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MOST governments and citizens would be happy to have a national Budget that yielded a surplus of $6.4 billion.

But in Singapore, the size of the surplus has become an item the Finance Minister has to account for.

Indeed, a few MPs and commentators have said it was ‘embarrassing’ to have such a huge surplus, when a deficit of $0.7 billion had been projected.

As the surplus came on the back of a 2 percentage point hike in the goods and services tax (GST) to 7 per cent, it is understandable that people are asking if the Government was being hasty, or worse, exploitative, in raising the GST in a year when global forces already led to high inflation in Singapore.

The point was made yesterday when the House sat to debate this year’s Budget, presented by Finance Minister Tharman Shanmugaratnam on Feb 15.

Two non-PAP MPs - NMP Gautam Banerjee and opposition MP Low Thia Khiang - wanted the hike reversed.

Other MPs, such as Mr Seng Han Thong and Dr Amy Khor, thought surpluses were to be celebrated, not apologised over.

After all, if the Government had projected a deficit, but the economy rebounded and its coffers overflow: that is good news.

And if the state shares its surplus in a smart way with more going to the needy, that is a win-win-win outcome, since citizens, businesses and the state all benefit.

As Dr Khor noted, some Singaporeans think the Government is being kiam siap (Hokkien for tight-fisted) in sharing $1.8 billion of a $6.4 billion surplus.

But then, this sum does not include another $1.6 billion to top up endowment funds for workers, the poor and the elderly: $800 million to the Lifelong Learning Fund, $400 million to the Eldercare Fund and $200 million each to MediFund and the ComCare Fund.

As for the argument that the Government should refine its forecasting methods, let us just remember that a forecast is just plain guesswork based on the state of knowledge at any one time.

A year ago, the property market was in the doldrums. No one could have predicted its dramatic recovery. And who can say what the market will be like 12 months hence?

The fiscal conservative in me often gets an airing this time of the year, with the need to counter the rising wave of expectation of greater bounty from the state.

In fact, as MP Baey Yam Keng noted, the timing of the Budget near the Chinese New Year may have created an expectation that the Budget equals hongbao-giving time.

On this, Mr Seng Han Thong had the response I found most sensible: If surpluses accrue, hongbao should be given out, but only to those who need them.

He cited the old Chinese saying that wealth does not last three generations. It is worth noting that this Government is being led by the third generation of leaders.

Can Singapore become poor again, one student asked at a dialogue session on the Budget.

With its hundreds of billions in reserves and investments and a PAP Government that keeps tight control on spending, it may be hard to fathom such an eventuality.

But the political pressure to over-spend cannot be underestimated.

MP Sam Tan warned of the political power of the ‘grey’ lobby, citing the case of Israel, where the Pensioners Party won broad-based support on the back of pension promises.

There are also soft-hearted (or soft-headed depending on your point of view) liberals on both sides of the political fence in Singapore.

Many Singaporeans support the increases in spending on the bottom 20 per cent in the last five years.

But others favour increased spending on all social services. Yet others, including PAP MPs, want subsidies for the middle-income.

One MP yesterday argued that even the high-income deserved subsidised housing.

MP Christopher de Souza, 32, spoke up for young couples when he argued for a rise in the income ceiling to buy subsidised Housing Board flats, to accommodate young couples whose hard work and rapid promotions put their incomes just beyond $8,000 a month.

They needed subsidised HDB flats as they could not afford ‘pricey’ resale flats or private condominiums, he said.

Two counters to this argument: First, $8,000 a month puts such couples in the top tier of their age group.

Second, it is fallacious to say they cannot afford resale flats. A loan of $300,000 will buy them a four-room flat in most estates. Repayment over 25 years at 3.5 per cent is $1,500, less than their combined Central Provident Fund contributions.

It is a sad day when bright young professionals develop a sour-grapes mentality to subsidies and demand a share of state funds they do not need.

That, to me, is an argument to tighten subsidies so that only the needy get them, not an argument to liberalise them further.

I would prefer subsidies to go to those such as MP Indranee Rajah’s Henderson constituents. One lives in a bin centre, where dustbins are stored. Another family was split up, children farmed out to different relatives, because they had lost their family home.

Her plea: Raise the supply of subsidised HDB rental flats for the low-income.

As Parliament debates the Budget over the next two weeks, more MPs will call for increased government spending on pet projects: on health care, for the needy, for the disabled, for the old, for the young, for the arts, or to promote family ties.

It is timely to recall that the Finance Minister is not the God of Fortune and that not all calls for spending have merit. Even if there is a $6.4 billion surplus.

Source : Straits Times - 26 Feb 2008

S’pore can depend on growth in China, India to sustain its economy, he says

A US recession could knock ‘maybe one or two percentage points’ off the growth of small, open economies like Korea or Singapore, but if a country gets the basics right, it can cope, Senior Minister Goh Chok Tong said during a televised interview while visiting Korea.

‘Have a good budget, have a good economy and strong fundamentals,’ said Mr Goh. ‘If our basics are right, we can cope with it. We have the surpluses to see the people through a very bad patch.’

Further, Singapore will be able to depend on Chinese and Indian growth to sustain its economy, he said.

‘Without China growing or without India growing, I think we will be very badly hit. But because we have prepared ourselves for this, we can now seek some comfort in the growth of China and India’, said Mr Goh.

Korea, which will see its newest President-elect Lee Myung Bak take office next week, should set itself the goal of being an open economy, in order to compete, he said.

Asked whether the incoming government might succeed in pushing through an Free Trade Agreement (FTA) between Korea and the US, Mr Goh - who helped negotiate the Singapore-US FTA in 2003 - said the key is to reach out to stakeholders who might be affected.

In Korea’s case, the agricultural sector would be very much against the FTA, he said. ‘You have to reach out to them to tell them that maybe they may suffer some loss of income through competition, but there are other ways to help them.’

