Primer [budget 2013]
1
ABOUT THE BIG QUIZ L Co-organisers: The Straits Times and the Ministry of Education L Presenting sponsor: Singapore Press Holdings Foundation L Innovation partner: Shell L The run-up to the Big Quiz comprises: 1. A series of 12 primers on current affairs topics 2. Talks given by editors and correspondents of The Straits Times 3. A sponsored segment on students’ say to set questions THE BIG QUIZ CONTEST Four quiz rounds in which teams from participating schools will vie for the top prize: a championship trophy and $5,000 cash L Open to: First year pre-university students and Year 5 Integrated Programme students from 24 participating schools For more information, go to www.straitstimes.com/thebigquiz By AARON LOW ASSISTANT MONEY EDITOR E VERY year, usually in February, Singapore’s Finance Minister presents Parliament with one of the most important economic and political documents of the year: the Bud- get. He also gives a speech to Parlia- ment to explain the Budget. The document is an accounting of the Government’s expenditure, such as building MRT lines or pay- ing civil servants, and revenues, mostly taxes collected from firms and individuals. It is also a means for the na- tion’s leaders to communicate the biggest policies of the day. It is a closely watched event, with the media and analysts scruti- nising every detail of the docu- ment. Many Singaporeans watch it live via various platforms. In other countries, especially in European nations such as Italy, Spain and Portugal, Budgets have taken on much greater signifi- cance as these countries are heavi- ly indebted to foreign investors. They have to adhere to strict rules about how much more they can borrow and what they are sup- posed to spend their funds on. Break a rule and it could mean the collapse of an entire economy, with foreign funds drying up. By contrast, Singaporeans do not have to worry about whether the Government is facing trillions in debt, or preparing to imple- ment tough austerity measures. Instead, the main question on many Singaporeans’ lips is: “What’s in it for me?” ‘Robin Hood’ Budget IN A trend that Europeans can on- ly dream of, the Government has been dishing out tax rebates, cash gifts or Central Provident Fund (CPF) top-ups to citizens almost every year for the past decade. This is because the Gov- ernment has been able to bring in surpluses – where govern- ment revenues and investment income exceed expenditure – on a fairly regular basis. Between 2000 and last year, there were about five years when the Budget was in deficit – mean- ing expenditures exceeded reve- nues. The other seven times, the Government recorded a surplus. In 2011, just before the General Election, the Government record- ed $4 billion in overall surpluses. That same year, the Government gave out $3.2 billion in cash gifts, bonuses and rebates to individuals and families. Called the “Grow and Share” surplus-sharing package, it was one of the largest baskets of “goodies” given out by the Gov- ernment. Annual deficits are funded from the accumulated surpluses over the current term of govern- ment. But by the end of each five-year term of government, the Budget has to be balanced. This year, the Government re- corded operating revenue – which includes personal and company taxes – of $55.2 billion. In addi- tion, investment returns came in at about $7.65 billion. After deducting for expendi- ture, transfers and endowment fund top-ups, the Government logged a very decent surplus of $3.85 billion. Transfers include Goods and Services Tax vouchers, service and conservancy rebates as well as CPF top-ups. But whether a resident has re- ceived anything from the Govern- ment would depend very much on whether he was in the rich seg- ment or the poor segment of the population. If you were in the top 10 per cent of income earners, chances are, you would have got very little from the Government. In fact, the rich are being more heavily taxed, especially if they are in the habit of buying big cars and investing in expensive properties. Higher-end investment proper- ties will attract heftier tax rates. The cost of a big luxury car, such as a Mercedes-Benz, will jump by tens of thousands of dollars. It wasn’t for nothing that some dubbed the Budget this year a “Robin Hood” one. It was a lot more generous to lower-income earners, who have been struggling to raise their wag- es in the past few years. For instance, the Workfare In- come Supplement (WIS), in which the Government gives cash and CPF top-ups to low-wage work- ers, was strengthened. Maximum WIS payouts will rise by between 25 per cent and 50 per cent for workers aged 45 and above. The salary ceiling for those eli- gible for WIS will also be raised to $1,900 from the current $1,700. Other measures will help stu- dents from lower-income fami- lies, starting from pre-schoolers. Among other moves, $72 mil- lion will be pumped into the Op- portunity Fund, which gives schools money to help less well-off pupils have the chance to learn new things. Even when it comes to the cor- porate world, policies announced to transform the economy