Singapore’s jubilee budget: What to expect

Singapore
Lonely Planet
Singapore

Singapore's 2015 budget, taking place as the nation turns 50 and during what could potentially be an election year, will be keenly watched by residents hoping for more financial help for middle income households and increases in health care spending.

Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam is scheduled to deliver the budget next Monday at 3:30pm local time.

"Past budgets had focused on the restructuring and reforming of the economy and incentivizing improvements in labor productivity," Francis Tan and Jimmy Koh, economists at UOB Group, wrote in a note. "(This year) we expect a 'geared-to-the-masses' budget that will address the needs of the majority of eligible voters."

Singapore's next election must be held by January 2017, but many expect it to be called at the end of 2015 or early 2016.

Expansionary budget

Surpluses of recent years have given the government room for a more expansionary budget this time around, say economists. As such, the government is likely to target a small budget deficit of around 0.3 percent of gross domestic product (GDP) in FY2015, according to DBS.

Cash handouts and utilities rebates for the low and middle income families and possibly a one-off tax rebate for the higher income earners, are likely on the cards in what DBS has described as a"people's budget."

The government is also likely to improve the flexibility of the mandatory retirement savings scheme known as the Central Provident Fund (CPF).

Some proposals put forward by a panel tasked to review the national savings scheme include enabling CPF members to customize their retirement planning based on different levels of savings and payouts and providing more flexibility in terms of lump-sum withdrawal upon retire­ment.

"The recommendations are expected to be endorsed by the government in the upcoming budget. These changes will be welcomed by most Singaporeans," DBS said.

Currently, members have to set aside 155,000 Singapore dollars ($124,000) in their retirement accounts to receive a monthly payout of about 1,200 Singapore dollars when they turn 65. This amount will be raised to 161,000 Singapore dollars come July 2015.

Spotlight on health care

As part of the government's drive to strengthen the social safety net, improving health care insurance coverage will also be a key thrust of a budget, say analysts.

The government will lay out the first stage funding for Medishield Life – Singapore's new healthcare insurance scheme – which is due to begin at the end of the year, according to Barclays. This is to replace Medishield – a low-cost critical illness medical insurance scheme.

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"Essentially, it will enhance the level of protection against growing medical bills for all citizens and permanent residents – including all pre-existing conditions," Wai Ho Leong, economist at Barclayssaid.

"Beyond universal coverage, Budget 2015 will also fund a tandem expansion of step-down care facilities (nursing homes and community hospitals) and homecare services – to reduce the growing pressure on acute care medical facilities," he said.

Foreign labor curbs

Economists aren't expecting further measures to curb foreign employment, despite several steps taken by the government in recent years to restrict foreign worker inflows in a bid to steer away from a labor-intensive economy towards one more reliant on productivity.

"Since the start of the foreign labor tightening measures from Budget 2010, foreign labor growth has already slowed down substantially to 3 percent yoy [year-on-year] as of June last year, down from around 7 percent yoy back in 2011," said Michael Wan, an economist at Credit Suisse.

Instead, the government will likely expand its current set of productivity initiatives, he said, which currently include the Productivity and Innovation Credit - a subsidy to encourage businesses to invest in productivity-enhancing technology - and the Workfare Training Scheme - aimed at raising skills of the low-waged resident workers - among others.