Further, ‘you’ve got to reach out to the wider economic community to tell them that the benefits to the whole economy outweigh the losses in some areas’, he said. Another issue would be American concern over exports of Korean automotives to the US.

‘If you can solve the beef and automotive problems, I think you can get the Congressmen in the US and the National Assembly members here to support the FTA. It is very important for Korea to have an open market in the US, where the tariffs would be much lower than they are now for your exports,’ said Mr Goh.

As for Korea-Singapore relations, Korean investors could use Singapore as a springboard not only for South-east Asia, but also to the Middle East or Europe; conversely, Singapore firms could use Korea as a launch pad to the US, China and Japan, said Mr Goh.

‘We can be your port in South-east Asia and you can use our port for transhipment. If Korea has an open skies policy, you can be the hub for North-east Asia. We have an open skies policy. We can be a hub for Korea, if Korean Airlines flies to Singapore and beyond. These are possibilities,’ he said.

Another potential area for cooperation is joint-investment in third countries, like in the Middle East, while on the flipside, Koreans and Singaporeans could work together with the Arabs to invest in Korea or elsewhere, he said.

Source : Business Times - 25 Feb 2008

Wealth management gets a boost, but Tharman keeps his powder dry.

EVERY year at Budget time, Singapore’s Finance Minister, Tharman Shanmugaratnam, faces a task that must make him the envy of his peers in the rest of the world: he must explain why the nation’s tax revenues were so much higher than originally planned. Like those of his immediate predecessors, Lee Hsien Loong and Richard Hu, Mr Tharman’s Budgets have been inherently conservative in outcome - even if they are often (as this year and last) intended to be stimulative at the outset.

In each of the last four years, real GDP has grown much faster than anticipated at Budget time. Tax revenues have consequently far exceeded those projected at Budget time. This fiscal year (which ends on March 31, 2008) was expected to yield a fiscal deficit of $0.6 billion, but the government now estimates that the final outcome will be a surplus of $6.35 billion. In fact, over the first three quarters of the fiscal year, the actual fiscal surplus was $10.8 billion. All tax revenues were higher (as they almost always are in Singapore), but asset taxes surged most spectacularly as property values soared.

The January-March quarter tends to be the seasonally-weakest one for the fiscal balance, but the deficit for that quarter is unlikely to be $4.4 billion, so the actual surplus for this year will almost certainly be larger than the government’s current estimate.

With a larger surplus as the base, next year’s fiscal balance will also be stronger, assuming budgeted increases in revenue and expenditure. A betting man could do worse than place a large wager on actual revenues comfortably exceeding the Budget’s projections next year too!

The government’s intention is to provide a fiscal stimulus in the year ahead - evident in the projected fiscal deficit next year of $0.8 billion, which is not very different from last year’s projection.

Modest tax reductions include a 20 per cent rebate on personal income tax (capped at $2,000), revenue-neutral changes to the alcohol tax, a slight reduction in vehicle taxes (largely offset by planned increases in the coverage of ERP), and the elimination of estate duty.

Of these, the last will have a permanent positive impact on the wealth management industry (and Singapore’s attractiveness as a home for the wealthy) without hurting the exchequer much. The market will be disappointed that the top rate of income tax will not decline from 20 per cent, and the corporate tax from 18 per cent.

Mr Tharman has kept his powder dry for a rainy day - leaving ample room to lower taxes further were the global economy to weaken substantially more. He has still outlined an ambitious spending programme on further honing Singapore’s world- beating transport infrastructure, tweaking its skills-development schemes, and moving Singapore’s three (soon to be four) universities closer to the global frontiers of research and innovation.

Fiscal incentives and spending will further bolster Singapore’s R&D capabilities, by boosting both start-ups and existing companies’ research and also by attracting global talent. And for the community, there are further incentives for more voluntary saving and a deepening of funds to help the needy, vulnerable and sick.

Most exciting for the longer term, however, are the steadily-widening schemes for sharing surpluses with citizens. Singapore’s budgetary accounting system is among the most conservative in the world. The fiscal balance is obtained by subtracting both operating and development expenditure from the government’s operating revenue alone.

The government’s ample investment income (from land sales, as well as the dividends, interest and capital gains of its sovereign wealth funds) is not counted as government revenue. In recent years, the government has made a small concession by using up to 50 per cent of the dividends and interest income from its invested reserves to fund the special transfers (to MediShield for the elderly, growth dividends for citizens, GST credits, etc, which are properly skewed towards benefiting the needy more).

However, the substantial capital gains on the government’s investments continue to accumulate, and cannot yet be distributed to citizens.

By next year, a constitutional amendment will allow the government to share the fruits of the capital gains made by investing its burgeoning reserves over the past several decades. That will give Singapore the ability to turn the dream of being the pre-eminent global city into reality. Clearly, only a small proportion of capital gains will be made available for spending in this way - the prudent practices of rich university endowment funds being cited as a precedent to preserve much of the corpus for the future while spending largely the recurrent components of capital gains.

When it begins to free up some of the capital gains from past investments, Singapore will have the wherewithal to realise the vision of an innovative, research-driven global city. This Budget contains merely the hint of those vast possibilities, but the vision is already there for those who choose to look.

The author is chief economist (Asia ex-Japan) at Daiwa Institute of Research (Singapore) Pte Ltd. These are his personal views.

Source : Business Times - 16 Feb 2008

Equity Remuneration Incentive Scheme

There are currently two tiers of tax incentives for equity-based remuneration - one for employees of SMEs and another for those in larger companies.

Some of our larger companies would like to use equity remuneration for key employees to encourage them to take risks and grow the company.

However, they are currently restricted from doing so as the existing incentive requires them to offer share awards or stock options to at least 50 per cent of their employees.

I have decided to adjust this condition so that they are only required to issue stock options or shares awards to at least 25 per cent of the company’s employees.

I will also introduce a new and more attractive tier for start-up companies besides the two current tiers targeted at SMEs and larger companies.