had a clear social objective. Deputy Prime Minister and Fi- nance Minister Tharman Shanmu- garatnam made this clear when he spoke about the massive three-year Transition Support Package worth $5.3 billion for businesses. The centrepiece is a $3.6 bil- lion Wage Credit Scheme. The Government will co-fund for the next three years the wage in- crease of Singaporean workers earning up to $4,000 in monthly gross wages. This is to help firms struggling with the rising costs of doing busi- ness as well as to nudge bosses to give higher pay increments for low-wage workers. Apart from the redistributive slant of policies, there was also a clear signal that the Government will not flinch from its stated goal of reducing the reliance on for- eign workers. Moves to tighten foreign work- er policies started in 2010 and the Government has continued to rein in the growth of foreign work- er numbers. This year was no exception. But instead of targeting only un- skilled workers, this year the Gov- ernment took aim at the mid-skilled and higher-skilled workers by raising the salary re- quirements for both categories. This was, as DPM Tharman put it, to level the playing field for lo- cals looking to compete with for- eigners for jobs. He also addressed growing con- cerns that the middle class was feeling the squeeze due to higher costs of living. The best way to help them is not by reducing costs but by making sure their incomes continue to grow, even as the Gov- ernment moves to ensure that the overall tax burden on them is low, he said. There will also be a major re- view of health-care financing, with the Government promising to pick up more of the costs of health care, he said. The moves to increase social spending have led some to ask if the Government is tilting to the left to become socialist. But anoth- er question that has been raised is: How will the Government pay for all of this? There is a limit to raising taxes as businesses and wealth earners are mobile and can relocate to low- er-tax regimes. Singapore’s tax base is also shrinking as its popula- tion ages and there are fewer workers. That is the biggest question on the minds of economists such as OCBC economist Selena Ling. “It’s fine to say spend on this and that but how is the Govern- ment going to raise the money to pay for all of this?” she said. “And is there an objective for social policies like Workfare? Are we content at stopping at the cur- rent salary cap of $1,900 or will it be raised higher to, say, $2,500?” Whatever other social policies the Government adopts, it should not and cannot sway from the one guiding principle it has held to all these years: living within one’s means. [email protected] THIS series of 10 questions is brought to you by the National Current Affairs Quiz’s innovation partner Shell and aims to look for the best ideas and solutions to issues today. L This week’s question (part 2 of 10): What is the most important consideration for ensuring public spending remains at a sustainable level? Sum up your thoughts in 200 to 250 words and submit your essay through your teachers this week. The top 10 essays received in response to this question will be uploaded to The Straits Times’ current affairs website Singapolitics from April 15 for public voting. The top three essays with the most votes will each win $200 in vouchers and be reproduced, in full or in part, in print. The overall best essay of the entire series wins $1,000 in vouchers. This competition is open only to Pre-University 1 and Integrated Programme Year 5 students from 24 participating schools. Visit the website www.singapolitics.sg to vote for the responses to last week’s question on environment issues. Thought Leadership Question PRIMER The Budget and what it means for S’poreans This is the second of 12 primers on various current affairs issues, which will be published in the run-up to The Straits Times-Ministry of Education National Current Affairs Quiz. S INGAPORE’S conserva- tive fiscal spending has been lauded as a shining example of prudence, but a quick check online may bring one to data that points to the country having one of the world’s highest debt to gross do- mestic product ratios. For instance, the CIA World Factbook lists Singapore as hav- ing public debt equivalent to 105 per cent of its GDP, the 14th high- est in the world. Why the discrepancy? Singapore’s public debt as list- ed by CIA, and other websites, is gross debt, not net debt. To understand the difference between the two, consider this: Say two men both borrow $1 mil- lion each. The first has no other as- set, so his gross debt and net debt are the same: $1 million. The second man actually has $1 million in his bank account, but took up a $1 million loan for in- vestment purposes. His gross debt is $1 million. But his net debt is zero. So there is a big difference be- tween a man with no money who borrows $1 million to spend, and a man with $1 million in assets, who borrows the same amount to in- vest. Singapore has not borrowed to finance its spending since the 1980s, a critical fact that is often ignored by these statistics. Singapore