to run marginal deficits and commit to major outlays to help Singapore sustain her economic success and remain a liveable city for Singaporeans of all ages and incomes.

Taking only one example, the S$8 billion Pioneer Generation Fund introduced in the previous Budget has been followed up with the Silver Support Scheme this year to provide for the retirement needs of older and needy Singaporeans. The new scheme is estimated to cost about S$350 million in the first year.

The bringing in of Temasek’s projected earnings into the Net Investment Returns Contribution (NIRC) shows how the Government intends to resource most of the expected jumps in expenditure over the longer term. This is the second major adjustment to the NIRC model after the constitutional amendment in 2008 that adjusted the split share formula of managing the returns on invested reserves.

The latest change also signals that Singaporeans should continue to expect a low taxation system. It shows that Mr Tharman and the Government are willing to reshape the orthodoxy on reserves management to better serve the needs of Singaporeans.


Second, we need to consider what the narrative is underpinning the various initiatives.

The Silver Support Scheme, adjustments to the Central Provident Fund scheme, increased healthcare subsidies and the introduction of SkillsFuture programme are netted together in a narrative that places Singaporeans at the centre of policy attention.

These policy commitments are costly. While adjusting the NIRC could provide the additional fiscal resources, the Government has elected to reshape the top end of the personal income tax schedule and to impose a higher duty on petrol — targeted at car owners who, given the high cost of private transport, will probably be at least middle-income earners.

In doing so, the Government is underlying its vision of an inclusive and progressive Singapore. Higher-income earners will still enjoy internationally competitive tax rates, but they should be seen to be taking on a greater burden of sharing to help their fellow citizens.

Budget 2015 marks another step in rebalancing the policy emphasis from an exaggerated focus on the economy and a narrow view of Singaporeans as labour units, to a stronger commitment in meeting the social needs of Singaporeans and to value them even after they are not economically active.

The Government also seems to be more tightly linking the output of economic policies with social outcomes, and vice versa. Investing in the social and retirement needs of Singaporeans creates a more satisfied, better educated citizenry and, as a derivative, a better skilled and flexible labour force, hopefully.

This labour force, in turn, may benefit from higher wages, in part because of redistribution through Workfare and other targeted wage supplement schemes, but also via better market-based returns on their economic contribution in higher value-added areas.

In his explanation of the intent of the SkillsFuture programme, Mr Tharman also outlined a shift from a social-mobility model, based on largely academic achievement, to a more flexible and dynamic model based on a mix of skills, experience and academic achievement with the load biased towards the first two.

This is significant — it moots a future Singapore where every Singaporean will have the opportunity to return to the workforce, upgrade to achieve more professionally, and remake their working future in line with changes in the economy and their personal goals.

This sophisticated macro modelling of policy to achieve outcomes that are greater than the sum of their parts is ambitious. This is a good thing, even a great thing. Singaporeans will appreciate this if they look at the big picture and make the most of the opportunities presented, rather than settle into an entitlement mindset.

That is the policy risk the Government runs with successive Budgets that are generous on social support. In the well-intentioned effort to empower Singaporeans, we could instead create a generation of entitled Singaporeans.

Budget 2015’s vision of a Singapore full of opportunities and support for an empowered citizenry thus has great appeal, but also carries risks. These risks can be managed only by Singaporeans.

Can we retain our work ethic; sustain our drive and maintain our sense of unity? Singapore’s vision can be facilitated by sound policy and strong leadership, but it can only be realised by her people.

What we need is a gifted citizenry, not a citizenry always expecting gifts.

Devadas Krishnadas is chief executive of Future-Moves Group, an international strategic consultancy and executive education provider based in Singapore.

As spending needs rise, S'pore can supplement funds: Minister
By Chia Yan Min And Charissa Yong, The Straits Times, 27 Feb 2015

SINGAPORE is in the unusual position of being able to tap more sources of revenue to fund its increased spending needs, said Senior Minister of State for Finance and Transport Josephine Teo yesterday.

Referring to the moves in Monday's Budget to raise taxes on the rich and draw on more contributions from Temasek Holdings, Mrs Teo said "virtually no other country" has this ability to supplement its finances.

"Many other countries around the world actually need additional revenue sources to help pay for programmes that benefit citizens, but not that many have the courage to raise taxes," she said at a forum organised by government feedback unit Reach to discuss Budget 2015.

"But we think that it is the responsible thing to do."

At a separate roundtable organised by The Straits Times on Wednesday, panellists welcomed the Budget's focus on helping the elderly poor and moves to address Singaporeans' retirement needs.

They also offered more ideas of their own, including free universal pre-school education and removing the retirement age as people here live longer.

The four participants, with expertise from business to ageing issues and career development, said the Jubilee Budget had laid foundations for Singapore's future but more can still be done.

"Should we still be sticking strictly to the retirement age? Is it time to remove that, and allow people to work for as long as they want, rather than having an artificial line drawn there?" said UOB economist Suan Teck Kin.

