Sizing up the Budget pie ( Social Budget or Welfarist Budget ? )


24 Feb 2012
The Straits Times (Singapore) 

Ahead of next week’s Budget debate, MPs give their take on this year’s social Budget that has some businesses feeling left out.

AS MEMBERS of Parliament listened to Finance Minister Tharman Shanmugaratnam deliver his Budget statement last Friday, it seemed to some he was granting their wishes one by one.

More for older workers? Check: $470 million a year for the next five years to employers who hire those above 50 years old.

More to defray rising health-care costs? Check: health-care spending will double to $8 billion over the next five years.

More for low-income Singaporeans struggling to afford essentials? Check: a permanent goods and services tax (GST) voucher from a $6.8 billion fund.

‘It was a responsive Budget,’ summed up Holland-Bukit Timah GRC MP Liang Eng Hwa. Pasir Ris-Punggol GRC MP Janil Puthucheary concurred: ‘There were so many of the things MPs have been asking for, it was pleasant surprise.’

Wish fulfilment aside, the 2012 Budget statement also gave MPs pause with what it signalled about the governing philosophy on social spending.

‘The Government’s principle has always been for people to be self-reliant as far as possible,’ said Sembawang GRC MP Vikram Nair. ‘This Budget recognises that sometimes it’s not possible.’

‘It has crossed a psychological chasm,’ said Moulmein-Kallang GRC MP Denise Phua, referring to the Government’s aversion to entrenched payouts, for fear that they create a culture of entitlement.

But the largesse was funded by cutting some features of Budgets past, like tax cuts for businesses and handouts for the vast swathe of middle-income families.

Budget 2012 was also less kind to employers, lamented some MPs. The rise in CPF contribution rates for employees aged above 50, and a further turn of the screw on the influx of foreign workers will alarm many small and medium-sized enterprises (SMEs), they said.

And even as they welcomed the ‘social Budget’, some MPs have begun to fret that 2012 may mark the country’s first step down a slippery slope to welfarism.

For nine days starting next Tuesday, these and other issues will get a full airing as MPs hunker down for the annual Budget debate. In interviews with 19 MPs and Nominated MPs, Insight got a glimpse of the parliamentary exchanges to come.

Post-election Budgets past and present

BUDGET 2012 marked a departure from the previous two post-General Election Budgets in 2002 and 2007.

Both featured cuts in tax rates for corporations and top income earners. In 2002, corporate tax rates were slashed by 4 percentage points to 22 per cent. In 2007, they were cut to 18 per cent.

There were other goodies aplenty for businesses in the form of tax concessions and grants.

Both post-GE budgets also raised the GST – from 3 per cent to 5 per cent in 2002, and from 5 per cent to 7 per cent in 2007.

To offset the impact of the GST hikes, the Government put together billion-dollar packages in cash handouts and rebates for Singaporeans across the board, to help them cope.

Budget 2007 also entrenched the Workfare Income Supplement scheme, a payout to low-income workers to encourage them to stay employed, at a cost of $400 million a year to the Government.

But it was a minnow compared to the whale of initiatives which came the way of disadvantaged groups in this year’s Budget.

Budget 2012 also focused its firepower on vulnerable groups such as the elderly, the low-income and the disabled – giving a lot to a few, rather than a little to everyone.

The ‘Special Employment Credit’ alone, which will subsidise employers who hire workers above 50 years old, will cost $470 million a year.

Then there are the Silver Housing Bonus for retirees who downgrade to a smaller flat, a rise in the CPF contribution rates of workers above 50, and a doubling of the earned income tax relief for working seniors.

‘In terms of urgent issues facing the elderly, this Budget has addressed them,’ said Marine Parade GRC MP Tin Pei Ling.

But with a rapidly ageing population, some MPs will argue next week that even more must be done for the country to get ahead of the silver curve.

Some MPs, like Ms Phua, will call for the Special Employment Credit – now in place for five years – to be made a permanent feature for elderly and disabled workers. ‘This would reflect the value society still places on these vulnerable members of society (and) encourage them to work where they can instead of collecting welfare,’ she said.

It would also help develop an alternative to the foreign workforce, she added.

Jurong GRC MP David Ong will advocate for the principles behind the pro-elderly measures to be taken to their natural conclusion: the removal of the retirement age and the full restoration of CPF rates for older workers.

The retirement age is now 62 but employers are required by law to re-employ workers until age 65.

Mr Ong said: ‘Older workers need to know that they are not being discriminated against just because of age.’

He added: ‘It’s not a good feeling for them to have an ‘expiration date’. With elderly people fitter and living longer, 65 is not that old.’

In fact, since MediShield was extended in this Budget to cover those up to the age of 90, he will ask why it cannot be extended until the end of life: ‘Those older than 90 would definitely need help with medical costs.’

Mr Ang Wei Neng, also from Jurong GRC, will champion the plight of disabled workers.

As announced in Budget 2012, employers will be given wage subsidies of 16 per cent for every disabled worker they hire. All workers who graduate from special education schools will also be allowed to go on the Workfare Income Supplement scheme, even if they are below the age of 35. This is a payout to encourage them to keep working.

‘This was very good news,’ said Mr Ang. ‘But more can be done. I would like to see the domestic worker grant for families with elderly extended to those with disabled children too.’