does issue debt but for very different reasons. One type of debt that is regular- ly issued are the Singapore Gov- ernment Securities, which are is- sued to develop the domestic debt market. The other is the Special Singa- pore Government Securities, bonds issued to the Central Provi- dent Fund (CPF). The bonds is- sued in this case are to pay the CPF interest rates that CPF mem- bers get on their savings. The Finance Ministry says on its website: “All borrowing pro- ceeds are therefore invested. The investment returns are more than sufficient to cover the debt servic- ing costs.” Under the Constitution, the Government cannot spend the monies raised from both sets of se- curities. In fact, Singapore is one of 14 countries which continue to hold the highest AAA rating level from the various credit-rating agencies. Singapore’s Constitution also stipulates that the Budget must be balanced over the term of govern- ment. Any leftover surpluses at the end of the term of government will be locked away as past re- serves. And if there is a need to dip into the past reserves, the President must give his consent. So far, the Government has dipped into the past reserves only once. In 2009, it obtained the President’s approval to draw down $4.9 billion from past re- serves to fund special schemes in the light of Singapore’s worst re- cession since Independence. These included the Jobs Credit Scheme, which subsidised the wages of Singaporeans, and the Special Risk-Sharing Initiative, which helped companies get ac- cess to credit. The actual amount taken out from the reserves amounted to $4 billion. But in 2011, after a strong economic recovery in 2010 boosted tax collections, the Gov- ernment put the money back into the reserves. AARON LOW Singapore has not borrowed to finance its spending since the 1980s, a critical fact that is often ignored in statistics put out by some organisations. ST PHOTO: SAMUEL HE The moves to increase social spending have led some to ask if the Government is tilting to the left to become socialist. But another question that has been raised is: How will the Government pay for all of this? THE SINGAPORE PERSPECTIVE Prudent or heavily in debt? MONDAY, APRIL 8, 2013 O P I N I O N A23
Transcript of Primer [budget 2013]
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ABOUT THE BIG QUIZ
L Co-organisers: The Straits Times and the Ministry of EducationL Presenting sponsor: Singapore Press Holdings FoundationL Innovation partner: ShellL The run-up to the Big Quiz comprises:1. A series of 12 primers on current affairs topics2. Talks given by editors and correspondents of TheStraits Times3. A sponsored segment on students’ say to set questions
THE BIG QUIZ CONTEST
Four quiz rounds in which teams from participating schools willvie for the top prize: a championship trophy and $5,000 cashL Open to: First year pre-university students and Year 5Integrated Programme students from 24 participating schools
For more information, go to www.straitstimes.com/thebigquiz
By AARON LOWASSISTANT MONEY EDITOR
EVERY year, usually inFebruary, Singapore’sFinance Ministerpresents Parliamentwith one of the most
important economic and politicaldocuments of the year: the Bud-get.
He also gives a speech to Parlia-ment to explain the Budget.
The document is an accountingof the Government’s expenditure,such as building MRT lines or pay-ing civil servants, and revenues,mostly taxes collected from firmsand individuals.
It is also a means for the na-tion’s leaders to communicate thebiggest policies of the day.
It is a closely watched event,with the media and analysts scruti-nising every detail of the docu-ment. Many Singaporeans watchit live via various platforms.
In other countries, especially inEuropean nations such as Italy,Spain and Portugal, Budgets havetaken on much greater signifi-cance as these countries are heavi-ly indebted to foreign investors.
They have to adhere to strictrules about how much more theycan borrow and what they are sup-posed to spend their funds on.Break a rule and it could mean thecollapse of an entire economy,with foreign funds drying up.
By contrast, Singaporeans donot have to worry about whetherthe Government is facing trillionsin debt, or preparing to imple-ment tough austerity measures.
Instead, the main question onmany Singaporeans’ lips is:“What’s in it for me?”
‘Robin Hood’ Budget
IN A trend that Europeans can on-ly dream of, the Government has
been dishing out tax rebates,cash gifts or Central ProvidentFund (CPF) top-ups to citizensalmost every year for the pastdecade. This is because the Gov-ernment has been able to bringin surpluses – where govern-ment revenues and investmentincome exceed expenditure –on a fairly regular basis.
Between 2000 and last year,there were about five years whenthe Budget was in deficit – mean-ing expenditures exceeded reve-nues. The other seven times, theGovernment recorded a surplus.
In 2011, just before the GeneralElection, the Government record-ed $4 billion in overall surpluses.That same year, the Governmentgave out $3.2 billion in cash gifts,bonuses and rebates to individualsand families.