Mr Paul Heng, the founder and managing director of NeXT Career Consulting Group, said Singaporeans need more help to plan better for old age.

Meanwhile, free, high-quality pre-school education should be provided to lift the birth rate, said Dr Kanwaljit Soin, immediate past president of Women's Initiative for Ageing Successfully.

"I'm sure if we provide better pre-school education, many women will want to have more babies. This has been shown in some of the Scandinavian countries where total fertility has gone up."

The panellists also lauded the Budget's SkillsFuture initiative, which aims to deepen and broaden Singaporeans' skills amid a changing economy.

But Singapore Chinese Chamber of Commerce and Industry president Thomas Chua said smaller firms might need extra help to make use of the scheme.

REACH Post-Budget 2015 Public Forum
SkillsFuture, family support measures garner most attention
By Charissa Yong, The Straits Times, 27 Feb 2015

OF THE array of measures introduced in this year's Budget, Singaporeans are most interested in the SkillsFuture initiative, which aims to encourage people to master skills relevant to their work or pick up new ones.

Many support the scheme, but called for more details about the SkillsFuture Credit, which Singaporeans can use to fund their training costs, said Senior Minister of State for Health and Manpower Amy Khor at a forum last night to discuss the Budget.

Others felt the initial $500 credit for every Singaporean aged 25 and above may not be enough to pay for some courses.

This feedback was collated from 600 comments collected this week by government feedback arm Reach, which organised the forum.

But Dr Khor, who is Reach chairman, noted that more SkillsFuture Credit top-ups are expected in the coming years, and the money can be accumulated to pay for more expensive courses.

Senior Minister of State for Finance and Transport Josephine Teo, who co-chaired the forum at *Scape in Orchard Road, also said the credits were only one part of the equation.

The onus is on workers to be motivated and make full use of them, she added.

Apart from SkillsFuture, other Budget measures that caught the attention of citizens were those aimed at supporting families and ensuring the elderly poor have enough to live on, said Dr Khor.

A fifth of the Budget feedback that Reach received focused on support for families, with many welcoming the lower concessionary maid levy of $60.

People also lauded moves to give retirees greater peace of mind.

These include the Silver Support Scheme for the bottom 20 per cent to 30 per cent of Singaporeans aged 65 and older, said Dr Khor.

Among the 110 participants at yesterday's forum was Mr Kuok Minghui, 34, who asked why the Budget had raised Central Provident Fund contribution rates for older workers but not for younger ones.

Mrs Teo explained that the rates for older workers had been reduced some years ago to make it easier for them to find work. Monday's move restored the rates for older workers to the same level as that of younger workers.

At a separate event yesterday, Minister for Social and Family Development Chan Chun Sing said this year's Budget charts a long-term course for Singapore to invest in its workers and give them "the best chance possible to compete in today's increasingly competitive globalised environment".

"Only when our workers have succeeded... will Singapore have succeeded and will Singapore have the resources to share and take care of our growing elderly population," he said at a Chinese New Year dinner organised by Tanjong Pagar GRC and Radin Mas SMC yesterday.

Reach will set up a Budget feedback booth tomorrow at Tampines Central 1, and another next Monday at Toa Payoh Hub.

Dr Khor, with Chua Chu Kang GRC MP Zaqy Mohamad and Tampines GRC MP Baey Yam Keng, will also field questions on the Budget on Facebook next Tuesday.

Manpower issues not adequately tackled in Budget, say bosses
By Marissa Lee, The Straits Times, 28 Feb 2015

A STRAW poll of about 100 company chiefs found that a significant number of them believed manpower constraints could have been better addressed in this year's Budget.

The poll was conducted by KPMG as part of a post-Budget panel discussion held by the professional services firm yesterday.

About 49 per cent of chief executives, chief financial officers and tax directors of local and multinational firms present felt the Budget could have given more attention to manpower issues.

Those attending were asked to nominate one of four possible responses to the question: "Which area do you think the Budget did not address sufficiently?"

The next most popular response was "rental costs", with 24 per cent, followed by 15 per cent who felt more could have been done to support growth.

The fourth option, on more certainty and simplicity in tax and regulations, drew 12 per cent.

"We've been saying on behalf of our members that we need a much more sectoral approach, and a recognition that, like it or not, there are a lot of jobs that Singaporeans don't want to do," said panellist Victor Mills, chief executive of the Singapore International Chamber of Commerce.

He said he hopes the SkillsFuture initiative - unveiled in the Budget to upgrade skills of working adults - will take a targeted approach by identifying the specific skills required by each sector, and supporting their development.

The panel also discussed the difficulties some firms faced in getting work permits approved or renewed.

Mr Kurt Wee, president of the Association of Small and Medium Enterprises, said the Budget introduced no measures to "manage or reduce" business costs for firms, though there were some measures that deferred costs.

The Budget deferred foreign worker levy hikes due in July this year for one year; manufacturers got a two-year deferral.