Fixtures and Fittings Incentive

Businesses will be granted a special allowance for the costs of fixtures, fittings and installations incurred, to be written down over three years.

The allowance will be limited to expenses of $150,000 every three years. This new allowance will be particularly helpful for SMEs in the services industries. Whether it is a fashion or F&B outlet, the upgrading they make to the interior design of their premises is integral to the experience they offer to their customers.

Overall, this measure will save our businesses about $130 million a year in tax.

The cap at $150,000 of expenses is essential because if we allowed all businesses to deduct all expenses involved in renovating their premises, we would face significant revenue loss.

Promoting New Financial Activities

Islamic finance is a promising area and we will ensure that Singapore’s financial markets are conducive for its growth.

To encourage more Shariah-compliant financial activities to be done out of Singapore, I will introduce a 5 per cent concessionary tax rate for income derived from qualifying Shariah-compliant activities, specifically in the areas of lending, fund management, insurance and reinsurance.

I will also extend the tax exemption currently granted to non-residents and resident individuals on income from Qualifying Debt Securities to all investors of qualifying sukuks (Islamic bonds), including resident non-individual investors.

To strengthen Singapore as a wealth management hub, I will introduce a tax incentive scheme for family-owned investment holding companies.

The scheme will allow these companies to enjoy the same scope of exemptions that individuals currently enjoy on Singapore and foreign-sourced investment income.

To further develop Singapore as a premier insurance centre, I will introduce a tax incentive scheme for licensed insurance and reinsurance brokers.

They will be taxed at a concessionary rate of 10 per cent on the income they derive from offering insurance broking and advisory services to offshore clients.

I will also enhance other financial sector tax incentives comprising those related to project finance, Qualifying Debt Securities and asset securitisation transactions, as well as extend the Financial Sector Incentive scheme for another five years.

Developing Maritime Hub

To deepen our maritime financing capabilities and to tap on new business opportunities created by the buoyant shipping market, I have decided to provide a concessionary tax rate of 5 per cent or 10 per cent on income from leasing of containers under the Maritime Finance Incentive.

I will also allow partners to enjoy the incentive.

Tax Credit for Foreign-Sourced Income To eliminate the possibility of double taxation for our companies that venture abroad, I will extend unilateral tax credit to all foreign-sourced income that they earn in countries with which Singapore does not yet have an Avoidance of Double Taxation Agreement.

Overseas Talent Recruitment Scheme and Not-Ordinarily-Resident Scheme To help businesses continue to attract talent from around the world, I will extend the Further Tax Deduction scheme, which allows for further tax deduction for relocation and recruitment expenses for another five years till 2013.

I will also refine the Not-Ordinarily-Resident scheme, which is relevant to individuals with regional work responsibilities, so that it covers not only salary but also benefits in kind.

Individual Taxes

Estate Duty We collect about $75 million per year on average from Estate Duty.

Estate duty is a means to rebalance opportunities with each new generation and prevent wealth from being concentrated in fewer and fewer hands over time.

It was especially relevant at the time when the bulk of wealth comprised land that was passed down through the family. Today, however, wealth is being created in many more ways and by a wider group of entrepreneurs, many of whom start off with little.

Wealth is also being managed today on a global basis.

Proponents of removing estate duty have therefore argued that removing it would encourage wealthy individuals from all over Asia to bring their assets into Singapore, thus supporting the growth of the wealth management industry.

Ordinary Singaporeans have also argued that having worked, paid taxes on their income and property , and built up their savings, they want to be able to pass it on to their families.

I have therefore decided to remove Estate Duty from our tax regime, with effect from today.

If we make Singapore an attractive place for wealth to be invested and built up, whether by Singaporeans or foreigners who bring their assets here, it will benefit our whole economy and society, not just the individuals who build up their wealth. It is not a zero sum game.

I would however encourage individuals who have accumulated wealth to think of how they can use it to make a contribution to society, and make full use of the enhanced incentives we introduced last year to promote philanthropy.

With the removal of Estate Duty, our remaining tax on wealth would be the tax on property .

We should retain this tax. It is an efficient tax, set at a low rate in relation to the full value of the property , especially for owner-occupied homes.

Personal Income Tax

We will not be making any further move on personal income tax rates this year.

But we will continue to watch this and ensure that we are always able to attract and keep talent in Singapore, including those at the top end.

After we amend the Constitution to revise the framework for drawing investment income from our reserves, we will reassess our options on corporate and personal income tax and lower rates further should it become necessary.

As the Government had a strong surplus last year, however, we will give something back to taxpayers this year.

I will give an income tax rebate of 20 per cent for all resident taxpayers for Year of Assessment 2008.

The rebate will be capped at $2,000. Having this cap allows us to target the rebate at those below the top income brackets. The income tax rebates will cost the Government $380 million.

Miscellaneous Tax Changes

With effect from today, all alcoholic beverages will be taxed on the basis of their alcoholic content. Most liquors will see a slight reduction in duty rates.

We will also introduce changes to the tax levied on private diesel cars. The current special tax on private diesel cars is too punitive, and explains why we only have one such car on the road today. The changes will narrow the difference in the cost of fuel consumption that a motorist faces, between a Euro-IV car and a petrol car.

Building a resilient community

As we develop as a global city, we must build up our resilience as a community and help every Singaporean make the best of the opportunities that will come.

However, even as our economy grows and does well, we have to address two key challenges that we face together as a community.

First, we must help our lower-income workers cope with the continued pressures on their wages in a globalised world.

Second, we have to help Singaporeans save more for their retirement and prepare for healthcare needs that come with aging, so that they can look forward to the happy prospect of longer lives.

Last year we made significant moves to address these challenges.

I will outline further measures that the Government will take to help Singaporeans prepare for old age as well as measures to help the most needy and vulnerable in our society.

I will also set out measures by which we will share part of the surpluses from last year with Singaporeans.

