BUDGET 2013 - SINGAPORE SHIFTS GEARS

Budget for time of transition

Policies reflect Singapore's shift to slower but higher-quality growth

For a Budget that was supposed to be pro-business, this turned out to be surprisingly pro-worker too.

First, as expected, the low-income got a leg up. The Workfare Income Supplement will be expanded to cover those earning up to $1,900, bringing the bottom 30 per cent within its fold. Low-wage workers will also get higher Central Provident Fund (CPF) contributions from employers.

Second, for the middle- and high-income, there is a personal income tax rebate of 30 per cent, capped at $1,500. This is a completely unexpected but welcome measure in a year with no general election in sight and an uncertain economic outlook.

And third, the star of Budget 2013: a Wage Credit Scheme where the Government co-pays 40 per cent of employers' wage increases for those earning up to $4,000 a month, from this year to 2015. As $4,000 is above the median wage, this benefits most workers.

These are not just populist giveaways: The strategic aim is to spur businesses to do more with local workers and raise productivity, in the face of a tighter foreign labour supply; and to help workers cope with rising costs.

The Wage Credit Scheme is remarkable for achieving both objectives in one fell stroke.

With this measure, the Government demonstrates its willingness to embrace wage support as a key plank of its social policy.

This is a radical departure from its pre-2006 stance, when it preferred to help low-wage workers get trained to take up higher-paying jobs, rather than top up their wages. Training is still a key prong of the strategy to raise wages. In 2006, the Government also experimented with a one-off Workfare bonus, giving cash and CPF top-ups to the low-income. In 2007, Workfare was institutionalised.

At that time, there was discussion on whether wage support given to the worker, or to the employer, was more effective.

In 2009, as the world was poised on a global downturn, the Government introduced the Jobs Credit Scheme over two years: a wage subsidy given to employers. This helped companies stay afloat so they could retain workers.

The new Wage Credit Scheme aims to drive wage growth across the board as companies restructure. It is for Singaporeans, so it should alleviate some of the anxiety locals feel over competition from cheaper foreign workers.

The pro-worker measures are particularly welcome, after a bruising debate on the Population White Paper. Singaporeans objected to the paper's population projection of 6.9 million, complaining of an overcrowded city and lamenting the Government's seeming addiction to foreign labour-dependent economic growth.

If the White Paper was the bitter pill, Budget 2013 can be said to be the sweetener. They need to be taken together to get a fuller picture of the Government's economic plan: to continue tightening the supply of foreign workers, slow down workforce growth and change gears to a slower pace of economic growth driven by productivity.

Far from being over-dependent on foreigners, the Government will persist in tightening the flow of foreign workers, as Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam made clear. Foreign worker levies will rise, especially in less productive sectors with too many less-skilled foreigners.

Mr Tharman underlined the pain of economic restructuring when he said many industries will go through major, structural changes. Small companies will close if they cannot be productive, freeing up space for more efficient players.

The next few years will see a lot of churn in the small and medium-sized enterprises sector, which employs seven in 10 Singaporeans. Many will lose their jobs.

In a tight labour market, the hope is that workers who lose their jobs in the economic churn can find new ones easily, especially when the opiate of cheaper foreigners is no longer available to companies.

But older, less educated, less robust workers will not find it easy to adapt. They are the vulnerable ones in transition: the interim unemployed and their families; or those who end up permanently underemployed because their skills were specific to an industry that moved out of Singapore. (Example: a master tailor who became a security guard when the textiles industry moved out of Singapore).

Income support for the jobless, not just those lucky enough to have a job, would be welcome. The underemployed need help not only with training, but also with interim living costs and longer- term health-care costs, as few employers will be prepared to offer generous benefits to workers past their prime. For the latter, Singaporeans will have to wait for the Ministry of Health's promised review of health-care financing.

Every Budget not only builds on past ones, but also hints at future fiscal policy.

One fiscal policy hinted at deserves special mention: taxing the ultra-rich. Property and car taxes will rise for luxury homes and cars, by about 60 per cent for some luxury homes and 40 per cent for some luxury cars. That translates into tens of thousands of dollars: not insignificant, but within what these rich households can afford.

Making the proverbial top "1 per cent" pay more taxes is in line with global disquiet over rising income inequality. The top personal income tax rate of 20 per cent applies to annual income above $320,000. Will the taxman here do as others have done and impose a higher tax rate for, say, those earning above $1 million?

No one knows.

But when you put the pieces together, it is clear that this is a Budget of transition, for a Singapore shifting gears.

There are productivity boosts and help for businesses so Singapore can shift from high-octane to slower but higher-quality growth driven by productivity. And there are measures to bridge the rising income gap via a more progressive tax system, as the country shifts from being a hard-driving, capitalist society to a more compassionate one that ameliorates the excesses of the market with a deeper social safety net.

muihoong@sph.com.sg

This article was first published in The Straits Times on Feb 26, 2013