And while the Central Provident Fund (CPF) salary ceiling is being raised, firms will be given a temporary employment credit over the next three years to tide them over. Firms with older workers who must pay higher CPF contributions will also enjoy a special employment credit.

With no mention in the Budget to address high rental costs, it was not surprising that the concern featured high up on the list.

Mr Thomas Fernandez, chief executive of pest control service PestBusters, said: "This time, the Budget didn't really excite us. The pressing problem is still manpower."

But with the Budget unveiling measures to spur innovation and encourage firms to head overseas, fewer bosses felt that the measures were lacking on this front.

Call for more support for stay-at-home mothers
By Walter Sim, The Straits Times, 2 Mar 2015

AHEAD of the Budget debate starting tomorrow, the People's Action Party (PAP) Women's Wing has called for more support for stay-at-home mothers with little savings in their Central Provident Fund (CPF) accounts.

The group, led by Minister in the Prime Minister's Office Grace Fu, said it was "especially concerned" that stay-at-home mothers do not get to benefit from the CPF system.

Without regular CPF contributions, they will not enjoy interest compounding on their balances, the group said in a statement issued yesterday in response to recent policy announcements.

The PAP Women's Wing convened a special meeting on Saturday to discuss the issue of retirement adequacy, which has been in the spotlight in recent months as the CPF scheme came under debate and review.

Among the slew of measures announced in last Monday's Budget was a recommendation to increase flexibility to the CPF system so as to allow withdrawals at age 65, which the group said it was also concerned about.

"We urge families to carefully consider the benefits of retaining their savings in the CPF," it said, although it supports withdrawals made to top up accounts of the spouse with less CPF savings.

"This will be particularly helpful to homemakers with little or no CPF savings."

The Women's Wing also called on husbands and adult working children to take the "sensible approach" and make regular voluntary top-ups to the CPF accounts of stay-at-home mothers.

It urged the Government to raise awareness of the benefits of such top-ups, and the availability of Giro transfer options.

Institute of Policy Studies research fellow Christopher Gee, who studies ageing and retirement adequacy issues, said housewives tend to not accumulate enough savings for retirement.

He said the Government could consider "building in some behavioural mechanisms such that it becomes seamless".

He suggested a mandatory system where working spouses make automatic contributions to the CPF accounts of non-working spouses, unless they opt out.

In its statement, the Women's Wing said more could be done to help stay-at-home mothers take advantage of the SkillsFuture initiative that encourages lifelong learning. For the convenience of homemakers and caregivers, the group suggested offering e-learning options for them to upgrade their skills remotely. This will increase their employability should they wish to work in future.

The group also urged the Government to consider allowing husbands and children to make partial transfers of their unused SkillsFuture Credits to the homemakers, to further offset the costs of skills upgrading.

From next year, all Singaporeans aged 25 and above will receive $500 in SkillsFuture Credit, with regular top-ups to come.

This suggestion was welcomed by homemaker Wendy Choo, 56, who has experience working as a childcare assistant teacher.

"It will be good to keep myself knowledgeable," she said, adding that she would consider taking up more courses in childcare.

The PAP Women's Wing also urged the Government to continue raising the quality and affordability of pre-school education and childcare services.

"It remains challenging for women to juggle both work and family commitments," it said, given that accessibility is still an issue in some new towns where many young parents now live.

It added: "HDB should do more to help young couples stay close to their parents so that there is greater familial support in raising children."

On the CPF Life annuity scheme, it said that for married couples, monthly CPF Life payouts should be made into joint bank accounts by default, although members may opt out.

"This is to encourage spousal mutual support as well as to protect the interest of the spouse with low or no income," it said.

Its suggestions follow those last week by the PAP Seniors Group. Addressing initiatives such as the Silver Support Scheme for poor elderly people, the seniors group welcomed, among other things, the additional 1 per cent interest that will be paid on the first $30,000 of total CPF savings for members aged 55 and above, starting next year.

Beware the 'trust fund kids' mindset
Singaporeans may get too used to the habit of dipping into past reserves' interest for spending
By Chua Mui Hoong, Opinion Editor, The Sunday Times, 1 Mar 2015

Just for the record, The Straits Times wasn't the first news outlet to call Budget 2015 a Robin Hood Budget, for the way it raised tax rates for top earners and gave out millions in training, education and old-age allowances to the masses.

That honour belongs to Bloomberg. Its story online was dated Feb 23, 6.24pm, about an hour after the Budget was delivered. Titled "Singapore unveils Robin Hood-style Budget with boost to top tax rate", the first sentence read: "Singapore took another step towards Western welfare systems and further from low-tax models like Hong Kong."

At that time, I was in the newsroom writing my own commentary for The Straits Times' digital edition. I didn't read the Bloomberg story.

My article on the Robin Hood Budget was posted on our website at 8.06pm, and shared on our Facebook.

That Robin Hood label has since been reprised in several other news articles, leading Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam to state categorically, one day after the Budget: "Robin Hood makes a good newspaper commentary, but that's not our strategy. We need to spend more over the next five years in the common interest."

