Budget Watch: Social spending tweaks likely after slew of big moves

Low-wage workers, senior citizens struggling to get by and households on the bottom rungs of the economic ladder are Singapore's most vulnerable groups.

Budget announcements this past decade have given them a safety net, as the Government places a growing emphasis on keeping economic growth inclusive.

The push to ensure that no one gets left behind has brought forth a slew of benefits for lower- and middle-income Singaporeans, from healthcare and education subsidies, to cash payouts to offset the goods and services tax, in the form of the annual GST voucher.

With several key measures, like the Silver Support Scheme for needy seniors, already in place, observers and MPs interviewed expect only tweaks to social policies when Budget 2017 is unveiled on Feb 20, instead of the drastic shifts seen in previous years.

In fact, UniSIM economist Randolph Tan, who is also a Nominated MP, said it is time to pause and further scrutinise the impact of such schemes, as the steady rise in social expenditure has ignited concerns about their sustainability.

The top five regular transfers to households - including education and healthcare subsidies - added as much as $12.3 billion to the bill in 2015, more than double the expenditure in 2006.

Since then, the Silver Support Scheme, which gives cash to the bottom 20 per cent of Singaporeans aged 65 and older, has started its payouts. The scheme will cost about $320 million in its first year, a sum which is expected to rise.

Existing schemes have been enhanced too. Budget 2016 brought changes to the Workfare Income Supplement scheme that tops up the wages of low-income earners.

After the changes, which include raising the monthly income ceiling from $1,900 to $2,000, the scheme is expected to cost $770 million a year - up from $650 million.

Last month, the Estimates Committee - which scrutinises the Budget each year - urged the Finance Ministry to ensure that Singaporeans will not be burdened with increasing taxes to finance the programmes.

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The ministry assured the committee that it had anticipated rising expenditure needs and taken steps to grow revenue to support them.

For one, Temasek Holdings was included in the Government's net investment returns framework from Budget 2016. Under the framework, the Government can spend up to half of the long-term expected real returns on investments by GIC and the Monetary Authority of Singapore, and now Temasek too.

And in previous Budgets, measures to redistribute income, like raising the tax rates of higher-value residential properties, were introduced.

In Budget 2015, it was announced that the marginal tax rates of the top 5 per cent of earners would go up. The new rates, for taxes to be paid this year, are expected to raise revenue by $400 million a year.

Still, the rate of spending growth outpaces revenue growth, said Mr Liang Eng Hwa, chairman of the Government Parliamentary Committee (GPC) for Finance and Trade. He added that Singapore may need to further widenits tax base over time.

Official figures show that in 2014, the top 20 per cent of households paid 55 per cent of all taxes and received 12 per cent of all benefits.

The Finance Ministry has pledged that the Government will continue to be prudent in its spending and review expenditure and revenue to ensure fiscal stability.

But Prof Tan hopes that greater attention will also be paid to assessing the outcomes of schemes in which public funds are handed out.

The increasing amounts being doled out and the large number of recipients do not bode well for the long-term future of the recipients and the burden on public funds, he said. While it may be necessary to give more, the pool of beneficiaries may not necessarily have to grow.

He said: "Handouts need not be spread too thinly."

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Citing how 840,000 households received $86 million in rebates for service and conservancy charges last year, he said it is time to move away from such broad coverage and divide the total among those who need it the most.

The "deliberate rebalancing to ensure that we remained an inclusive society" started around 2006 to mitigate inequality, Deputy Prime Minister and then Finance Minister Tharman Shanmugaratnam said in 2015.

Inequality in Singapore had risen from the mid-1990s, he noted, adding: "We still had to ensure a competitive economy where incomes could rise, but we paid special attention to ensuring that the low-income and middle-income groups kept up as our economy progressed."

The attention given to social policies in recent Budgets has led Finance and Trade GPC deputy chair Cedric Foo to expect social spending to take a back seat in this Budget.

He hopes to see a focus on boosting Singapore's competitiveness, which he said is particularly crucial amid the geopolitical shifts affecting trade flows, as well as the rapidly changing industry landscape.

"Helping companies and workers navigate this quagmire must be a new priority," Mr Foo said.

He added: "Unless our economy remains competitive and vibrant, we cannot create new and better jobs and cannot fund or sustain our social programmes."

This article was first published on Feb 09, 2017.
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