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Tharman strikes balance with few trade-offs
AS Singapore nears the half-way mark of its 10-year restructuring plan, Budget 2014 sought to strike a balance between growing social needs and businesses under stress - and it did so at a lower price than observers had expected.
Faint hopes of a rollback in property cooling measures did not materialise, and the income and wealth tax hikes some had expected to help pay for rising social spending did not come to pass.
But Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam did not need fresh revenue sources to sink a bold $8 billion into a fund that will pay fully for the Pioneer Generation Package, which will assure some 450,000 elderly Singaporeans of affordable healthcare for life.
And though there was no equivalent big-bang package for businesses this year, companies had little reason to complain about a Budget that was "more carrot than stick" - as more than one observer said - especially since the previous four Budgets have sent ever tighter foreign manpower curbs their way.
"The Singapore Business Federation is relieved that no major new manpower measures were announced in Budget 2014 to exacerbate the tight labour situation," said SBF CEO Ho Meng Kit. Most employers were spared the pain of further levy hikes or quota cuts, though Mr Tharman did slap a $100 levy hike on the construction sector, which has been a laggard in productivity growth.
Reiterating that "raising productivity is at the centre of our economic agenda" because it is the only way to raise living standards in coming years, Mr Tharman also extended the Productivity and Innovation Credit (PIC) scheme - meant to lapse in YA2015 - by another three years.
This was something all the major business groups had asked for.
While SMEs did not get the higher cash payout many had hoped for, the government did come up with PIC+ to help smaller enterprises make large investments to transform. PIC+ pushes up the expenditure cap for each qualifying activity by 50 per cent - so that SMEs can claim tax deductions of up to $1.8 million over three years, compared to $1.2 million before.
Together, the government's productivity support schemes will pump more funds back to businesses than the additional foreign worker levies collected in recent years, Mr Tharman said.
"However, we are not recycling monies indiscriminately, or seeking to benefit all firms equally. Our schemes will still favour the more dynamic and efficient players," he added.
Incentives were also sharpened to "enable innovation to pervade the economy", he said. These include ones to encourage investment in innovation and skills, support the piloting and scaling up of infocomm technologies, catalyse financing for companies at various growth stages and help firms go abroad.
The one piece of news that dismayed some businesses was that employer CPF contribution rates will be hiked from January 2015.
"Increases in employers' CPF contributions will not help and will impact small businesses as they employ more older workers, proportionately," said SBF CEO Mr Ho.
But the Singapore National Employers' Federation sought comfort in the $360 million that the government has set aside for one-year employment credits to help employers adjust, as well as the government's assurance that it would not raise the rate beyond 17 per cent any time soon.
DBS economist Irvin Seah said it can be viewed as an attempt to raise productivity - higher CPF contribution rates are more positive than raising foreign worker levies. "The hikes in employers' CPF rate will benefit Singaporeans directly, whereas, previously the hikes in foreign workers' levy benefited only the official coffers," he said.
But funds and measures can only do so much in service of what is a "major, multi-year undertaking". Mr Tharman said: "Transforming our economy is not just about technology and productivity is not ultimately about the dollars and cents of upgrading. It also means changing our social norms."
In his view, this ranges from creating a workplace culture that values employees' views, to a culture of job mastery, to changes in consumer habits - becoming at ease with self-service technologies, for instance. In fact, Mr Tharman's 90-minute speech outlined how the government, too, has changed its thinking.
As a country, Singapore has entered into a new phase: incomes are rising less quickly, the disparities between different groups are becoming more of a concern, and the population is ageing rapidly, often with fewer children to support older Singaporeans, he said.
"Our thinking has shifted in this new phase, and our initiatives are helping to level up our society and mitigate inequalities." Hence the raft of measures unveiled on the social front: higher healthcare subsidies, more assistance with pre-school fees for more families, higher bursaries for students in tertiary institutes and higher subsidies for children with special needs.
In addition, the government has set aside $360 million for utilities, rebates on Service and Conservancy Charges and cash grants (GST Voucher) to help older Singaporeans and lower and middle-income families hit by Singapore's rising cost of living.
However, as Singapore strengthens its social support and safety nets, the "whole approach must encourage a compact between personal and collective responsibility", Mr Tharman said.
"What is critical is not just how much we spend and redistribute resources, but how we do so. Our approach to uplifting the poor and levelling up society can only succeed if it supports a culture of personal responsibility - the desire to learn a new skill and work for a better living, and to make the effort to look after our own families. We know this from the evidence of half a century of major social interventions around the world, such as in the US and the European countries."
Including the hefty $8 billion set aside for the Pioneer Generation Fund, and factoring in a contribution from net investment returns on past reserves of $8.1 billion, the government is expecting an overall deficit of $1.2 billion, or 0.3 per cent of GDP. But the deficit - which if it materialises will be the first since the global financial crisis in 2009 - will not draw on past reserves, as there are sufficient surpluses from the last few years to balance this over the current electoral term.
"The relative absence of bad news and willingness to run a deficit invite speculation of early elections in 2015, with the bitter pill of higher taxes only likely thereafter," said Citi economist Kit Wei Zheng.