Enhancing Financial Security in Retirement

This year, we are moving on four further initiatives to help ensure adequate savings for retirement.

Voluntary Savings

Firstly, we will encourage Singaporeans to voluntarily put aside more savings whenever they can.

We will make it easier for Singaporeans to top up CPF accounts for themselves and their family members in order to meet the Minimum Sum, and we will provide more tax incentives for them to do so.

The Ministry of Manpower will now allow members below 55 to top up their CPF savings up to the Minimum Sum. Further, employers will now be allowed to make top-ups to their employees’ Minimum Sum. To encourage topping-up of CPF accounts, I will broaden the tax reliefs currently available.

Today, there is a single $7,000 tax relief available for qualifying Minimum Sum top-ups either for oneself or family members, provided the beneficiary is 55 and above.

I will allow two separate tax reliefs - up to $7,000 for top-ups by the member or his employer to his own Minimum Sum, and up to another $7,000 for top-ups to their family members’ Minimum Sum.

Both reliefs will apply regardless of the age of the recipient when the top-ups are made.

Employers will also enjoy a full tax deduction for top-ups to their employees’ accounts.

To encourage savings to meet medical needs, I will also provide tax relief for voluntary contributions that CPF members specifically direct to the Medisave Account.

This will help more CPF members meet the Medisave Minimum Sum.

The Supplementary Retirement Scheme (SRS) provides a tax incentive for Singaporeans as well as foreigners to save for retirement outside of the CPF scheme.

Today, only employees are allowed to contribute to the SRS.

To enable employers to play a part towards the retirement savings of their employees, we will allow them to directly contribute to the SRS on behalf of their employees.

This will provide an inexpensive method for employers to provide retirement benefits without the need to set up company pension funds, which may have high overheads.

With more Singaporeans now working beyond the retirement age, we will also remove the age limit on contributions to the SRS.

LIFE Bonus From 2013, CPF members will join CPF Life scheme automatically when they turn 55 as long as they have at least $40,000 in their Minimum Sum.

The first cohort to do this will be those aged 50 this year.

We also want to encourage those with less than $40,000 as well as members who are older than 50 this year to join the scheme when they turn 55.

We have decided to provide a special bonus to the first few cohorts of CPF members who will participate in CPF Life.

These older cohorts generally earned less over their working years compared to what younger Singaporeans currently have and can look forward to.

By the time they join CPF Life, they would also have had less time to benefit from the extra 1 per cent interest that CPF members now receive on the first $60,000 of their CPF balances.

Younger cohorts will also be able to benefit from more years under the WIS scheme, which provides significant top-ups into their CPF accounts (plus cash payments).

The Government will provide a sign-on bonus for the first five cohorts of CPF members who join CPF Life, in other words, those aged 46 to 50 this year.

We call this the Life Bonus, or the L-Bonus. It will be given to members when they enrol in the scheme at age 55.

The L-Bonus is targeted at the lower and middle-income CPF members.

The L-Bonus will be given to members whose annual income when they sign on to the Life scheme is $54,000 or less, and whose annual assessed property value is $11,000 or less, which will include all HDB flats.

These make up about 80 per cent of the cohort aged 50 today, including those whose Minimum Sums are too low for them to be automatically enrolled in the Life scheme.

The amount of the L-Bonus will vary such that older and less well-off members will receive more.

For members aged 50 this year, they can expect to receive between $2,200 and $4,000.

A 50-year-old who lives in a five-room flat and earns between $24,000 and $54,000 will receive $2,200.

However, a 50-year-old who lives in a three-room flat and earns less than $24,000 annually will receive $4,000 when he joins the Life scheme. If he has $40,000 in his Minimum Sum, this amounts to 10 per cent of his retirement savings.

The youngest eligible cohort, those aged 46 today, will get around 30 per cent of what the 50-year old receives.

The Government agrees with the committee’s recommendation and will extend the L-Bonus to this group of members.

Therefore, if members have less than $40,000 in their Minimum Sum, but want to participate in the Life scheme, we will help them to do so and give them the L-Bonus as long as they are willing to make a reasonable contribution to their balances and accept lower monthly payouts.

This is particularly important for many of the women, who may have been housewives or stopped working early and do not have enough in their accounts. The L-Bonus will encourage their husbands or other family members to top up their accounts so that they can join the scheme.

We will also extend the L-Bonus to older members above the age of 50 this year who choose to opt into the scheme. They can opt in when they reach 55. But if they have already passed 55 when the scheme is introduced, they will have to opt in within a year from then.

All these older members who choose to opt in will receive the same amount of L-Bonuses as those aged 50 this year.

The Government will set aside $770 million over three years for the L-Bonuses, including $260 million out of this year’s budget.

Helping Singaporeans Meet Healthcare Needs To protect retirement savings from being depleted by heavy expenses due to catastrophic illnesses, we must also ensure that our people are adequately covered by medical insurance.

a. MOH will be enhancing MediShield to provide better coverage for patients with large hospital bills, with some adjustment to MediShield premiums in tandem.

To help older Singaporeans pay for their medical bills and their increased MediShield premiums, we will top up the Medisave accounts of all those aged 51 and above by up to $450 this year.

This will cost the Government $220 million

b. To encourage employers to provide portable medical benefits through Medisave and MediShield, we will also relax the criteria for them to enjoy tax deductions up to the higher cap of 2 per cent of their wage bill.

Beyond regular Medisave contributions, employers will now be allowed tax deductions up to the higher cap if they make ad-hoc contributions to their employees’ Medisave accounts, or if they purchase MediShield or Medisave-approved private integrated plans for their employees.

We are also setting aside more funds to help the elderly and needy.

We will top up the ElderCare Fund by $400 million this year, bringing its size to $1.5 billion.

Medifund, which supports the needy, is also being well utilised. We will top it up by $200 million this year, bringing the fund size to $1.6 billion.

