Impact of rising costs on firms still unclear

Finance Minister Tharman Shanmugaratnam's Budget debate round-up last week must have been music to the ears of middle-income families wondering if they would be tapped to pay for the higher social spending of a more inclusive society.

But for companies, the restructuring refrain does not make for easy listening: Singapore will not be a cheap place to do business, and they will have to innovate to survive and thrive.

A central message is that Singapore will continue to pursue a fair and equitable system of taxes and benefits, while striving to keep the economy vibrant.

Although spending on health care, infrastructure and public housing is set to rise, and government revenue growth expected to slow,Mr Tharman explained that a key priority is to keep the tax burden on the middle-income low, so they get to keep as much as they earn.

"It is an important objective of our system, and Singaporeans want it to remain that way," he noted.

Another key takeaway is that lower-income households will have reason for cheer: They get significantly more in benefits net of taxes paid now compared with what they received a decade ago, said Mr Tharman.

These households now get $5 in benefits for every dollar of tax they pay, and this "fair and progressive" system will be retained.

But experts say Mr Tharman's round-up speech also sends a signal that tax hikes will still be expected, with the more well-off likely to pay a higher amount down the road.

Many think there is room for wealth-related and asset taxes to grow, with steeper property taxes on high-end homes and widening the income tax rate bands for top earners among the suggestions.

Although economists and tax experts think it is only a matter of time before the goods and services tax is raised, some feel it will not be done before the next general election.

Another hot-button issue raised in the debate was rising business costs, with soaring rents and utilities, increased wages and worker shortages being common grouses.

The significance of this issue was tied in with another pertinent one - the fast-climbing cost of living.

It was striking to see many MPs weighing in with strong words, warning that restructuring and the rising costs it brings could dampen Singapore's global competitiveness, kill jobs and drive many local firms out of business.

Mr Inderjit Singh (Ang Mo Kio GRC) cautioned that the economy could be "hollowed out" if too many companies bail out, while Ms Lee Bee Wah (Nee Soon GRC), Ms Denise Phua (Moulmein-Kallang GRC) and Nominated MP R. Dhinakaran recounted how small and medium-sized enterprises (SMEs) are struggling.

While SME struggles made for difficult listening, it was also encouraging to hear stories of hope, progress and adaptation.

One memorable account was labour chief Lim Swee Say's mention of social enterprise cafe Eighteen Chefs, which invested in a machine to get soft-boiled eggs done just right.

Another was Mr Tharman pointing out that Singapore's SMEs have come a long way, with many more local brands flying the country's flag abroad, such as water treatment company Hyflux, shoe retailer Charles and Keith, and traditional Chinese medicine chain Eu Yan Sang.

Another upbeat message came from Minister of State for Trade and Industry Teo Ser Luck, who said rents for business space are likely to moderate in the medium term as the Government has released a significant amount of land.

All said, one feels it remains to be seen whether businesses can face up to the harsh reality of higher costs.

These issues also remind all that Singapore must continue down its current restructuring path to ensure that its value-add keeps up with its rising costs.

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