Relief measures

Singaporean households would also feel supported about other relief measures in this year's Budget. Other than enhancing the rebates on conservancy and rental charges, the GST credits provided to defray the higher cost of living will be doubled this year, and the additional GST credits will be paid on March 1 (instead of the usual July payment date) so that it will benefit families immediately. Additional measures were also targeted at less privileged groups and pensioners while tax deductions for 2009 donations to Institutions of Public Character and other approved institutions will be enhanced from 200 per cent to 250 per cent, which in turn will hopefully prevent a significant deterioration of donation flows in a recession year.

Likewise, first-time home owners will receive additional help from the government to ensure public housing remains affordable. Financial assistance to students will also be enhanced significantly (by some 60 per cent) over the next five years, providing for not just the education needs of individuals but also to improve the effectiveness of Singapore future workforce. The public sector's expected increase in hiring by 18,000 positions will be very welcome. Longer-term measures have also not been forgotten as the government will be spending $1.6 billion (and about the same amount over the next three years) to support marriage and parenthood. Investment will also be made in healthcare and education.

One of the biggest surprises to us in this Budget was the cut in headline corporate tax rate to 17 per cent from 18 per cent although personal income tax rates stayed unchanged. I had expected both the corporate and personal income tax rates to remain unchanged because it would seem too hopeful to expect further cuts in personal and corporate income taxes without a commensurate increase in other taxes to compensate for the lost revenue.

Nonetheless, the Singapore government has always run a prudent fiscal policy, and I expect more GST rate increases in the future when the economy fully recovers to make up for the corporate tax cuts we see now and the potential personal income tax rate cuts in the future. We still see the GST being increased from the current 7 per cent to 10 per cent by 2012 as the expected increase in tourism activity in the future will broaden the domestic consumption base, making indirect taxation a more significant contributor to government revenue. And while personal income tax rates remaining unchanged may be disappointing for some, the government did provide the middle-income group some relief with a 20 per cent income tax rebate (subject to a cap of $2,000), a similar measure that was included in the FY2008 Budget.

Helping the property market is always tricky for the government, and may sometimes have the unintended effect of magnifying the boom-and-bust cycles. However, property developers have been hit by a sales slowdown that could extend well into 2009, on top of having paid top dollar in 2006-07 to acquire land for residential projects whose value has since declined.

In addition, Singapore's Urban Redevelopment Authority (URA) said recently there were 10,450 uncompleted private homes purchased under the country's deferred payment scheme, and slightly more than 40 per cent of these homes are scheduled for completion next year.