Taking Care of Vulnerable

The Public Assistance (PA) Scheme applies to needy Singaporeans who are unable to work and have no other means of support.

Last year, we raised the monthly PA rates to $290.

The Government has decided to increase the monthly PA rate for a single-person household further to $330.

I will also top up the ComCare Fund by $200 million this year, bringing it to $800 million.

Surplus Sharing 2007 was a good year for Singapore. Our fiscal position is strong. We can therefore afford to share some of the budget surplus with Singaporeans.

I will distribute the surplus to all Singaporeans, but with particular focus on the lower and middle-income groups and older Singaporeans.

I had earlier in the speech announced top-ups to the Post-Secondary Education Accounts and Medisave accounts, as well as Personal Income Tax rebates, as part of this surplus sharing exercise.

I have also decided to give Growth Dividends to all adult Singaporeans, to be paid out in two instalments in April and October this year.

Those who have already signed up for their GST credits will automatically receive their Growth Dividends.

We will give the needy more, using the same framework that has been used for GST Credits.

A lower-income Singaporean living in a three-room HDB flat or smaller, will receive a Growth Dividend of $400. This is on top of the $250 in GST Credits that he will be getting this year.

The majority of Singaporeans, who live in other HDB flats and do not have high incomes, will receive a Growth Dividend of $300 (on top of $200 in GST Credits that he will get this year).

I will give older Singaporeans, those aged 60 and above, more. Most older Singaporeans will receive one and a half times what other Singaporeans will receive. As with the GST Credits, we will include everyone. Those with Annual Incomes more than $100,000 will receive a Growth Dividend of $100.

We will give an additional dividend to those who have served and are currently serving national service.

NSmen, ex-NSmen and NSFs including those below 21, will get an additional $100 of Growth Dividends, to recognise their contributions to our nation.

The Growth Dividends will cost the Government $865 million this year.

For government pensioners, the Government has decided to increase the Singapore Allowance further by $20 per month, and raise the gross pension ceiling from $1,150 to $1,170.

This will give an additional $3 million a year to pensioners residing in Singapore.

Last year, as part of the GST Offset Package, we provided CCCs, self-help groups and VWOs with extra funds ($10 million over five years) to help needy families.

This year, we will give these groups an additional $10 million. This would give them an extra $20 million over the five-year period.

Taking together all the measures in this year’s surplus sharing package a retiree household in a two-room flat will receive $2,100 (Growth Dividends and Medisave Top-ups).

This is on top of the $1,300 that they will also be receiving this year as part of the GST Offset Package introduced last year.

Take a middle-income family living in a five-room flat, which is also typically larger. Two working parents with two children, one in primary school and one in secondary school, and one grandparent. They will receive a total of $2,500 ($1,150 in Growth Dividends, $900 in PSEA top-ups, $450 Medisave top-up).

This is on top of the $1,900 that they will also be receiving this year as part of last year’s GST Offset Package.

In total, we will be giving out $1.8 billion worth of benefits to Singaporeans as part of this surplus sharing package.

Conclusion

Going Forward with Strength

This Budget is about developing the capabilities of our people and enterprises, so that we stay in the top league of global cities for years to come.

The Budget is also about our social resilience - holding together as a community, and providing assurance for Singaporeans as we age.

This Budget seeks to make innovation pervasive in our economy.

Whether we succeed as an economy, and whether we remain a resilient society, however, will not depend on how much we hand out, how much we top-up each year, or how large the bonuses are.

We will ultimately succeed and remain a country that all Singaporeans feel proud of, if we continue to be a place where every Singaporean can aspire, where there is opportunity to develop every skill and talent, and where everyone does his utmost to do better and surprise with his abilities.

That is how together, we will stay ahead, keep amazing the world and achieve a better quality of life for all Singaporeans.

Five ways to fight inflation Singapore’s five-pronged approach to battling the rising cost of living:

RISING SING$:

Since last October, the Singapore dollar has been allowed to appreciate slightly faster.

Had the Singdollar not been allowed to appreciate in the past two years, inflation in the last quarter would have averaged 6.5 per cent instead of 4.1 per cent.

MORE FOOD SOURCES:

The Government is helping importers to buy food from new sources overseas, which will minimise price hikes when the supply from any one country is cut off.

People are informed about cheaper food choices and substitutes.

OWNING YOUR HOME

Most Singaporeans own their homes, even those in the lower-income group, who receive heavy subsidies to do so.

They are thus protected against inflation, because they do not have to face rent increases.

In the United States, about one-fifth of older Americans rent their homes, and rent makes up almost a third of their monthly expenses.

GOVERNMENT AID:

Singaporeans struggling with the cost of living get direct aid from the Government.

Aid schemes also aim to help the needy get a job and encourage them to stay at it, upgrade themselves and support their family members.

Singapore does not favour price controls on essentials as it would lead to hoarding, black markets and even more problems for ordinary people.

Those unable to work can seek Public Assistance relief.

When there are good Budget surpluses, gains are redistributed to Singaporeans, with more going to the elderly and the needy.

STRONG ECONOMY

Keeping the economy competitive and building up its capacity for good growth: This is at the heart of Singapore’s approach to dealing with global inflation.

The strong economy last year was the reason why real income rose for most Singaporeans.

Even the bottom 20 per cent saw their real total income going up by 5 per cent as more family members found jobs.

Source : Straits Times - 16 Feb 2008

Extracts from Finance Minister Tharman Shanmugaratnam’s Budget Speech

Economic Performance 2007

We had real growth of 7.7 per cent in 2007, much higher than we had expected at the start of 2007. The strong economy also brought unemployment down to 1.6 per cent at the end of last year. Resident unemployment also fell sharply to 2.3 per cent, the lowest level in a decade.

We have been aided by a favourable global environment. But Singapore’s strong growth in recent years has mainly been the result of our broad-ranging efforts to restructure our economy, labour market and fiscal system.