Instead, he framed the issue this way: "To have a cohesive society, you need public good that everyone shares in, and someone has to pay for it. We all pay for it.

"It is important for all of us, whenever we talk about taxes, whenever we talk about our obligations, to take a collective approach. This is our society... We need to take collective responsibility."

Robin Hood - who cared for his band of merry men and the poor - would surely agree.

In fact, this year's Budget surprised me not so much for the tax hike for top earners, as for the large deficit incurred.

Yahoo News reported it thus on Feb 24, under the headline "Massive 2015 Budget deficit far exceeds analyst expectations": "The Government yesterday declared a fiscal deficit of $6.7 billion, or 1.7 per cent of the GDP, for Budget 2015. The staggering figure far exceeded initial analyst forecasts."

To be sure, a deficit of $6.7 billion when the Government has current reserves (accumulated since 2011) estimated at about $15 billion is not a big deal. After all, current reserves must be transferred to past reserves when a government's term ends with a general election, so it makes sense for a government to spend its savings within its five-year term.

Also, the deficit comes because of massive spending on infrastructure, such as $3 billion into the Changi Airport Development Fund. It also includes $6 billion salted away into endowment and trust funds for the long term.

Singapore also has the benefit of net investment returns contribution (NIRC), which are projected returns from its past reserves. That has added a whopping $55.9 billion in the last seven years to the Budgets, at the rate of between $7 billion and $9 billion a year from FY2009 to FY2015.

Ratings agency S&P also gave the Singapore Government an unsolicited top AAA rating a day after its Budget.

It noted that the bulk of the $68.2 billion spending Budget was to boost the country's economic growth potential, train workers and ensure increased funding to meet the needs of Singapore's ageing population. Investments in these areas "significantly outsized" the $705 million transfers to households, it noted.

So the overall consensus is that Singapore remains a fiscally sound place. We are far from prospective bankruptcy brought on by the spendthrift ways of some Western governments. But some fiscal conservatives in Singapore have already voiced concerns about the pattern of spending. The Straits Times Forum page had two readers asking if the Silver Support allowance, which will become a permanent feature of the social safety net, is fiscally sustainable.

Indeed, a look at recent Budgets shows that Singapore has got into the habit of spending more than it makes annually, if you do not include contributions from net investment returns.

This year, operating revenue, which comes mainly from taxes and fees, amounts to $64.27 billion. Spending is $68.22 billion, exceeding revenue by $3.95 billion. This is called the primary deficit.

Despite running a primary deficit, the Government is giving away a generous $5.67 billion in "special transfers" - such as top-ups into students' individual education accounts, a special seniors' bonus, and co-funding wage increases for those earning up to $4,000 a month.

This brings what is called the "basic deficit" to a whopping $9.62 billion. This is the gap between what is earned in revenue (minus NIRC) and what is spent on running the country and on giveaways for the year.

This is like a wealthy family that makes less than it earns in a year. What does it draw on to make ends meet? Interest from past savings.

It then decides to give away more money to its extended family members. What does it draw on? Interest from past savings built up by frugal ancestors.

In the seven years since FY2009, the Budget ran into a basic deficit in four years.

In FY 2009, the basic deficit was $6.416 billion. In FY2010, it was $0.782 billion. In FY2014, it was a small $0.178 billion. And in FY2015, it is estimated at $9.615 billion.

Does it matter?

One might say it does not, if the money is well spent, on the poor and elderly for instance. Some will point out a large part of the spending is on investment in people, like on education and skills training. Others will say it's fine to go into deficit to spend on long-term capital projects like the airport and MRT lines.

One might also point out that the country has ample reserves. The NIRC allows up to 50 per cent of the long-term expected real return from net assets managed by GIC, the Monetary Authority of Singapore and Temasek Holdings to be used. This is like spending half the interest from past reserves, and leaving the capital untouched.

My concern, though, is that Singaporeans may get too used to the habit of expecting to dip into the interest, or worse, the capital, of past reserves, to finance current spending.

This would be like rich kids who come to depend on their family trust funds to finance their lifestyles. Andrew Carnegie wrote in 1891 in Advantages Of Poverty that "the parent who leaves his son enormous wealth generally deadens the talents and energies of the son, and tempts him to lead a less useful and less worthy life than he otherwise would".

Mr Tharman was right to talk about collective responsibility. If citizens start to feel entitled to the state's largesse from past reserves, the clamour for more - and more specious - spending will increase.

Amid the feel-good, celebratory mood of Budget 2015, we should pause to reflect on the blood, tears and sweat that went into building those billions of dollars of reserves.

The last thing our pioneers want, or deserve, is for future generations of Singaporeans to have a "trust fund kids" mentality, relying on the country's trust fund of reserves to fund excessive spending.

Have a robust debate on increase in Budget spending

THIS year's Budget has been lauded as one that ensures every Singaporean gets a share of the national pie ("Fair for all, sets path for future" by Mr Ho Kong Loon; last Thursday).

