Singapore Budget to Focus on Infrastructure, Poor
Singapore is expected to use its Feb 17 budget to help its citizens cope with rising costs through grants and one-time payments, but businesses are set to face new measures making it harder to hire cheap foreign workers.
The budget for the fiscal year beginning April 2012 is also expected to include increased spending on the city-state's infrastructure as it struggles to cope with a sharp increase in population over the past five years.
Singapore, a major Asian hub for banks and multinationals, is facing pressure from citizens to tighten immigration and cap the number of foreigners, who now make up a third of the island's 5.2 million people.
Last year, Singapore-based companies employed an extra 79,800 foreigners — mainly from countries such as China and the Philippines — more than double the 36,600 increase in local employment, according to Singapore's Manpower Ministry.
Many Singaporeans blame the influx for overcrowding on roads and trains as well as competition for jobs that has kept real wages for lower-skilled workers stagnant during the past decade.
"Recent budgets have thus sprung more negative surprises on companies, with stricter foreign worker policies, including stricter quotas and increases in foreign worker levies," said Bank of America Merrill Lynch economist Chua Hak Bin.
"Greater attention on Singaporeans and lower-income households means that fiscal surpluses have been largely shared with individuals, and less so with companies, compared to the past," he added.
Singapore enjoys huge surpluses so Finance Minister Tharman Shanmugaratnam is under no pressure to rein in spending.
Chua said Singapore will likely report an overall budget surplus of around S$4 billion ($3.2 billion) for the fiscal year ending March 2011 — or about 1.2 percent of GDP — far higher than the government's initial estimate of about S$100 million.
Citigroup's Kit Wei Zheng said Singapore's overall fiscal surplus would be as high as S$26 billion if the government included as revenue proceeds from land sales as well as interest and dividend income from its investments.
In Singapore, income from government land sales is booked directly into reserves and not reflected as revenue in the annual budgets. Citi estimates Singapore collected nearly S$10 billion in land sales in the 10 months to January 2012.
Singapore's economy contracted by 4.9 percent in October-December on a quarter-on-quarter, seasonally adjusted and annualized basis and Tharman has warned growth will likely be weak in the next two years.
Inflation remains elevated at above 5 percent, however, which means authorities will have to tread carefully to avoid stoking spending.
Prime Minister Lee Hsien Loong has promised his government will improve the train and bus network and build more apartments to house young Singaporeans.
The government, together with subway operator SMRT , recently said it is investing about S$600 million to upgrade its signal system and add trains. Authorities are also spending about S$750 million over the next five years to bolster flood defenses.
Oversea-Chinese Banking Corp , Singapore's No 2 lender, said the government will, as in previous years, supplement the salaries of low-income workers and put more money into retirement accounts.
OCBC said businesses could get rental rebates from government landlords and larger tax breaks and subsidies on training and other moves to boost productivity, which rose by an average of just 1 percent per annum in the decade to 2010.
Singapore suffers from low productivity growth, compared with other developed countries, due in part to past policies that made it easy for firms to recruit cheap workers from abroad rather than invest in training or automation.
Productivity in the retail sector is just one-third that of the United States, according to Singapore government data.
"We expect the budget to continue pushing for this restructuring, with few signs that the government will back away from the direction of reducing foreign worker dependency and easing labor market tightness," Merrill's Chua said.