SINGAPORE: Singapore unveiled a budget that jacks up spending and assistance for poorer citizens and elderly but the plan, unveiled amid speculation early elections could come this year, did not include as many benefits as some economists expected.
Finance Minister Tharman Sharmugaratnam on Monday laid out plans for big infrastructure spending and higher retirement benefits, and announced that to help pay for it, personal income tax rates for top income earners will rise in two years.
The People's Action Party (PAP), which has ruled the city-state since independence in 1965, is credited with transforming it from colonial outpost into a global business hub. But in the last election in May 2011, the party's share of the vote slipped to 60 percent from 67 percent in the previous poll, and it has been taking steps to address unhappiness over high living costs, Singapore's growing wealth gap and large numbers of foreign workers.
"This budget was aimed at reducing social and income inequality," said Chua Hak Bin, an economist at Bank of America Merrill Lynch.
"Most of the goodies are largely for the lower income households and the elderly. There were some for the middle class, but not like in previous election years when there were growth dividends and some handouts that were a lot more generous." Michael Wan, economist at Credit Suisse, said there were lots of supply side measures but a relative lack of handouts and tax rebates.
"It doesn't look like a pre-election budget to me." The next election can wait until January 2017.
But there is speculation it will be called soon after Singapore celebrates its 50th anniversary of independence in August.
TEPID GROWTH
The economic growth outlook is tepid, and Tharman said the current global environment "is not just a temporary challenge". Singapore expects its economy to grow between 2 to 4 percent in 2015, compared with 2.9 percent in 2014.
Tharman said Singapore is expected to post a budget deficit of S$6.7 billion ($4.9 billion) in the new fiscal year, compared to a S$130 million deficit in this one. "We have to review our domestic taxes, so that we bolster our fiscal position for the medium to long term," he said.
Tharman said that on income in 2016, people who earn more than S$320,000 will pay 22 percent income tax instead of 20 percent.
Grahame Wright, a partner at Ernst & Young Solutions LLP, said the increase in top marginal personal tax rate "is a calculated risk for Singapore, as its competitive position is weakened for a group of highly mobile senior executives."
State investor Temasek Holdings will be included in the net investment returns framework, alongside GIC and the central bank, which will help boost Singapore's fiscal muscle.
The budget in effect increases forced savings for retirement by raising the ceiling on how much of a citizen's or permanent resident's income is subject to deductions for the state provident fund to S$6,000 a month from January 2016, from S$5,000. It also extended a wage credit scheme, which subsidises wage increases for lower-salaried workers.
Tharman said future growth clusters in manufacturing include applied health sciences such as developing new medical devices, and logistics and aerospace.
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