However, I am concerned about how the Government plans to pay for anticipated annual increases in expenditure in the future ("Paying for that surge in Budget spending"; last Thursday).

In order to make provisions for the massive $11 billion rise in expenditure projected for FY2015, the Government has moved away from a conservative, tried-and-tested strategy of computing contributions to revenue (namely, to limit the computation of revenue from Temasek Holdings to dividend income).

Now, it has decided to add realised and unrealised capital gains from Temasek Holdings into the equation.

This seems to imply that current reserves available for future transfer to the pool of past reserves has become less.

This also means that a smaller share of past reserves will be passed on to future generations, or, in the event of a national crisis, there would be a smaller pot of past reserves that can be tapped on.

This increase in expenditure should be questioned and debated thoroughly in Parliament, especially if the increase, compared with the previous year, has been substantial.

Also, is it possible to cut some of the national expenditure, so that the Government can avoid the need to resort to unpopular moves like raising taxes?

Chan Yeow Chuan
ST Forum, 2 Mar 2015

Increase in spending: Temasek replies

WE THANK Mr Chan Yeow Chuan for his feedback ("Have a robust debate on increase in Budget spending"; Monday) and would like to assure him on a few points.

First, the Net Investment Returns (NIR) Framework does not affect Temasek's approach to investment. Our investment strategy remains unchanged and we will continue to seek sustainable long-term returns.

Second, while the NIR Framework will enable the Government to spend on the basis of Temasek's expected returns, it has no impact on Temasek's dividend policy, which is based on profit.

We have a dividend policy which balances a sustainable distribution of profit to our shareholders with the retention of profits for reinvestment to generate future returns.

We also take into account our responsibility to protect Temasek's past reserves.

Third, Temasek takes concentrated risks and invests almost wholly in shares of companies, in anticipation of higher long-term returns. This means greater year-to-year volatility in annual returns and profits compared with most other diversified portfolios.

Temasek recognises that the Government's NIR Framework smooths out the volatility and provides a stable and more predictable basis for government spending through economic cycles.

This can be especially important during an economic downturn, when the need for government spending may be higher while annual returns may be lower.

Finally, we have modelled and simulated our expected returns compounded over 20 years. Our Temasek Geometric Expected Return Model (T-Gem) modelling approach has been published in our annual Temasek Review since 2011.

Though such models are not meant to predict actual performance, we believe that we have a robust methodology to form a realistic view of our expected returns.

Jeffrey Fang
Associate Director
Strategic and Public Affairs
ST Forum, 4 Mar 2015

Increase spending now, teach self-reliance for later

THERE have been many calls by MPs and readers urging fiscal prudence by the Government as social spending increases ("MPs back Budget, but warn about spending"; yesterday, "Silver Support Scheme: Is permanent feature sustainable" by Ms Alice Chong Chui Ping and "Shed more light on funding" by Mr V. P. Sreevardhanan; both published last Friday).

I applaud the Government for taking a calculated risk to increase social welfare spending. With the ageing population in Singapore, it is good that the Government prioritises social harmony in the Budget, and this is money well spent.

The Government has also defrayed some of the cost by increasing taxes on the top 5 per cent of earners and has other revenue sources such as the goods and services tax. The goal is to narrow the wealth gap to reduce dissatisfaction that could fuel social unrest and affect business confidence.

Therefore, it is important that we not fret too much over the money spent from our reserves to fund social welfare initiatives, as the benefits outweigh the costs.

Ultimately, this will increase our competitiveness and bring more business to Singapore if investors see Singapore as a politically and socially stable place. This will, in turn, create more jobs and revenue for Singapore.

While there should be a limit to social spending, the Government has also recognised that job skills need to change in the course of one's career and the SkillsFuture initiative will help to transform and make our skills more portable. Workers will, thus, be more employable at different stages of their career until the age of 65.

One area that the Government can address proactively to limit the amount of social spending needed for generations to come is to have our education system teach students about financial planning and prudence, and how to save and invest for the future.

This will reduce the problem of future citizens not having enough for their retirement and seeking help from the Government.

In summary, it is necessary to increase social welfare in the short term to improve our social harmony by reducing the wealth gap. We should also continue to invest in the SkillsFuture scheme and teach our young the importance of financial planning.

Wong Shih Shen
ST Forum, 5 Mar 2015

Tax the wealthy more, not the high-wage earners
By Calvin Cheng, Published The Straits Times, 16 Mar 2015

THE Budget for 2015 has been characterised as a Robin Hood Budget because it increased taxes on the highest 5 per cent of income-earners.

I agree with Deputy Prime Minister Tharman Shanmugaratnam who said it isn't a Robin Hood Budget - but for a different reason. The rich that the Budget is purported to take away from, are far from the truly rich.

Private banks generally sub-divide rich individuals into three categories: the High Net Worth Individuals (HNWI) are those with US$1 million (S$1.4 million) in liquid assets; the Very High Net Worth Individuals (VHNWI) with US$5 million; and the Ultra High Net Worth Individuals (UHNWI) with US$30 million. 

