Can the taxman play stork too?

What will Budget 2014 bring when it is unveiled on Feb 21? Tax experts offer tips on how the annual spending package can help raise productivity, in more than one way - by boosting birth rates as well as worker output.

Singapore's low birthrates have long been a source of concern for the nation's policymakers, who worry about the effects of a dwindling workforce and an ageing population.

Prime Minister Lee Hsien Loong revealed last week that the country's total fertility rate - the average number of children born to each woman - slid to 1.19 last year, the lowest level since 2010.

This is far below the required replacement level of 2.1 births per female, which is necessary for a population to keep itself at the same level from one generation to the next without migration.

Faced with these population pressures, the Government has been actively trying to encourage more births. It rolled out the Marriage and Parenthood Package of family-friendly perks in 2001 and has enhanced it three times since: in 2004, 2008 and last year.

Many of its incentives to date have centred on tax perks.

These include the working mother's child relief, which offers some working mothers tax relief on their incomes; the grandparent caregiver relief, which offers more reliefs for some working mothers whose children are being cared for by their grandparents; and the parenthood tax rebate, which can be used to offset the income taxes of married parents.

These benefits apply only if the children are Singaporean.

But tax incentives to boost fertility have had dubious success so far. It may be because many Singaporean women are not working or not in the income threshold levels where tax benefits are valuable.

The total fertility rate has been declining steadily in the last decade or so, dropping from 1.41 in 2001 to 1.15 in 2010, before inching up to 1.2 in 2011 and 1.29 in 2012 and falling again last year.

This shows that tax perks may also not be the deciding factor for women to have children; after all, this is a life-changing decision.

To play stork, the Government needs to get more creative and adopt other, holistic incentives beyond tax breaks and subsidies.

To its credit, it appears to have recognised this. The focus of government perks in recent years has shifted from tax to non-tax measures, and it has adopted a broader approach in trying to address declining birthrates.

To encourage young couples to marry earlier and maximise their child-bearing years, measures have been put in place to reduce the waiting time for Housing Board flats, one of the main reasons cited for delaying marriage.

The Government has also rolled out or bumped up non-tax monetary incentives. These include government-paid maternity leave of eight weeks, paternity leave of one week and childcare leave of two to three days a year depending on the child's age.

There are also baby bonuses of $6,000 per child for the first two births in a family and $8,000 per child subsequently. These were raised last year from $4,000 and $6,000 respectively.

Other perks include infant and childcare subsidies, cash in medical accounts for newborn babies, and financial help with reproductive treatments.

In Budget 2014, it is likely that the Government will continue to focus its efforts on other non-tax measures to make it easier for women to juggle career and children.

Here are some suggestions on what might be the most promising initiatives for mothers:

  • More generous childcare subsidies. Many mothers want more support in taking care of children while they work, especially if they do not have a strong family network.

Good childcare is scarce and often expensive, so further steps to reduce the cost would be beneficial - for example, through provision of higher subsidies for childcare support.

Parents are now entitled to up to $300 a month in childcare subsidies, with additional subsidies introduced last year for households earning $7,500 or less monthly.

Low-income families can get up to $740 in total childcare subsidies. Families in the median income levels - of between $4,501 and $7,500 a month - stand to get a total subsidy of $400.

But with childcare costs averaging $1,000 for full-day childcare, the out-of-pocket expenses for low- to middle-income families are still considerable.

  • Removing the foreign maid levy for maids supporting families with young children. Employers of foreign maids now have to pay $265 a month in levies, or $120 if they qualify for a concessionary rate.

Although working mothers can claim income tax relief worth twice the foreign maid levy, the levy is an additional cost to the family and the tax benefit may not be significant if the mother is paying low or no taxes.

Therefore, removing the foreign maid levy will relieve these families of the additional costs associated with having a domestic helper to care for their children.

  • More maternity leave. A longer maternity leave period - perhaps six months, although not necessarily at full pay - would also help many working mothers.

The Government bumped up maternity leave from 12 weeks to 16 weeks in 2008, offering to foot half the bill for the first two children of each family and the full bill for each subsequent child.

But many working mothers would welcome at least six months to bond with their newborn baby and to have enough time to adjust back to working life.

  • Tax incentives for companies with work arrangements that support mothers. The return to work is often a difficult transition and more support needs to be given to those with ongoing career aspirations after having children.

Just as the Government is giving incentives to companies to boost productivity and to rehire older workers, it can take more steps to encourage companies to support flexi work and facilitate mothers' work arrangements.

For instance, employers could be given tax incentives to introduce these schemes or financial support to increase headcount to facilitate such arrangements.

In the Czech Republic, employers who provide part-time employment to a parent following childbirth will receive a reduction of social insurance payments - the equivalent of Singapore's employer contributions to the Central Provident Fund - every month.

The Government could even go further to consider legislation to protect mothers' jobs, as has been implemented elsewhere.

In Europe, several countries have laws that protect the mothers' jobs during their maternity leave, guaranteeing that they can return to their existing positions or one of a similar level during a defined period, usually for one or two years.

The bottom line is that we do not expect too much in terms of direct tax benefits for working parents in this year's Budget.

But there is plenty of scope for the taxman to get creative to give incentives to companies to make it easier for working mums.

By providing a framework that allows mothers to easily return to work, through flexible working arrangements, cheaper childcare and job security, there is hope in starting the baby boom that the Government has wished for.


The writers are respectively tax partner and director of taxes at Deloitte Singapore.

This article was first published in The Straits Times on Feb 4, 2014