This is not a story of an old economy growing quickly, but of a new economy emerging out of the old. It is about how we are attracting new and cutting edge investments, capitalising on opportunities in new growth industries and markets abroad, upgrading our workers’ skills and competing at an advantage.

Fiscal Position in 2007

With stronger than expected economic growth in 2007, we expect the overall Budget balance to be a surplus of $6.4 billion for Financial Year (FY) 2007, compared to the deficit of $0.7 billion that was originally projected.

We started the year expecting a growth rate of 4.5 per cent to 6.5 per cent, which was also in line with market forecasts.

With actual growth at 7.7 per cent, corporate and personal income taxes came in some $1 billion higher than projected. GST revenues also exceeded our projection by about $1.2 billion, mostly from higher consumption.

GST collection arising from the 2 percentage point hike in July is estimated at about $1.4 billion in total, which now just matches the size of the GST Offset Package and Workfare Income Supplement tranches that were distributed in FY2007.

However, the largest boost to revenues came from the exceptionally buoyant property market last year.

Prices of private residential units rose by over 30 per cent, much higher than industry forecasts of around 10 per cent to 15 per cent at the beginning of the year.

The volume of property transactions went up by over 60 per cent. Stamp duties consequently rose to an unprecedented $3.8 billion, $2.3 billion higher than expected.

Other property -related revenues were around $1.1 billion above projections.

The overall budget surplus of $6.4 billion was therefore the result of a strong economy and property market.

Economic Outlook for 2008

The key factor that will shape the growth of the Singapore economy in 2008 is the global economy, especially the state of the US economy.

Many private forecasters now expect the US economy to enter a recession in the first half of the year, although it may be mild. If this happens, Asian exports will be affected.

However, the IMF and other global forecasters still expect growth in Asia on the whole to remain healthy.

China and India are expected to slow down, but still grow at 10 per cent and 8 per cent respectively on the back of strong domestic demand.

Overall, on all current indications of global conditions, we expect growth of 4 per cent to 6 per cent in the Singapore economy this year. This is lower than last year, but well in line with the economy’s potential over the medium term.

However, there are major downside risks to this year’s forecast of growth.

A sharper than expected decline in US growth could add to the turmoil in the financial markets, and deepen the credit crunch that is still unfolding.

This will inevitably spill over to the Asian economies and markets, and our own growth will be impacted. The outcomes cannot be predicted, but we must be watchful of the risks and be ready to respond to them.

Dealing with inflation

Global Outlook Inflation is the other major uncertainty in the global economy, and a concern for us.

After a period of very low inflation over the last 10 years, it has re-emerged and is now an economic problem everywhere in the world.

The basic factors which have led to these price increases are not expected to go away soon. The demand for food especially has continued to rise globally, especially with the rapid growth of the middle classes in China and India.

We therefore have to brace ourselves for a period of relatively higher inflation globally, which will affect the prices of the goods we import.

We cannot say how long it will last, but we have to expect that it will remain high, in the first half of this year especially.

Inflation was about 2 per cent for 2007 as a whole, but it was much higher towards the end of the year.

Consumer price inflation reached 4.4 per cent for December 2007.

Overall, we currently expect inflation at 4.5 per cent to 5.5 per cent in 2008, but with inflation being higher in the first half of the year than the second.

The GST change has caused only a one-off increase in prices, and not continuing price increases. Singaporeans have also not been materially affected by the GST increase, because the Government has provided the majority of citizens with substantial offsets.

There is also a technical reason, due to the rising values of homes.

The increase in the assessed Annual Values of homes will contribute significantly to inflation this year. However, here too, most Singaporeans are not materially affected, as 95 per cent of citizens own their own homes and do not pay rentals.

Nevertheless, even if we exclude this technical factor due to home values, and the one-off effect of the GST increase, inflation today is higher than what we have been used to in Singapore for many years.

Our Strategies

Our strategies will ensure that Singapore continues to have lower inflation than the rest of the world over the medium term.

Our strategies to help Singaporeans cope with inflation essentially comprise five planks.

First, we seek to moderate imported inflation through our Singapore dollar exchange rate policy. This has been the Monetary Authority of Singapore’s consistent policy objective.

However, there is a limit to how fast the Singapore dollar can appreciate without hurting our economic performance and growth, and eventually causing wages to fall.

An overly strong Singapore dollar can bring inflation down, but at the cost of lower growth and higher unemployment.

This is why, while we can mitigate imported inflation through MAS’s exchange rate policy, we cannot insulate ourselves completely from the effects of global inflation passing through to the Singapore economy.

Second, we are stepping up diversification of food sources.

These policies of mitigating imported inflation, through exchange rate policy and source diversification, have helped to lower food inflation in Singapore.

The third way in which Government policies help Singaporeans cope with inflation has been our support of home ownership as a key pillar of society.

Even lower-income Singaporeans therefore have substantial equity in their homes which rises over time and is generally protected against inflation.

We have become used to this in Singapore. But it in fact insulates Singaporeans, especially our retirees, from increases in rental costs which are a significant long-term concern in other countries.

Fourth, the Government provides assistance directly to Singaporeans who face problems coping with the cost of living. This approach…is better, and more sustainable than taking reflex actions such as imposing price controls on essential goods.

Our fundamental approach to helping Singaporeans in need is to help them to get a good income for themselves. The best way to do so has been and remains to help needy Singaporeans get a job, and to encourage them to stay at it, upgrade themselves, and support their family members.

Last year we introduced the Workfare Income Supplement (WIS) scheme, to add to the income and savings of Singaporeans at the lower end of the wage ladder.

For those who are truly unable to work, for example because of disability, we have the Public Assistance (PA) Scheme.

We will continue to complement these institutionalised schemes, by providing discretionary assistance to those in need. This is why we have boosted the ComCare Fund, which now stands at $600 million, and Medifund which has reached $1.4 billion.

