Election-year largesse unlikely

Election-year largesse unlikely

BY FIONA CHAN

DESPITE this being a likely election year, next month's Budget looks set to be a more low-key affair than those of previous election years, with fewer handouts to please Singapore's voters.

Economists expect this year's government spending plan to be generous, but more focused on laying the foundation for medium-term growth.

This will be in contrast to the round of recession-cushioning reliefs announced last year - which included the bumper $20.5 billion Resilience Package - or the liberal payouts unveiled in other election years.

'Last year, we saw more focus on practical responses to the crisis to stem job losses,' said Barclays Capital economist Leong Wai Ho.

'This year, given that the immediate urgency has sort of faded, there will be a shift in emphasis towards longer-term measures in the Budget.'

Likely to dominate the Budget will be the soon-to-be-published recommendations of the Economic Strategies Committee (ESC), which has been tasked with mapping out new ways for Singapore to grow over the next five to 10 years.

In fact, economists are holding back on predicting the contents of the Budget goodie bag until they have a clearer view of what resources the Government will need to commit to implement the ESC recommendations.

Among other things, the committee is expected to outline how Singapore can re-orientate its economy with a greater focus on services, said OCBC Bank economist Selena Ling.

This may result in Budget measures that include more money for education, training and re-skilling programmes, plus extra help for small- and medium-sized enterprises (SMEs), for instance in the area of financing, Ms Ling and other economists said.

The Government has already indicated that some of the downturn assistance provided in last year's Budget will be extended this year.

The Jobs Credit scheme will continue to help companies keep their workers employed until June, while the financing schemes under the Special Risk-Sharing Initiative will encourage banks to keep lending to firms.

In October last year, Finance Minister Tharman Shanmugaratnam told Parliament that Budget 2010 was going to shift from broad-based relief towards more specific targeting. This, he pointed out, would include 'restructuring, enhancing productivity, and preparing for growth over the medium to longer term'.

Despite this year looking set to be an election year, Barclays' Mr Leong believes lavish cash handouts are unlikely.

'We've already seen a tremendous amount of handouts over the last few years,' he said.

These have included 2006's $2.6 billion Progress Package, the $4 billion GST Offset Package in 2007, and last year's $20.5 billion Resilience Package.

'To be fair, it's probably time to cut back on some of that, rein in the Budget and prepare for the possibility of a rainy day again,' Mr Leong said.

This, he added, was particularly important 'given that we're not certain about the durability of the recovery'.

Economists, however, do not think the Budget will be totally devoid of goodies, although the Government may try to align its handouts to longer-term goals.

DBS economist Irvin Seah expects a lowering of the top personal income tax rate - something which is in line with Singapore's long-term strategy of attracting foreign talent.

'We would also probably see more top-ups in public assistance schemes to help the lower-income groups,' he said.

'This is in line with the Government's long-term objective to foster inclusive growth, as the lower-income groups are finding it difficult to keep pace with development.'

OCBC's Ms Ling suggested that some handouts may come in the form of measures to help Singaporeans cope with rising living costs, assist the needy as well as provide greater differentiation between foreigners and Singaporeans.

'But there won't be big handouts in the style of, say, Growth Dividends,' she added, referring to the cash payouts in the Budget that preceded the 2006 elections.

The 2010 spending statement is slated to be in marked contrast to recent election-year Budgets, all of which were considered to set new levels of largesse when unveiled.

The $2.45 billion Budget of 1996, which came prior to the elections of January 1997, cut the corporate tax rate by one percentage point, reduced the top personal income tax rate by two percentage points, and gave away a 10 per cent tax rebate.

In 2001, a slew of tax cuts and rebates worth more than $2 billion - including $333 million in utility, rental and conservancy fee 'share-outs' to HDB households - was unveiled in the run-up to elections in November that year.

The Government also handed $1.85 billion back to Singaporeans via special transfers, including $1 billion in CPF top-ups.

It then followed this up with 2006's Progress Package, which gave out $1.4 billion in Growth Dividends and introduced Workfare Bonuses for lower-wage workers.

Elections that year came three months after the Budget in May.

This article was first published in The Straits Times.