SINGAPORE – I tried frantically to keep up with noting down the giveaways as Finance Minister Tharman Shanmugaratnam reeled them off as he announced the Budget 2015.
A new SkillsFuture Credit account for all Singaporean workers aged 25 and above. Top ups to the accounts of children, secondary school students and post-secondary school students. Higher GST vouchers across the board, with a special bonus for seniors.
There were too many to list. I gave up and just listened.
And minutes after Mr Tharman finished the Budget 2015 statement, the first SMS came, from a former colleague.
A Robin Hood Budget, she said.
Here are seven noteworthy things about this year’s Budget.
1. Robin Hood qualities
It takes from the very rich to give to those who are poorer. Without little fanfare but every determination, the Government raised the top marginal tax rate for personal income taxes from 20 to 22 per cent. It will raise $400 million in extra revenue when it kicks in the Year of Assesssment 2017.
It gives a lot to the poor, especially seniors from lower-income jobs in the past, under a new Silver Support bonus that aims to give up to about $750 a quarter a person to the elderly.
2. The 1 per cent gap
Mr Tharman flagged this gap. No, I’m not talking about the much-touted gap between the top 1 per cent earners and the rest, which has gotten so much flak worldwide for fostering inequality.
I’m talking about the 1 percentage point projected gap between long-term revenues and long-term spending. The latter is tipped to go up to 19 to 19.5 per cent of GDP from now, as Singapore opens its coffers to spend on health care, retirees, and on infrastructure and investment in education. The former hovers around 18 to 18.5 per cent of GDP.
How to make up the shortfall of about 1 per cent of GDP?
This is a structural issue that will have resonance beyond this Budget.
3. New spending rule
Mr Tharman has a way to close that 1 per cent gap: Use projected long-term returns from Temasek Holdings.
The Net Investment Return formula framework was implemented in 2009. He said: “Under the framework, the Government is allowed to spend up to 50 per cent of the expected long term real returns on its net assets managed by MAS and GIC.”
Temasek was left out as it was undergoing a major change in investment strategy. Mr Tharman said it was a good time to add Temsek to the mix.
So this Budget is important for signalling the long-term gap in revenue and spending.
It is also significant for using a new framework that allows Singapore to tap a wider pool of money from expected investment returns on its reserves into the future.
“The move will bolster our fiscal resources at a time when we have to fund long-term critical infrastructure and develop the human talent and capabilities to secure our future.”
4. More help for middle-income
Actually, I should qualify the Robin Hood bit. This Budget takes from the rich, to give a lot more to the middle-income, not just the poor.
A 50 per cent personal income tax rebate, capped at $1,000, will benefit mid-income earners most.
The concessionary maid levy is halved to $60. Exam fees are waived for most school students. Child-care subsidies will be improved. Most parents with kids will get fairly large top-ups to the child’s education account, of about $500 per child, regardless of whether the child is in preschool, secondary school or tertiary education.
5. New way of targeting subsidies
A new method to figure out who gets more subsidies and government assistance will be introduced for the Silver Support bonus for retirees. It goes beyond the traditional use of housing type. The Silver Support will still use housing type as a proxy for wealth, giving those in smaller flat types more in the Silver Support bonus. But even those in larger flats, up to five-roomers, will get it.
But it will also take into account past working income of the retiree. It will also look at their household income to gauge what level of support these retirees have.
As the Silver Support kicks in only from the first quarter of 2016 – in just over a year’s time – it isn’t clear how this new system will work out.
But it is a novel, and potentially very useful, way of targeting subsidies. It will also be automatic, using presumably income data from Iras and CPF, and household type data from HDB.
With Singapore going well-down the path of more middle-class welfare subsidies, expect this to be the start of a more refined way of figuring out who deserves what grants and subsidies.
6. Meritocracy of skills, not hierarchy of grades
Mr Tharman and other government ministers have been saying for several years now that Singapore has to go beyond a system where people are valued for their academic credentials, to one where every worker is motivated to excel at what he or she does, and rewarded accordingly.
This Budget puts substance to that dream, with a new SkillsFuture Credit account for every Singaporean aged 25 and above. The Government will give $500 into this account in 2016.
There will be a concerted push to get Singaporean workers and employers to change our culture to one which values people for skills, not their paper qualifications.
A range of new SkillsFuture Awards and Fellowships will be introduced. Think of these as the skills-equivalent of the Public Service Commission’s scholarships for academically bright students.
7. Productivity 2.0
The first round of measures yielded some good results.
Mr Tharman said: “Productivity today is 13 per cent higher than at the start of our restructuring journey in 2009. This is an average growth rate of 2.5 per cent per year. All of this gain was achieved in 2010 (11.6 per cent) and 2011 (2.3 per cent) as we recovered from the recession, and growth has been negligible in the three years since then.”
Next: consolidating measures to focus on innovation and internationalisation. More grants for innovation. Tax breaks for mergers and acquisitions go up to encourage companies to merge and consolidate. The National Research Fund gets a $1 billion boost.
All in, it can be said to be a sensible yet generous Budget, albeit at the expense of the very high-income. It may disappoint those who wanted a big SG50 Bonus to celebrate the nation’s Jubilee. But it does give out a mass hongbao to all Singaporeans, via top-ups to education funds for children and students, and via the new $500 SkillsFuture Credit for workers.
More importantly, it sets Singapore on a clear trajectory – Mr Tharman would call it the path of progressivity – but basically the writing’s on the wall: higher taxes on the rather rich, to give to the poor and the middle-income.