Called the “Grow and Share”surplus-sharing package, it wasone of the largest baskets of“goodies” given out by the Gov-ernment.
Annual deficits are fundedfrom the accumulated surplusesover the current term of govern-ment. But by the end of eachfive-year term of government, theBudget has to be balanced.
This year, the Government re-corded operating revenue – whichincludes personal and companytaxes – of $55.2 billion. In addi-tion, investment returns came inat about $7.65 billion.
After deducting for expendi-ture, transfers and endowmentfund top-ups, the Governmentlogged a very decent surplus of$3.85 billion.
Transfers include Goods andServices Tax vouchers, serviceand conservancy rebates as wellas CPF top-ups.
But whether a resident has re-ceived anything from the Govern-ment would depend very much onwhether he was in the rich seg-ment or the poor segment of thepopulation.
If you were in the top 10 percent of income earners, chancesare, you would have got very littlefrom the Government. In fact, therich are being more heavily taxed,
especially if they are in the habitof buying big cars and investing inexpensive properties.
Higher-end investment proper-ties will attract heftier tax rates.The cost of a big luxury car, suchas a Mercedes-Benz, will jump bytens of thousands of dollars.
It wasn’t for nothing that somedubbed the Budget this year a“Robin Hood” one.
It was a lot more generous to
lower-income earners, who havebeen struggling to raise their wag-es in the past few years.
For instance, the Workfare In-come Supplement (WIS), in whichthe Government gives cash andCPF top-ups to low-wage work-ers, was strengthened.
Maximum WIS payouts willrise by between 25 per cent and 50per cent for workers aged 45 andabove.
The salary ceiling for those eli-gible for WIS will also be raisedto $1,900 from the current$1,700.
Other measures will help stu-dents from lower-income fami-lies, starting from pre-schoolers.
Among other moves, $72 mil-lion will be pumped into the Op-portunity Fund, which givesschools money to help lesswell-off pupils have the chance tolearn new things.
Even when it comes to the cor-porate world, policies announcedto transform the economy had aclear social objective.
Deputy Prime Minister and Fi-nance Minister Tharman Shanmu-garatnam made this clear whenhe spoke about the massivethree-year Transition SupportPackage worth $5.3 billion forbusinesses.
The centrepiece is a $3.6 bil-lion Wage Credit Scheme. TheGovernment will co-fund for thenext three years the wage in-crease of Singaporean workersearning up to $4,000 in monthlygross wages.
This is to help firms strugglingwith the rising costs of doing busi-ness as well as to nudge bosses togive higher pay increments forlow-wage workers.
Apart from the redistributiveslant of policies, there was also aclear signal that the Governmentwill not flinch from its stated goalof reducing the reliance on for-eign workers.
Moves to tighten foreign work-er policies started in 2010 and theGovernment has continued torein in the growth of foreign work-er numbers.
This year was no exception.But instead of targeting only un-skilled workers, this year the Gov-ernment took aim at themid-skilled and higher-skilledworkers by raising the salary re-
quirements for both categories.This was, as DPM Tharman put
it, to level the playing field for lo-cals looking to compete with for-eigners for jobs.
He also addressed growing con-cerns that the middle class wasfeeling the squeeze due to highercosts of living. The best way tohelp them is not by reducing costsbut by making sure their incomescontinue to grow, even as the Gov-ernment moves to ensure that theoverall tax burden on them is low,he said.
There will also be a major re-view of health-care financing,with the Government promisingto pick up more of the costs ofhealth care, he said.
The moves to increase socialspending have led some to ask ifthe Government is tilting to theleft to become socialist. But anoth-er question that has been raisedis: How will the Government payfor all of this?
There is a limit to raising taxesas businesses and wealth earnersare mobile and can relocate to low-er-tax regimes. Singapore’s taxbase is also shrinking as its popula-tion ages and there are fewerworkers.
That is the biggest question onthe minds of economists such asOCBC economist Selena Ling.
“It’s fine to say spend on thisand that but how is the Govern-ment going to raise the money topay for all of this?” she said.
“And is there an objective forsocial policies like Workfare? Arewe content at stopping at the cur-rent salary cap of $1,900 or will itbe raised higher to, say, $2,500?”
Whatever other social policiesthe Government adopts, it shouldnot and cannot sway from the oneguiding principle it has held to allthese years: living within one’smeans.