Under these classifications, a salary of $160,000, where income tax upward adjustments start, does not even come close.

As for the top income bracket of $320,000, some of these individuals, if canny investors, may attain the status of HNWI, or even VHNWI. But they are extremely unlikely to be the truly rich - the UHNWI with US$30 million of liquid assets or more.

A report on March 5 forecast that this class of the super rich is set to grow by 1,700 in Singapore by 2024, the highest in 108 cities.

Singapore already has the third largest number of UHNWI in the world, behind Tokyo and London, with 3,575 persons.

The report also predicts that we will have 1,177 persons with net worth of US$100 million or more, and 36 billionaires, by 2024. Already, for a small city, we already have an impressive 24 billionaires, the ninth highest in the world.

The thing about the truly rich is that, by and large, they will not be affected by the increase in income taxes for one simple reason - the wealthy do not make their money from earned income, but through investments.

One can make money from investments through capital gains or dividends, both of which are not taxed. Singapore does not tax capital gains. It has a tax regime where income is taxed once at the source. Since the corporations already pay corporate tax, the dividends given out are not taxed.

This means that wealthy individuals - the truly wealthy rather than the high-income earners - pay very little tax on the money they make every year.

So even though the Budget has made a step in the right direction in increasing taxes on high-income earners, many of these individuals paying higher income taxes are not the truly wealthy.

Controversial as it may seem, people on $160,000 a year incomes may be in the top 5 per cent of income earners, but I suspect that they will not even come close to being in the top quarter in terms of wealth.

Although income inequality is high in Singapore, wealth inequality is higher. Credit Suisse's private bank for example estimates that Singapore's wealthiest 1 per cent hold a quarter of the country's private household wealth.


THE implications of not targeting the people with real wealth are several fold.

Firstly, wealth inequality is far more significant than income inequality, which has become a buzzword only because it is currently a trending topic amongst book-writing academics and economists.

Yet, anyone with a basic understanding of finance will know that high income does not always mean high wealth.

If our policies aim to ameliorate inequality and the social consequences it brings, including the threat to our valued meritocratic values, looking at income inequality is not enough: wealth inequality matters far more.

Secondly, if the rich are not identified correctly, the Government will just be shifting the middle-class squeeze upwards to a higher-income bracket.

If those who start bearing a larger fiscal social burden feel that they are unfairly targeted, this will create even more resentment towards the Government.

Already "high income" earners suffer a disproportionate burden as they are not poor or middle-class enough to receive subsidies from the Government, but are by a long measure not wealthy enough to benefit from the tax breaks or instruments at the disposable of the truly wealthy.

MP Tin Pei Ling (Marine Parade GRC), for example, pointed out that business owners who pay themselves a high salary may either choose to take dividends in lieu of pay, or incorporate themselves as a company since the corporate tax of 17 per cent is now 5 percentage points lower than the highest personal income tax rate of 22 per cent.

Thirdly, if "taxing the rich" is one of the chosen methods the Government is going to employ to make up for the higher social spending on the middle and low income, then it makes sense to tax the "right rich".


IT IS time therefore for Singapore to seriously consider wealth taxes. It is a point that many commentators have brought up in previous Budgets, but never seriously discussed by the Government.

Firstly, a zero per cent capital gains tax may make sense when we were establishing ourselves as a financial hub, but it is something we can reconsider today. There are many levels of capital gains tax between the current zero and a rate that will make us lose our competitiveness.

Moreover, Singapore's attractiveness as a financial hub is no longer due to its zero capital gains taxes, but is also due to its stable, attractive and safe living environment for investors. We should not only compete on tax to attract investors at this point of our development.

Secondly, I join the growing chorus of people calling for a re-introduction of the estate/inheritance tax.

It is true that the wealthy find ways and means of avoiding these taxes, but the very fact that they have to go through all sorts of contortions to do so (for example, giving away their money to their grandchildren whilst they are alive) means that inheritance/estate taxes are not ineffective. Inheritance/estate taxes may not in the larger picture raise a very large amount of taxes but they are important symbolically to a society that values meritocracy and starting on a level playing field.

The Budget puts Singapore towards an even more progressive path when it comes to taxation. But it is important to recognise that wealth inequality is far more important than income inequality.

Just taxing income to reduce inequality only increases the tax burden on high-income professionals, while leaving the truly wealthy (many of whom are bosses these professionals work for) unaffected.

This will only create more social tension and resentment in the long run.

The writer is a media entrepreneur and former Nominated MP.

What it takes to keep S'pore in good fiscal health
A closer look at the numbers that matter in balancing the Budget, both now and in the future.
By Wong Wei Han, The Straits Times, 17 Mar 2015

IF A company runs into deficit more often than not, the concern is that the management is losing the plot.

The same scrutiny can be trained on Budget 2015, which the Government tabled along with its latest fiscal position data on Feb 23.