While MPs cheered the permanent voucher which guarantees help for low-income families to offset higher costs due to the GST, some will express concern about the scheme next week.

Ang Mo Kio GRC MP Inderjit Singh said that the voucher – which will come in cash payments, utility rebates and Medisave top-ups – may be more administratively complicated than eliminating GST on essential goods altogether, a move he has proposed since 2007.

Ms Phua said entrenching the voucher is a ‘sobering’ signal from the Government that it does not believe that the income gap can be bridged – hence the need to rely on social transfers.

‘Am I in favour of making this a permanent feature? Yes, because it is indeed true that the widening income gap does not look like it will close,’ she said. ‘However, there is a risk that the voucher gets taken for granted and may give rise to a potentially larger appetite for even more permanent features – which ultimately have to be funded through higher GST or other means.’

In fact, the thin divide between a ‘social Budget’ and a ‘welfarist Budget’ will be probed by several MPs during the debate.

‘It’s very hard for any Government today to retract any benefits once they have been distributed,’ noted Chua Chu Kang GRC MP Zaqy Mohamad. ‘That’s what Europe is facing right now. Singapore must be more cautious.’

‘The demographics are working against us,’ said Mr Liang. ‘Over time, as the group of elderly grows, the health- care needs will increase and the expenditure needed will keep rising. We must be careful to spend within our means.’

Many of the initiatives the Government has now introduced, even if ostensibly on a one-year or five-year basis, will be hard to ‘take back’, he added.

‘The only way to afford this is to keep growing the economy.’

What of the economy?

A KEY criticism which several MPs plan to make of Budget 2012 is precisely that it may stifle economic growth.

For the second year running, Mr Tharman announced new regulations on the hiring of foreign workers in the Budget.

This year, the dependency ratio – the number of Singaporeans that companies must hire before they can hire foreigners – was lowered in the manufacturing and services industries.

It was the latest in a series of steps over the last two years to clamp down on companies’ dependence on foreign manpower, through higher levies and stricter criteria for work passes.

The announcement was accompanied by millions to help SMEs boost their productivity and raise their capabilities. Companies which invest in productivity measures will now get double the cash payout under a beefed-up Productivity and Innovation Credit. The cap on Absentee Payroll – which helps companies defray manpower costs when they send employees for training during work hours – was also raised from $4.50 an hour to $7.50.

Still, some MPs will tell the House that the new rules may strangle businesses already struggling to cope with previous rounds of tightening.

Levy increases began in 2010. By the time all the changes have been implemented in July 2013, companies will pay between $250 and $750 in levies depending on the sector and how reliant they are on foreigners.

Ultimately, employers could pay as much as six times more in levies than before the changes.

Nominated MP Teo Siong Seng, who is also president of the Singapore Chinese Chamber of Commerce and Industry, said: ‘Some companies are already thinking of relocating because they already cannot find the workers to fulfil their orders.’

He added: ‘We know that there will be no U-turn on the tightening on foreign workers, but we hope that the Government can be flexible if the economy goes bad.’

In the event that the economic crisis in Europe, for example, escalates, he will urge the Government to delay the implementation of the latest rules, he said.

Pasir Ris-Punggol GRC MP Gan Thiam Poh, among others, will express concern over the higher prices consumers will likely face as labour costs rise for businesses.

‘In certain industries, such as tourism, that may be alright as it is tourists who pay more,’ he said. ‘But rising prices will mostly put stress on Singaporeans.’

The bluntness of the Government’s productivity push may also conflict with its desire to help the low-income, noted Mr Zaqy.

As some less productive companies struggle and ultimately close down in this brave new world, low-skilled jobs may disappear.

‘What I am concerned about is how there will be a lack of alternatives for such workers in a ‘one-speed’, highly productive economy,’ he said. ‘They will become completely reliant on welfare handouts.’

Certain environments like hawker centres or shops in Housing Board (HDB) estates can be made ‘pockets of space’ where older and lower-skilled workers can take refuge, he said. National regulations meant to compel productivity improvements should then be relaxed for such exceptions.

A statement of values

THE Budget statement has always been a centrepiece of the political year. 2012 may well be the year it becomes, after an intense General Election, a statement of national values for a maturing country, said several MPs.

‘The Budget is a powerful tool that can mould social attitudes and mindsets and influence socio-economic behaviour,’ said Nominated MP Eugene Tan.

In recent years, it has become too much about the ‘goodies’ that Singaporeans may get, and less about long-term social investments, he contended.

In fact, several MPs laud the 2012 Budget for putting at front and centre the values that all Singaporeans should share.

With the unprecedented support for the elderly, it sent the message that those who have contributed to society will be taken care of in their twilight years.

And in its emphasis on helping vulnerable groups rather than businesses, it represented an evolution of national goals away from pure economic growth, to social cohesion and resilience.

Whatever else MPs will say when they step up to the rostrum next week, they will largely welcome these lines in the sand that Budget 2012 has drawn.

‘This Budget has reflected a shift from being about businesses and the economy to about investing in the social side of things,’ said Ms Tin. ‘It’s something that we’ll all applaud.’

‘The Budget measures are a recognition of the trends which are going to hit Singapore even as we figure out new policies to address them,’ said Marine Parade GRC MP Seah Kian Peng.

‘You cannot solve everything in one Budget but this is one major shift, and a big step forward.’

Rachel Chang 

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