THIS series of 10 questionsis brought to you by theNational Current AffairsQuiz’s innovation partnerShell and aims to look forthe best ideas and solutionsto issues today.L This week’s question(part 2 of 10): What is themost importantconsideration for ensuringpublic spending remains at asustainable level?Sum up your thoughts in200 to 250 words andsubmit your essay throughyour teachers this week.
The top 10 essaysreceived in response to thisquestion will be uploaded toThe Straits Times’ currentaffairs website Singapoliticsfrom April 15 for publicvoting.
The top three essayswith the most votes willeach win $200 in vouchersand be reproduced, in fullor in part, in print.
The overall best essay ofthe entire series wins$1,000 in vouchers.
This competition isopen only to Pre-University1 and IntegratedProgramme Year 5 studentsfrom 24 participatingschools.
Visit the websitewww.singapolitics.sg tovote for the responses tolast week’s question onenvironment issues.
ThoughtLeadershipQuestion
PRIMER
The Budgetand what itmeans forS’poreans
This is the second of 12 primers on various current affairs issues, which will be published in the run-upto The Straits Times-Ministry of Education National Current Affairs Quiz.
SINGAPORE’S conserva-tive fiscal spending hasbeen lauded as a shiningexample of prudence,but a quick check online
may bring one to data that pointsto the country having one of theworld’s highest debt to gross do-mestic product ratios.
For instance, the CIA WorldFactbook lists Singapore as hav-ing public debt equivalent to 105per cent of its GDP, the 14th high-est in the world.
Why the discrepancy?Singapore’s public debt as list-
ed by CIA, and other websites, isgross debt, not net debt.
To understand the differencebetween the two, consider this:Say two men both borrow $1 mil-lion each. The first has no other as-set, so his gross debt and net debtare the same: $1 million.
The second man actually has $1million in his bank account, buttook up a $1 million loan for in-vestment purposes.
His gross debt is $1 million. Buthis net debt is zero.
So there is a big difference be-tween a man with no money whoborrows $1 million to spend, and aman with $1 million in assets, whoborrows the same amount to in-vest.
Singapore has not borrowed tofinance its spending since the1980s, a critical fact that is oftenignored by these statistics.
Singapore does issue debt but
for very different reasons.One type of debt that is regular-
ly issued are the Singapore Gov-ernment Securities, which are is-sued to develop the domestic debtmarket.
The other is the Special Singa-pore Government Securities,bonds issued to the Central Provi-dent Fund (CPF). The bonds is-sued in this case are to pay theCPF interest rates that CPF mem-bers get on their savings.
The Finance Ministry says onits website: “All borrowing pro-ceeds are therefore invested. Theinvestment returns are more than
sufficient to cover the debt servic-ing costs.”
Under the Constitution, theGovernment cannot spend themonies raised from both sets of se-curities. In fact, Singapore is oneof 14 countries which continue tohold the highest AAA rating levelfrom the various credit-ratingagencies.
Singapore’s Constitution alsostipulates that the Budget must bebalanced over the term of govern-ment. Any leftover surpluses atthe end of the term of governmentwill be locked away as past re-serves. And if there is a need to
dip into the past reserves, thePresident must give his consent.
So far, the Government hasdipped into the past reserves onlyonce. In 2009, it obtained thePresident’s approval to drawdown $4.9 billion from past re-serves to fund special schemes inthe light of Singapore’s worst re-cession since Independence.
These included the Jobs CreditScheme, which subsidised thewages of Singaporeans, and theSpecial Risk-Sharing Initiative,which helped companies get ac-cess to credit.
The actual amount taken outfrom the reserves amounted to $4billion. But in 2011, after a strongeconomic recovery in 2010boosted tax collections, the Gov-ernment put the money back intothe reserves.AARON LOW
Singapore has not borrowed to finance its spending since the 1980s, a critical fact that is often ignored in statistics put out by some organisations. ST PHOTO: SAMUEL HE
Themovestoincreasesocialspendinghave ledsome to ask ifthe Governmentis tilting to theleft to becomesocialist. Butanother questionthat has beenraised is:How will theGovernment payfor all of this?
THE SINGAPORE PERSPECTIVE
Prudent or heavily in debt?
M O N D A Y , A P R I L 8 , 2 0 1 3 OOPPIINNIIOONN A23
