'This Budget, in my view, is a lot about connecting the dots. We already have the dots: a good surplus, the goal to get productivity, the goal to raise wages. So, we go back to kindergarten, to connect the dots, and get that nice picture.'
- Mizuho Bank economist Vishnu Varathan
[SINGAPORE] Balancing the Budget has never been a problem for the Singapore government. But as the yearly deluge of pre-Budget recommendations and petitions shows, balancing the needs and wants of various groups - and deciding how best to keep a surplus - is getting ever more tricky.
As Singapore's population ages rapidly and healthcare costs rise, as redistribution to ensure "inclusive growth" gains urgency, and as companies seek help to ride out economic restructuring by being more productive, a marked increase in public spending looks inevitable.
The question is: how will this be financed? Prime Minister Lee Hsien Loong highlighted this in the last National Day Rally speech - the major political speech in Singapore's calendar - and Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam will no doubt address this too, in his Budget speech on Friday.
"Redistribution and social spending costs will likely be borne first by tapping returns on the fiscal reserves, followed by higher wealth taxes, with higher income taxes for the rich as a last resort," said Citi economists Kit Wei Zheng and Brian Tan. While the avenues to raise funds are open, each comes with trade-offs.
Choosing to raise the current ceiling on the amount of net investment returns contribution (NIRC) the government can take into its Budget, or even raise the NIRC nearer to the current cap, means less is squirelled away into the reserves. That trade-off is seen as the least costly one.
"With greater contribution from the fiscal coffers, redistribution need not be a zero-sum game between workers and businesses," the Citi economists pointed out.
For instance, raising the top personal income tax or wealth taxes would fit well with last year's moves towards a more progressive tax system, benefiting the average worker. But it could dent Singapore's attractiveness to top talent, which is in turn key to global companies' investment decisions, partners from the Big Four tax firms say.
Beyond balancing the Budget, the social and economic policy changes being sought are at times at odds with one another.
The combination of rising healthcare costs and a rapidly ageing population has led the labour movement to call for the CPF contribution rate to be restored for older workers. But this means added costs for employers, at a time when economic restructuring is pushing wages and rents higher.
Which is also why trade associations and business chambers are asking for a halt in the stiffening of the foreign manpower curbs, which have been made more severe four years in a row.
Higher levies and stricter quotas were put in place to wean companies off their reliance on cheaper foreign labour, and to push them to raise productivity. But some businesses have found that these measures hamper productivity - such as when they are unable to renew the work passes for experienced or skilled foreign employees.
Economists, such as DBS economist Irvin Seah, reckon that the tightening will continue, but in a more targeted fashion. He expects further tweaks in the mid-skilled segment, perhaps sector-specific ones, to cater to the rapidly rising number of Singaporean professionals, managers, executives and technicians (PMETs).
This would be in line with what the government has been saying about ensuring a strong Singaporean core to the workforce. Yet some business groups have said that uncertainty over their ability to hire skilled workers may affect future investment decisions in Singapore.
Businesses, in particular, will be keen to see how the government chooses to balance these priorities on Budget Day.
As Mizuho Bank economist Vishnu Varathan said at BT's recent Budget Roundtable: "This Budget, in my view, is a lot about connecting the dots. We already have the dots: a good surplus, the goal to get productivity, the goal to raise wages. So, we go back to kindergarten, to connect the dots, and get that nice picture."
Go to http://btd.sg/SGBudget-2014 for BT’s pre-Budget features