The Budget this year outlined initiatives to strengthen the social safety net, build up infrastructure and develop the local workforce, but these programmes come with a hefty price tag.

Since the financial year 2009, the nation has run into basic deficit four times in six years. A basic surplus or deficit is the figure after taking into account the revenue from taxes and deducting expenditure such as spending by ministries on operations and development, plus special transfers, which range from the typical annual handout of GST Credits and Central Provident Fund (CPF) top-ups, to the money forked out for recent initiatives such as the Productivity and Innovation Credit scheme and the Pioneer Generation Package.

With the special transfers amount rising - from 2009's $5.48 billion to an estimated $11.67 billion this year - Singapore may be hit by a basic deficit of $9.62 billion in 2015.

The more important figure, however, is the overall surplus or deficit figure, arrived at after investment returns and dividends from the Monetary Authority of Singapore (MAS), GIC and Temasek Holdings - which are tasked with managing Singapore's reserves - are taken into account. After an overall deficit of $0.13 billion last year, the figure is estimated to widen to $6.67 billion for 2015, the largest deficit on record if realised.

As government spending is expected to rise to between 19 and 19.5 per cent of gross domestic product (GDP) on average over the next five years, the Government has moved to boost its future revenues.

Running out of financial levers?

THE latest change, announced by Deputy Prime Minister Tharman Shanmugaratnam in Budget 2015, seeks to include Temasek Holdings within the Net Investment Returns (NIR) framework. Introduced in 2009, the NIR framework allows the Government to spend up to 50 per cent of long-term expected real returns - which include realised and unrealised capital gains - generated from the assets managed by GIC and MAS.

Currently, Temasek's contribution to the Budget comes from its dividends paid to the Government, which is its sole shareholder. The move to put Temasek under the NIR framework will likely yield a larger pool of returns that the Government can tap for its funding needs.

This change - with a Constitutional Amendment Bill to be presented later this year - has some Members of Parliament concerned about fiscal sustainability

Among them is Mr Hri Kumar Nair (Bishan-Toa Payoh GRC), who said: "Every additional dollar spent today simply means more than a dollar less for the future. More importantly, we are running out of levers to pull. After Temasek, there is no next."

Net Investment Returns and fiscal stability

ONE issue related to this upcoming NIR change is whether the contribution from Temasek will be a stable source of revenue for government coffers. After all, returns from equities are bound to be more volatile than assets such as bonds.

The Government has explained that the NIR is based on long- term expected real returns which are compounded and averaged out with a 20-year view.

The resulting rate - which will be reviewed by GIC, MAS and Temasek boards annually - of any given year will mean a steady stream of returns regardless of gains and losses in the portfolios. In other words, the Government will not have to cut its spending when markets are bad, allowing for better long-term planning.

The framework is also meant to be prudent and forward-looking, Mr Tharman noted in his speech to Parliament in 2008 when presenting the amendment Bill for the NIR framework: "We will retain the 50 per cent cap on the amount of returns that can be taken out for spending. This is in addition to setting aside the full inflation component of our returns in past reserves. In this way, the real returns on investments will be shared between the current Budget and past reserves. This allows the past reserves to grow in real terms, and thereby provide for a growing economy in the years to come," he had said.

To illustrate - in a year when return is 10 per cent and inflation rate is 3 per cent, that 3 per cent will be set aside for the reserves, and only the remaining 7 per cent will be available for spending, again subjected to the 50 per cent cap under the NIR framework.

Beyond issues of stability around the NIR framework, another perennial question is how Singapore is to fund increasing social spending, when its capacity to raise taxes is limited by the need to remain competitive.

The bulk of Singapore's annual spending is still funded by tax income.

Operating revenue has grown every year since 2009's $39.55 billion to $61.35 billion last year. Its top three tax revenue sources are corporate and personal income taxes, and goods and services tax (GST).

Last year, corporate income tax yielded $13.46 billion, GST revenue was $10.11 billion, while personal income tax contributed another $8.94 billion to the government coffers. Together they accounted for around 53 per cent of last year's total operating revenue of $61.35 billion, which came in slightly more than the total operating expenditure of $57.20 billion.

Is there more tax revenue to be tapped? Already, the Government has moved to augment tax income. A key change announced in Budget 2015 is a higher personal income tax rate for top earners that will bring in an estimated $400 million extra revenue. The change will take effect in 2017.

Further and gradual steps to adjust the current tax regime can be a viable move if and when the Government needs to broaden its tax revenue stream. But the approach can be more nuanced than just raising income tax rates.

A 2 percentage point increase in GST can be considered in the coming years, which can raise tax revenue while the impact on poorer households can be offset by GST vouchers, PwC's head of tax Chris Woo said.

"But a more meaningful change is to look at the Government's approach of growing Singapore companies and attracting higher-value foreign investments with corporate tax incentives. Without changing tax rates, we can perhaps tweak our requirement to ensure greater benefits - by having these companies hire more locals for senior positions, by having them develop their intellectual properties here, which in turn create more jobs for locals.