Further, where we make good surpluses on the budget, we have redistributed benefits back to Singaporeans, with more going towards the elderly and the needy.

The fifth plank of the Government’s strategy is the most fundamental to how we cope with rising global inflation.

Our strategy is to keep our economy competitive and build up our capabilities so that we can enjoy good economic growth.

This is the best offset to global inflation, which will be with us not just for a few months but possibly a few years.

If global inflation stays high, all countries will be affected by it and we will not be able to totally insulate ourselves. But there is no reason why we cannot keep growing, and keep outperforming.

And because our economy has done well and we have healthy surpluses, we now stand from a position of strength.

Top quality economy, resilient community

This Budget is about how we are looking ahead to create new advantages and fresh opportunities for Singapore in a competitive world.

The way we will do it is to be a top-quality economy. This means top-quality people, and top-quality enterprises.

The Budget is also about keeping all our people together as we grow and ensuring that no one is left behind.

Budget 2008 Key Thrusts The Budget this year is centred on four key thrusts:

a. We will provide a full range of education and training opportunities for people to find and stretch their potential, in school and in their post-secondary education, as well as throughout their working years.

We will enhance assistance for needy students to ensure that a top-rate tertiary education is affordable to all.

b. We will spur the growth of innovative enterprises. We will significantly enhance the incentives for enterprises big and small to create new ideas and products.

c. We will also adjust our tax policies so that we stay competitive, support the growth of our SMEs, encourage risk-taking as well as strengthen our role as a financial and business hub.

d. We will continue to build a resilient community. We will strengthen financial security for retirement, and help the less well-off members in our society.

We will also share surpluses with Singaporeans, with particular focus on the lower and middle-income groups who are more affected by rising prices.

Creating a top-quality economy

We are competing in a league of both established leaders and newly-emerging cities with an edge in knowledge-based industries.

They are not standing still, even in the developed world.

We have what it takes to compete in the top league.

We already have a first-class infrastructure and one of the most attractive living environments in Asia.

But we will invest in a total upgrade of our business, transport and IT infrastructure to enable new growth in the decades to come.

Together with the ongoing upgrading programmes in all our estates, and the green corridors and waterways that we are now developing all over the island, we will provide a vibrant and distinctive living environment for our people.

These large investments will position Singapore for its next phase of development as a global city, open up many new opportunities for growth, and help transform the quality of life for all Singaporeans.

However, our infrastructure is only the enabler.

The key to our success will be our people and our enterprises.

Whether we make the most of our opportunities, whether we grow, and whether we hold our place in the top league will ultimately depend on whether our people and enterprises are top quality, in every job and business they do.

Nurturing Every Skill and Talent

We will commit more resources to achieve higher standards in the pre-school sector, which will especially benefit children from lower-income backgrounds.

We will also enhance our financial assistance schemes to help more families with their children’s fees in kindergartens and childcare centres. More details of these initiatives will be announced by MOE (ministry of Education) and MCYS (Ministry of Community Developemnt, Youth and Sports) later.

We are also putting more resources into overseas immersion for a broad base of students and new boarding school programmes that will enhance opportunities for bonding and a rigorous all-round education.

Tertiary Education Our university sector is entering a new phase.

NUS, NTU and SMU are stepping up to a new level of excellence that will put them decisively ahead. We will grow the number of subsidised university places from 25 per cent to 30 per cent of each cohort by 2015, with four publicly-funded universities.

Besides the four universities, we will have a range of other programmes that will enable students to earn degrees in specialised fields, like early childhood education and naval architecture.

We will also provide enhanced assistance to needy students to make sure that financial status remains no obstacle to pursuing studies at our publicly-funded universities.

However, taking into account the higher costs of university education today, with the improvements in quality that we are making, we have decided to significantly enhance the bursaries given to students from the lower-income group.

We will also provide more assistance for those in the middle-income brackets.

Further, through a combination of bursaries and loans, students within the bottom two-thirds of the population will not need to expend cash for either their fees or living expenses during their university years.

University Bursaries First, for students in the lowest 20 per cent of households who enter our universities, we will increase the CDC/CCC-University Bursary Scheme for students, from $1,000 to $1,600 per annum. The universities will themselves also provide further bursaries to low-income students in need. Second, for the middle-income group, the MOE Bursary Scheme for students up to the 50th percentile of households will be increased from $800 to $1,200 per annum.

Further, we will extend the bursaries to students above the 50th percentile but within the lower two-thirds of households by income, who will receive a lower amount of $800.

To provide greater access to credit for students in middle-income households, the Study Loan Scheme will be extended to students up to the 80th percentile of households.

Polytechnic Bursaries We will similarly increase the bursary quantums for polytechnic students. For the CDC/CCC-Polytechnic Bursary Scheme, we will increase it from $1,000 to $1,200 per annum.

We will also be introducing a new MOE Bursary Scheme for polytechnic students from the bottom 50 per cent of households, as we have done at the universities.

The new bursary will be set at $800 per annum.

We will also extend the MOE and CDC bursaries to students enrolled in MOE-funded diploma programmes in the arts institutions - LaSalle and Nanyang Academy of Fine Arts.

Similar to the study loans for university students, the Study Loan Scheme for diploma students will be extended to students up to the 80th percentile of households.

All new and existing students can take advantage of these schemes starting from this coming academic year.

Last year we introduced Post-Secondary Education Accounts (PSEAs) for all students.

I announced a top up of $100 to $400 for each of 2008 and 2009.

I will now make a further top-up later this year.

We will provide the majority of students, which includes those from all HDB homes, $300 for those still in primary school and $600 for those in secondary schools.

Including what was announced previously, this means that secondary school students would have up to $1,400 in their accounts by March next year to use for their post-secondary education.

The additional top-up this year will cost us $300 million.

Continuing Education and Training

A key focus going forward will now be continuous education for adults.

This is going to be absolutely essential for us to retain the competitiveness of our workforce.

