A 'levelling up' budget

FEW Budgets are long remembered. Budget 2014 deserves to be one of them. It will be remembered most of all for its pathbreaking social initiatives, particularly its pioneer generation package which at a stroke provides a raft of healthcare subsidies to some 450,000 Singaporeans for the rest of their lives, with no ifs and buts, no uncertainties - the $8 billion needed to fund this initiative is already in the bag.

Budget 2014 also deserves to be remembered for its "levelling up" approach to dealing with the problem of inequality - or as Finance Minister Tharman Shanmugaratnam put it: "Building a Fair and Equitable Society."

In this context, one of the Budget's notable features is what it did not contain. There was no increase in income taxes (though no tax rebates either), no lowering of the threshold for the top rate as some had expected and no new wealth taxes, not even on property.

Rather than penalising upper income earners, or relying on trickle-down economics, Mr Tharman chose to "pull up" those at the lower end of the scale, through expanded subsidies for education, wages, housing and health care. A remarkable statistic cited in the budget was that the social initiatives of the last five years, plus those in Budget 2014, provide support to lower and middle-income Singaporeans that is about 2.5 times what it was a decade ago.

This Budget reaffirms and reinforces the sea change in the government's approach to governance, with social policies being accorded at least as much (if not more) importance than economic incentives, which used to be the mainstay of budgets in the not-so-distant past.

One of the keys to any "levelling up" approach to tackling inequality lies in education, which is the ultimate ticket to social mobility. Mr Tharman, a former minister for education, has over the years been generous with funding for this critical sector.

In Budget 2014, he has raised the ante, with more fee assistance for kindergarten education for both lower and middle-income households and more generous bursaries for tertiary education, which now cover students from about two-thirds of Singaporean households.

The education sector is now so riven with subsidies, with varying qualification criteria that it might be worth considering simplifying things by making education free, or almost free, for all Singaporeans across the board, all the way to the tertiary level. Social mobility considerations aside, this may also be the best way in the long run to reduce dependence on foreign talent.

Businesses will be relieved that there was no further tightening of policies on foreign workers, except in construction. This makes sense, first because this sector contains one of the highest concentrations of foreign workers, and second because Budget 2014 incentivises - and in some areas, mandates - construction companies to adopt more productive, less labour-intensive technologies such as pre-fabrication and pre-casting, which have long been the norm in other advanced economies and should have been here long ago.

SMEs in particular have welcomed the extension of the productivity and innovation credit (PIC) scheme for another three years and the new PIC-plus scheme, which will raise expenditure caps for qualifying activities by 50 per cent. Also helpful is the extension of the 50 per cent additional tax deduction on qualifying research and development (R&D) expenditure for another 10 years, which provides more durable and predictable support for this long-haul activity. The incentives for the adoption of information communications and technology (ICT) products and services will be equally welcomed by both users and vendors. The Budget also fills some of the other gaps faced by SMEs in the areas of start-up funding and support for internationalisation.

Wide ranging as it was, is there something Budget 2014 missed that should have been there? A case can be made, especially in the light of the generous support for healthcare users, that relatively little was provided for healthcare suppliers, or potential suppliers. While the government has been proactive in wooing and supporting industries in the technology space in the form of tax breaks, funding and other subsidies, it has not done anywhere near as much for the healthcare industry (including elder care), in which the private sector can also play a role. Hopefully, such support will be forthcoming.

Finally, on property: the big story here was, again, what was not in the Budget - no rollback of any of the property cooling measures was announced, which will disappoint some players in the industry. There are plausible arguments for keeping the measures in place - the overheated market is still a recent phenomenon, and interest rates are still low. However, asset values have started to fall in some areas, and monetary policy is likely to tighten moving forward. Mr Tharman said that the government "will continue to monitor the property market and adjust (its) measures when necessary". Hopefully, it will act pre-emptively to prevent overcooling - just as it did to prevent overheating.