"That's the key for better sustainability in corporate revenue - to bring in new industries and capabilities, create long-term, intrinsic value to the economy and the local workforce, and, ultimately, to increase GDP and the overall tax base," Mr Woo said.

KPMG Asia Pacific chairman and managing partner Tham Sai Choy agreed that, while raising GST can be an option, higher tax rates may be counterproductive for Singapore. Singapore's competitors, such as Hong Kong and Ireland, already have lower corporate tax rates, and the top line personal income tax rate will rise to 22 per cent in 2017, way above Hong Kong's 15 per cent, Mr Tham said.

"The best option is to focus on growing Singapore's economy. A growing economy directly increases the takings from taxation without the need for excessively high tax rates, while sharing the fruits of economic growth with everyone, including taxpayers."

Singapore also has the option of implementing capital gains tax as a means to broaden tax revenue if indeed necessary, Lee Kuan Yew School of Public Policy research fellow Christopher Gee said. Currently capital gains through sales of assets such as property is not taxable here.

Government spending: Is it justified?

THE other way to ensure fiscal sustainability is by trimming expenses.

The Budget's estimated deficit of $6.67 billion this year is not a result of profligate spending - but a case of canny investment in the future.

A big chunk of that deficit is due to setting aside a $3 billion development fund for Changi Airport's fifth terminal. Another $3 billion will be used to fund the Productivity and Innovation Credit scheme and top up the National Productivity Fund, which will in turn drive the SkillsFuture initiatives in the coming years.

The latest Budget retains past years' emphasis on boosting public infrastructures, improving business productivity and helping local workforce upskill, as the nation continues its economic restructuring.

If executed properly, these projects could strengthen the foundation for this multi-year transformation that Singapore is going through. As for what the Government should spend on, that is an inherently political question that depends on its vision for Singapore, said Mr Gee.

"It can take a short- term populist approach, a hard-headed long-term approach, or something in between. Perhaps that's the national debate that we need to have," he added.

As for the state of Singapore's finances, Standard & Poor's sovereign credit analyst Phua Yee Farn explained why S&P reaffirmed Singapore's AAA credit rating in February despite the deficit projected for 2015. "Singapore has been rated AAA with a stable outlook since 1995 without any movement in between. That is an indication of its extremely strong fiscal position," he said.

"Items that are counted as revenue by other countries are not booked above the line in Singapore's case. For instance, unlike Hong Kong, Singapore does not count capital receipts, which include land sales, as revenue. That amount was $14.6 billion last year and $22.9 billion in 2011 during the height of the property boom - and that's a huge chunk that would have left the Government with a substantial surplus every year," Mr Phua said.

Instead, capital receipts automatically become part of Singapore's past reserves. As well, there are checks and balances such as the constitutional requirement that prohibits a government from running an overall deficit by the end of its term in office.

Looking at the systems, principles and fundamentals in place, one can still make a strong argument for the current strength of Singapore's fiscal health.

In the end, long-term fiscal sustainability depends on whether reserves can be built up - through prudent investments and above all through growing the economy - while meeting operating and development needs. Only then can a country safely be sure of long-term fiscal sustainability.

7 in 10 approve of Budget measures
By Tham Yuen-C, The Straits Times, 18 Mar 2015

THE initiatives introduced in this year's Budget have been met with approval by seven in 10 Singaporeans, according to an annual post-Budget poll conducted by government feedback unit REACH.

Among the most welcome announcements were the Silver Support Scheme for the elderly poor, SkillsFuture for workers and higher income taxes for top earners, said REACH in a statement yesterday.

The poll, which aims to gauge Singaporeans' responses to the Budget, was conducted by phone and involved 947 randomly selected citizens aged 20 and above.

It was carried out from Feb 25 to March 6, after the Budget was unveiled on Feb 23.

The sample of citizens was weighted by gender, age and race to make it representative of the national population.

REACH said 77 per cent of those polled agreed that Silver Support, which will give low-income seniors quarterly cash payouts for life, will provide this group with significant aid.

About 72 per cent also believe SkillsFuture, a scheme that credits every Singaporean adult with $500 for training courses, will "help individuals to learn and develop throughout their lives", REACH added.

Both schemes were key pieces of this year's Budget.

In addition, 72 per cent of respondents welcomed the personal income tax hike for top earners.

Tax rates for the top 5 per cent of income earners - those pulling in at least $160,000 a year - will go up in 2017.

Respondents also supported the GST Voucher - Seniors' Bonus, a one-off cash payout for some elderly folk before the Silver Support scheme takes effect in the first quarter of next year.

Most also approved of the higher subsidies and bursaries for students, which they said would provide significant financial support for lower- and middle-income households.

REACH chairman Amy Khor, who is also Senior Minister of State for Health and Manpower, said in the statement that people "have shown strong support for measures which aim to give greater assurance and opportunities to Singaporeans at every stage of their lives".


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