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BUDGET 2020

Election Budget = goodies galore? Don't hold your breath

Economist notes trend of policy tweaks throughout the year, instead of 'saving' major announcements for Budget day

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With Singapore's next General Election expected just round the corner, Budget 2020 has been widely tagged as an "Election Budget".

Singapore

WITH Singapore's next General Election expected just round the corner, Budget 2020 has been widely tagged as an "Election Budget".

Technically, the government has up to April 2021 to call for a GE, but all indications point to it being held next year after the Budget.

Traditionally, election budgets are generous affairs. And the government's accumulated surpluses in the last three financial years provide the means for it to roll out a generous budget, said Eugene Tan, law don from the Singapore Management University.

But analysts are divided on what exactly generosity constitutes, and whether this still comes in the form of cash handouts.

In the election budgets of 2006 and 2011, Singaporeans received up to S$800 in cash in the form of "growth dividends". But this was absent in the last election in 2015.

Political analyst Harrison Cheng, associate director at Control Risks, believes the government is likely to revert to past practice and "come out aggressively to address growing concerns that voters have over the present state of the economy, apart from future challenges".

But Selena Ling, OCBC's chief economist, said such "goodies" have evolved. "People always think that 'Election Budget' means lots of goodies, but… even the form of goodies that we are getting has kind of evolved over time," she said.

"We don't really see that kind of cash hongbao handouts to everybody under the sun… but we do see a lot more targeted type of handouts," she added, referring to the traditional red packets containing cash that adults customarily give to children during Chinese New Year.

In 2018, a one-off SG Bonus up to S$300 was given to all Singaporeans, but such blanket cash payouts have been the exception rather than the norm in recent years.

Instead, the government has been designing various schemes that support specific groups of Singaporeans in recent years.

The Pioneer Generation Package and Merdeka Generation Package, introduced in 2014 and 2019 respectively, were aimed at specific generations of Singaporeans to recognise their contribution towards nation building.

For low-income workers, the government helps those eligible under the Workfare Income Supplement scheme to build up their CPF savings for retirement, housing and healthcare needs. Introduced in 2007, the scheme has seen continual enhancements over the years.

Last month, the Ministry of Finance said - in a response to the Estimates Committee's fourth report presented to Parliament - that special transfers are "not mechanically determined" by budget surpluses. Rather, they are based on the government's long-term plans, the needs of the economy and society as well as the government's fiscal position.

That could explain Bank of America Securities Asean economist Faiz Nagutha's low expectations for Budget 2020. He is not expecting much in the way of cash handouts as they "tend to happen when the economy is doing well".

As 2019 comes to an end, the general mood among economists, politicians and market watchers has turned more hopeful than at the start of the year, even though the official full-year growth forecast lingers between 0.5 and 1 per cent. Many have been quick to point out that the current synchronised global slowdown in no way resembles the 2009 Global Financial Crisis.

Even so, "cautiously optimistic" is as far as they'll go at this point.

Looking back, if there is one thing certain about 2019, it is "uncertainty".

Much of it is due to the trade war between the US and China. US President Donald Trump and his Chinese counterpart Xi Jinping's volatile relationship has had a profound impact on the markets, global trade and investment decisions.

Elsewhere, a wave of anti-government protests has swept across almost every continent, fuelled by growing unhappiness over inequality. Singapore's closest rival Hong Kong has been rocked by six months of unrest that has dragged the economy into recession. Three years have gone by, and Brexit has yet to happen.

Could this capricious climate benefit the ruling People's Action Party in the coming GE, if having a continuous government is seen as a sign of stability, thus triggering a flight-to-safety response in voters?

Referencing GE 2001, Control Risks' Mr Cheng believes it is a possibility, as the PAP won by a landslide 75.3 per cent in the wake of the 9/11 attacks.

"However, bread-and-butter issues will continue to be the most important consideration for the majority of voters. The government's domestic response to global uncertainties will therefore be crucial in influencing voter perceptions and confidence in the ruling party ahead of crucial polls," Mr Cheng said.

The Budget is then a powerful tool for the government to steer Singapore through uncharted waters.

In July, Deputy Prime Minister and Finance Minister Heng Swee Keat alluded to a stimulus package should the global economy take a nosedive.

But fears of a recession have since subsided following Singapore's escape from a technical recession, which naturally means a recession package is off the table, Ms Ling said.

"But if you structure it more like a resilience package for businesses, that's something that will go down well with businesses, especially the SMEs (small-and-medium enterprises)," she added.

CIMB Private Banking economist Song Seng Wun noted that the government has shifted towards making continual policy tweaks throughout the year, instead of "saving" major announcements for Budget day, which has come to focus on fiscal policy and taxation in recent years.

One area he believes will get more attention is climate change, a point echoed by other analysts.

"Given that climate change was one of the key themes in the National Day Rally, it will be in the Budget in one shape or form," Mr Song said. Prime Minister Lee Hsien Loong had said in August that Singapore may need to spend S$100 billion over 100 years to protect itself against rising sea levels and other climate-related threats.

To get the private sector on board, Ms Ling has suggested a programme similar to the Productivity and Innovation Credit (PIC) scheme that can give companies a headstart in going green. The PIC, which expired in 2018, offered subsidies to companies investing in productivity-enhancing solutions.

She added that the need for long-term infrastructure planning as a result of climate change is "probably why they announced the GST hike so early on".

Which leads to the next item high on the agenda: a Goods and Services Tax support package in anticipation of a GST hike - from 7 to 9 per cent - some time between 2021 and 2025.

DPM Heng has hinted that "more will be given to those with less because this is fair", adding that details will be unveiled at the Budget.

"This is a bit of unprecedented territory in my personal opinion because they haven't even announced when the hike is going to come, much less to say they're already preparing for a hike that has not materialised," OCBC's Ms Ling said.

While there is never a good time for tax increases, Prof Tan said this GST hike provides an opportune time for the government to drive home the need for fiscal prudence and long-term planning

"How the government will use the GST hike has to be explainable and persuasive," he said.

And the extent to which the GST support package can assuage unhappiness over the hike will affect the political saliency of the increase, he added.

Underlining the concern over a GST hike are worries about the cost of living.

Prof Tan said: "Cost of living issues for the young and old alike are fundamentally about how equitable society is.

"The challenge for the ruling party is to demonstrate and persuade the electorate that a pro-business Budget and economic posture is not at odds with the concerns of social justice."