We expect to spend, on recurrent expenditure alone, $400 million per year on CET by 2010. To support this long term engagement, I will top-up the Lifelong Learning Endowment Fund (LLEF) by $800 million this year, bringing it to $3.0 billion.

As the Government ramps up its spending on CET, employers will remain key players in the training of workers.

Currently, they contribute a Skills Development Levy (SDL) on workers earning $2,000 and below.

As we move to provide CET to workers across all levels, we should broaden the base for the SDL.

Employers will now contribute the SDL on all workers they employ, up to the first $4,500 of gross remuneration. The wider base will allow us to reduce the levy rate from 1 per cent to 0.25 per cent.

This will be broadly neutral in terms of levy collections, but will reduce the overall burden on smaller companies and employers of lower-wage workers. The change will take effect from 1st October 2008.

We will also help Singaporeans who take the initiative to upgrade themselves, by extending subsidies beyond vocational CET.

Currently we do not subsidise part-time degree programmes.

We will now provide subsidies for part-time degree programmes at the three publicly-funded universities and UniSIM for those who have not previously benefited from a government-subsidised undergraduate education.

Singapore citizens will be able to pay subsidised fees, with the government meeting 40 per cent of the cost of these programmes.

Making Innovation Pervasive

We must make innovation pervasive in our economy.

Our strategy is to spread innovation across the corporate sector, enhance incentives for enterprises small and big to do R&D and push for greater commercialisation of research generated in our institutes of higher learning.

Investing in World-class R&D Capabilities

We will increase our overall research spending to $7.5 billion per annum by 2010, or 3 per cent of the GDP, with one-third of this being publicly funded research.

This year, I will top up the National Research Fund by $800 million, bringing it to a total of $1.8 billion.

Commercialisation of Research Having the facilities and talent for top-class research is not enough, however.

We will facilitate incubation of early-stage ideas that are developed in our universities and research institutions, and partner with venture capital funds to help the institutions spin off companies.

Polytechnics and ITEs too will be encouraged to commercialise their innovations.

MOE has established an Innovation Fund of $10 million to help seed their ideas and products, and to bring their innovations to the point that could attract industry funding.

Incentivising Enterprise and Innovation We will help all our companies move up the innovation ladder.

In this year’s Budget, we will make Singapore one of the most competitive places for companies, big and small, to do R&D.

Firstly, I will increase the tax deductions allowed for R&D done in Singapore from 100 per cent to 150 per cent.

This enhanced deduction means that for every $100,000 of local R&D spending, a company will be able to deduct $150,000 from its taxable income.

I will also lift the requirement that the R&D done in Singapore must be related to a company’s existing business, so as to allow it to qualify for the deduction even if it is doing research in new areas unrelated to its current activity.

Secondly, I will introduce a new broad-based tax allowance which will provide a further push for innovation amongst companies in Singapore, and especially the SMEs.

Companies will be granted R&D tax allowances each year, up to an amount of 50 per cent of the first $300,000 of their chargeable income.

This allowance can be used to defray incremental expenditure on R&D done in Singapore in subsequent years. This will provide additional resources for SMEs to invest in innovation, whatever their field of business.

It is extra funds that they will lose if they do not use them for R&D.

Thirdly, I will also introduce an incentive to help our high-tech start-ups. Turning R&D into marketable products usually takes time, during which they may have no taxable income.

Currently, they carry forward their losses for tax purpose.

The new incentive, called R&D Incentive for Start-Up Enterprises (or RISE), will allow them to convert immediately these losses into a cash grant of up to about $20,000.

They will get this as long as they incur at least $150,000 during the year for doing R&D in Singapore. This scheme will be available for enterprises in their first three years of assessment.

As with the other incentives I have mentioned, we will review the scheme after five years.

The three schemes together will cost about $250 million a year.

Catalysing Innovation in Public Services

A new Public Service Innovation Framework will serve to promote public-private collaborations that will bring about breakthrough public services.

The Government will set aside $90 million over three years as a seed fund for experimentation, test-bedding and building capabilities.

Each Ministry will have a Chief Innovation Officer to drive and coordinate this process.

The Public Service is always looking for solutions to problems, big and small, that innovative enterprises could participate in.

Private companies with new ideas for technologies and services can offer them for joint development prior to the procurement stage.

We cannot expect quick results from the investments we make today and the incentives we are providing. We may have to do more in future years.

But what we do now… will eventually pay off.

Enhancing Business Competitiveness

We have to keep our business costs competitive, and not let them run ahead of the cities we are competing with.

Office Space Constraints

In the short term, we face tightness in office space capacity, caused by the surge in business growth.

The tightness in office space should ease over the medium term.

By 2012, we will have an additional 1.4 million sqm of office space. But we are addressing the short term problem.

The Government has released 15 transitional office sites and vacant state properties , which will yield 150,000 sqm of additional office space.

Further, the Government has decided to relocate several agencies out of the Central Area. We will now free up 20,000 sqm or more by first quarter 2009 for use by the private sector. Construction costs are another short term problem.

To ease the pressure, the Government has earlier announced the deferment of some $2 billion worth of Government projects. We have now decided to defer another close to $1 billion of projects.

This deferment will only affect projects which are less urgent. Key investments such as the expressways, the Downtown Line and the NUS University Town will not be affected.

Tax Competitiveness With our 18 per cent Corporate Tax rate and the enhancements we have made to our Partial Tax Exemption scheme last year, our corporate tax regime is competitive.

The R&D incentives I have announced will provide further reductions in effective tax rates for companies over time.

I will make additional refinements this year to give a further boost to entrepreneurial companies and SMEs.

Start-Up Tax Exemption Scheme Currently, all shareholders must be individuals before the company is eligible for the scheme. This is too restrictive.

I will therefore allow the tax exemption for start-ups as long as there is at least one individual shareholder with at least a 10 per cent shareholding.

Source : Straits Times - 16 Feb 2008