Jubilee Budget sets course for Singapore's future

Singapore

BUDGET 2015 did not bring the sort of one-off celebratory goodies most were expecting, but the measures announced amounted to a more permanent, far-reaching shift in Singapore's economic and social narrative.

Economic restructuring will be more finely calibrated, the workforce will be equipped with skillsets required for the future, and all Singaporeans - especially those with lesser means - can look forward to greater assurance in retirement.

Delivering the Budget Statement in Parliament on Monday, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam said: "This Budget is focused on building Singapore's future. We must reach our next frontier as an economy, with firms driven by innovation, and higher incomes coming from deep skills and expertise in every job.

"We must ensure a society that is fair and just, where everyone has a chance to move up and do well regardless of where they start. And we must complement a culture of personal effort and responsibility with stronger collective responsibility, especially for our elderly."

"It will take time to develop a new economic and social culture . . . But we can only get to where we want in the long term by taking steps now, moving ahead relentlessly, and never thinking that the status quo will get us to a better place," added Mr Tharman in his close to 21/2-hour-long speech.

With an inevitable rise in government expenditure over the long term - Mr Tharman projects overall spending to reach about 19.5 per cent of GDP on average over the next five years, about one per cent of GDP higher than the revenues today - steps have also been taken to strengthen future revenues.

With effect from 2016, the expected returns of Temasek Holdings will be included in the government's net investment returns framework, which is already applied to GIC and the Monetary Authority of Singapore (MAS).

To further bolster fiscal resources, the government will also raise the personal income tax rates of top income earners from Year of Assessment (YA) 2017. The change will affect those in the top 5 per cent who earn at least S$160,000 a year, but the increases are largest for the highest income earners - for those with a chargeable income of over S$320,000, the top marginal tax rate will increase by two percentage points to 22 per cent.

According to the government's assessment, the tax increase for high-income earners should not significantly dent Singapore's competitiveness. Still, Mr Tharman stressed that "we cannot take tax competitiveness lightly".

The hike in top personal income tax rates is expected to raise S$400 million of extra revenue a year. Taken together with Temasek's inclusion in the net investment returns framework, it would provide additional revenues of about one per cent of GDP annually for the budget over the next five years.

Singapore's economic restructuring journey will also be fine-tuned, with a notable deferment of this year's round of announced levy increases for S Pass and work permit holders in every sector. This, Mr Tharman said, will give companies more time to adapt to "the new normal of a permanently tight labour market".

"However, to avoid any misunderstanding, let me affirm unequivocally that while we are adjusting the pace of our foreign worker measures, we are not changing direction. It remains crucial for Singapore that we restructure towards reducing our reliance on manpower, and find new and more innovative ways of doing business," stressed Mr Tharman.

The popular Wage Credit Scheme has also been extended for 2016 and 2017, although the co-funding of wage increases will be lowered from 40 per cent to 20 per cent.

But apart from helping companies cope with rising business costs, the government also delivered on calls to look at firms' topline growth. To that end, it will offer more support for innovation and internationalisation activities - particularly for those undertaken by small and medium-sized enterprises (SMEs).

Budget 2015 also introduced further measures to strengthen savings and income in retirement for all Singaporeans - first, through enhancements to the CPF system, and second, by introducing the Silver Support Scheme.

To enhance CPF savings, the CPF salary ceiling will be increased to S$6,000 from S$5,000 from Jan 1, 2016. CPF contribution rates will also be increased for older workers - for example, those aged above 50 to 55 will see a two percentage point increase in contribution rates to 37 per cent - the same level as that of younger workers.

The government will also make the CPF system more progressive by paying an additional one percentage point of Extra Interest on the first S$30,000 of CPF balances from the age of 55. This will take effect from Jan 1, 2016, and builds on top of the existing one point Extra Interest for the first S$60,000 of balances.

In addition, with the permanent Silver Support Scheme, more targeted help will be given to seniors in need, who have insufficient savings for retirement. Quarterly cash payouts of between S$300 and S$750 will be given to the elderly poor, depending on the senior's lifetime wages, household support, and housing type. About 150,000 of today's elderly are expected to benefit.

Another major thrust of Budget 2015 had to do with the SkillsFuture push, which sees a major new phase of investment in Singaporeans - beginning in the schooling years, and progressing throughout one's career.

For one, a SkillsFuture Credit will be created for all Singaporeans, which can be used for a broad range of courses supported by government agencies. Every citizen 25 years old and up will receive an initial credit of S$500 in 2016, with further top-ups made at regular intervals in the future.

On a broader level, the government will also be working with employers to chart future skills needed in each industry. Mr Tharman said that the government would collaborate with stakeholders to develop and implement these comprehensive sectoral manpower plans in all key sectors by 2020.

Even though expectations ran high for hefty SG50 or pre-election goodies - similar to Budget 2011's S$3.2 billion Grow and Share package and Budget 2006's S$2.6 billion Progress Package - Budget 2015 did not follow the script.

Several observers noted the greater weight placed on longer-term, more fundamental changes to Singapore's economic and social culture, than on shorter-term goodies.

Said Credit Suisse economist Michael Wan: "It seems to us that Budget 2015 focuses much more on long-term measures to boost the supply-side capacity of the economy, but is lacking in some of the short-term 'consumption' boosting measures that we, together with other analysts, have been expecting . . . There were no significant cash handouts given out in this budget."

Still, in addition to Service & Conservancy Charges rebates and a personal income tax rebate of 50 per cent capped at S$1,000, Goods and Services Tax Voucher (GSTV) cash will also be given to 1.4 million Singaporeans, with an additional GSTV for seniors.

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