Less pain for more gain [
This year’s Budget, with its focus on encouraging quality growth and building an inclusive society, reinforces the government’s commitment to economic restructuring, writes Shanker Iyer
Singapore’s Minister for Finance delivered his Budget before Parliament on 25 February. Given the increasing public outcry in recent weeks on the relatively high number of foreign workers in Singapore at all levels and the resulting impact on job opportunities for Singapore citizens, it was inevitable that this year’s Budget would be strong on political content with less emphasis on technical tax measures. The minister did not disappoint! In his speech, the minister noted that Singapore ‘is no longer a developing economy, but we have not achieved the level of productivity and income of an advanced economy’. The Budget aims to close this gap by achieving quality growth and an inclusive society. To this end, the minister proposed a Quality Growth Programme comprising: (a) further tightening of foreign worker policies; (b) a three-year-transition support package; (c) strengthening of productivity incentives; and (d) capabilities for new-growth industries. First, the levies for hiring foreign manpower will be increased. These hikes are largest for sectors with ‘weak productivity growth and heavy foreign workers reliance’ – such as the construction and process sectors. At the same time, Dependency Ratio Ceilings (DRCs) will be reduced from 1 July for the manufacturing and services industries, which take a cut of 5% each. The S-pass holders (sub-DRC) also see a cut of 5%. It is also proposed that the qualifying salary criteria for S-pass holders be raised to S$2,200 and the criteria for experienced S-Pass holders and Q1 Employment Pass holders further tightened. The Singapore business community supports the government’s productivity drive, but there is concern that changes to foreign worker policies are being
made too quickly. This could result in many small businesses being forced to leave Singapore or even close down. The government is, however, determined to press ahead with its strategy. The three-year-transition support package has been better received by businesses. The package comprises the Wage Credit Scheme (WCS), the Productivity and Innovation Credit (PIC) bonus, and the Corporate Income Tax (CIT) rebate. The WCS will seek to co-fund 40% of the cost of wage increases granted to Singapore citizens earning up to S$4,000 monthly, hence mitigating the impact of restrictions on businesses and promoting their growth for citizen employment. The PIC bonus, meanwhile, aims to bolster the productivity levels in the SME sector, and thus make Singapore more competitive at the global level. The PIC has also been liberalised for automation equipment and intellectual property in-licensing, so as to provide cost benefits to the SME sector. The CIT in particular has been welcomed without any question by the business community – the 30% tax rebate, albeit capped. This, as announced by the minister, is specifically to ease the burden that businesses face of increasing manpower and rental costs.
In addition, the Budget proposes to introduce a Land Productivity Grant to support companies that intensify their use of land in Singapore by relocating some of their operations offshore, including to the immediate region. Finally, as part of its inclusive-society strategy, the government proposed significant progressive rises in taxes for high-end properties and luxury cars, as well as a wide range of measures to help the less well off in society. The minister has proposed: first, to increase the property tax rates for high-end residential properties, with the largest hikes applying to investment properties that are not occupied by the owners; and second, to remove the current concession, which provides a tax refund on vacant properties, and streamline the tax treatment of vacant properties. On an overall basis, the Budget appears to be a balanced approach. It takes a neutral fiscal stance with a modest surplus of S$0.3bn for the financial year 2014, representing 0.1% of the country’s GDP. It also reiterates the government’s stance to drive the country ahead with economic restructuring, while balancing the need to keep in mind domestic social requirements and sentiments. I am sure there will be more debate going on as to whether or not this Budget will benefit all Singaporeans. I will certainly follow the coming discussion with much interest. Shanker Iyer FCCA is a member, Local Executive Committee, ACCA Singapore branch, and chairman of The Iyer Practice