Progressive Budget makes fiscal sense

Budget 2015 has been hailed for being yet another progressive Budget, a continuation of a series of so-called Robin Hood Budgets in recent years.

Indeed, the Budget this year is one of the most progressive ones yet. But it is progressive for a good reason: It makes fiscal sense.

In truth, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam had already flagged the Government's intention to move the fiscal system towards a much more progressive one, compared with the years before.

In a 2013 interview with this newspaper, he stated that the Cabinet had become "left-of-centre".

The Budgets in the past few years, including this year's, clearly indicate that this position has been firmly entrenched.

A slew of support measures also point to a Government paying serious attention to the social welfare needs of an ageing nation: higher Workfare Income Supplement payouts, the introduction of a mega $8 billion Pioneer Generation Package of health-care subsidies last year and the introduction of lifelong universal health insurance, MediShield Life.

This Budget adds a crucial, hitherto missing plank to the social safety net: an allowance for the aged.

The Silver Support Scheme will pay on average $600 every three months to the elderly poor. It is yet another reminder that the Government intends to patch gaps in the social safety net.

On a macro level, overall government financial expenditures have also moved towards being more progressive and inclusive.

In 2009, the Government spent about 43 per cent of its total expenditure on social development, or about $18.1 billion.

In the budgeted government expenditures for financial year 2015, social development spending rose to $32.1 billion, or about nearly half of the total $68.2 billion government outlay.

Security and external relations spending also rose, but at a much slower pace. In 2009, the Government spent about $14.4 billion on security and external relations, or about 34 per cent of its $41.8 billion total expenditures.

This year, security and external relations took up just 27 per cent of total government expenditures, or about $18.6 billion this year.

Economic expenditure also rose to about 22 per cent of total spending for this year, up from about 19 per cent from 2009.

Government administration, the fourth source of spending, has remained more or less constant at about 3 per cent of total expenditures over the past six years.

The spending pattern shows that the thinking behind the policies has clearly shifted, as it were, to the left.

But there is a more mundane reason for turning progressive: It pays.

Without higher taxes on the well-to-do, the Government will find it increasingly difficult to finance social spending demanded by citizens.

The move to include Temasek Holdings in the calculation of the Government's net investment returns (NIR) is an important one.

This will enable the Government to tap on the Singapore investment firm's unrealised and realised capital gains as revenue for its Budget and not rely on just Temasek's dividends.

But with increasing social spending, it is unlikely that investment returns alone will be sufficient to pay for rising expenditures.

To pay for increasing demands from an ageing population on things like health care and transport infrastructure, there is little choice but to turn to the rich to finance these expenditures.

Over the past few years, the Government has increased taxes on items such as alcohol, cigarettes and property.

This year, it took aim directly at rich people's incomes.

Marginal tax rates will go up for the top 5 per cent of income earners, who have an assessable income of at least $160,000, with the increases being larger for the highest earners.

Petrol duties were also jacked up, with car owners having to pay between 15 and 20 cents more per litre of fuel.

These are not just symbolic moves. Together with the inclusion of Temasek Holdings into its NIR framework, the Government can expect to generate 1 per cent of gross domestic product in additional revenues a year.

In simple maths, that's about $3.9 billion more a year, which Mr Tharman said will "provide sufficiently for the increased spending needs... till the end of the decade."

But he was quick to stress that Singapore cannot afford to keep raising taxes on the rich because the nation competes with others for mobile talent.

Some commentators such as Mr Grahame Wright, a partner at Ernst & Young Solutions LLP, said this could make Singapore's "competitive position" weaker for highly mobile senior executives.

Sure, there may be a small dent in Singapore's competitiveness, but it goes a long way to assure Singaporeans, especially the less fortunate, that their country is looking out for them.

At least till the end of the decade. And after that? The Government may have no choice but to resort to hikes in the more broad-based consumption tax, which would be a regressive measure.

But at least for the next few years, Budgets look set to remain progressive.