By TEH SHI NINGtshining@sph.com.sg

[SINGAPORE] Moves to se-cure future revenuestreams may be put inplace in the upcoming Budg-et, as public spending riseswith a rapidly ageing popu-lation and the governmentmove towards greater redis-tribution.

Observers expect higherwealth taxes on cars andproperties as well as a wi-der top personal incometax bracket. A hike in theGoods and Services Tax(GST), though unlikely thisyear, is also expected even-tually.

Revisions to the cap onhow much goes into the gov-ernment’s purse from theinvestment returns on theRepublic’s reserves, as wellas the policy of governmentland sales income beinglocked up as reserves, can-not be ruled out either, theysaid.

Fiscal prudence amid ris-ing spending pressures hasprovided fodder for debateafter each Budget in recentyears – particularly afterthe global financial crisisprompted the governmentto seek presidential approv-al in 2009 to draw downpast reserves.

This will be thrown intosharper relief in Budget2014 with the govern-ment’s major commit-ments, such as changes toMediShield, the nationalmedical insurance plan,and a Pioneer GenerationPackage that will help pay

the MediShield premiumsof those who are now intheir late 60s or older.

There are also longer-term public infrastructureand development projectsto finance – a ramp-up inpublic housing, new MRTlines, Changi Airport’s newterminal and the relocationof the port, and possible ex-tensions to measures toboost productivity. But asPrime Minister Lee HsienLoong put it in his NationalDay Rally last August: “Allgood things must be paidfor.”

Economists BT spoke tosay further wealth taxesare most likely, since theyfit in with the goal of amore progressive tax re-gime – a main theme ofBudget 2013.

Last year, higher proper-ty taxes on investment andhigher-end owner-occu-pied homes were intro-duced. These could befine-tuned without shock tothe system, Mizuho Bankeconomist Vishnu Var-athan said.

But as the property mar-ket has begun to cool, UOBeconomist Francis Tan reck-ons policymakers may notwish to exacerbate a slow-down. Car taxes, in theform of further tweaks tothe tiered additional regis-tration fee rolled out lastyear to tax luxury carsmore, seem more likely tohim.

DBS economist IrvinSeah believes a capital-gains tax ought to be consid-ered, but this was one

wealth tax others thoughtless likely. It would be seenas a policy reversal, saidUOB’s Mr Tan, while MrVarathan said the effect ofsuch a move on Singa-pore’s status as a financialand wealth managementcentre would have to beconsidered carefully.

Another way to boostthe taxman’s takings whilemaking the tax regimemore progressive would beto raise the top personal in-come tax rate of 20 percent, or lower the incomethreshold at which that toprate kicks in. The latter ismore likely, as policymak-ers would be wary of the im-pact a higher headline ratemay have on attracting topglobal talent here, Mr Tansaid.

Another strong, thoughnot immediate, candidatefor revenue generation is ahike in the GST. The govern-ment has promised not toraise it before 2016, but itis likely that Singapore willbring its GST of 7 per cent

closer in line with the 10per cent charged in mostcountries, economists said.

“Taken alongsidemeans-based GST rebates,such GST hikes could alsobe less regressive than theywould have been on theirown,” Mr Varathan added.

The contribution fromnet investment returns(NIR) on reserves is anoth-er spending tap. Currently,the government can takeup to 50 per cent of the netinvestment returns on netassets managed by GIC andthe Monetary Authority ofSingapore and up to 50 percent of the investment in-come from remaining as-sets, including those man-aged by Temasek.

Analysts estimate thatthe $7.65 billion figure forFY2012 and the estimated$7.7 bil l ion sum forFY2013 fall far below thecap, last revised in 2008.Therefore, there is roomfor the NIR to rise. But Dep-uty Prime Minister Thar-man Shanmugaratnamsaid last year that the gov-ernment did not rule outfurther revisions to therule.

The use of land sales pro-ceeds as government in-come was ruled out,though. Some analystshave discussed the possibili-ty of changing the frame-work to recognise part of re-ceipts from land sold asleasehold rather than free-hold as recurring revenue.Still, any revisions to theNIRC (NIR contributionrate) or land sales income

“amount more to account-ing than revenue creation”,noted Mr Varathan.

More remote is a hike inthe corporate income taxrate of 17 per cent. “Itwould not only erode thecompetitiveness of Singa-pore as a regional base, butcould be misconstrued asback-peddling on previousrate cuts,” said Mr Var-athan.

This is especially unlike-ly since businesses feel theyare still struggling to raiseproductivity amid risingcosts and a labour crunch.

Mr Seah believes thatapart from seeking freshrevenue streams, efforts tocontain rising cost are need-ed, to slow the anticipatedincrease in social spending.

“With the populationageing very fast in comingyears, healthcare demandswill rise, and healthcarecosts will be a significantdriver of inflation in Singa-pore in the years going for-ward. We can’t continue tojust focus on subsidising

costs. We need to nip theproblem in the bud and ad-dress what is causing thesecost increases,” he said.

Growth will remain key,too. “We should not forgetthe traditional sources ofrevenue: corporate incometax, personal income tax.The way to increase theseis economic growth,” saidMr Seah.

Said Mr Varathan: “Rais-ing productivity is perhapsone of the best ways to dealwith the ageing issues froman increasingly constrained

resource-efficiency point ofview. What’s more, produc-tivity gains help to boostprofits, helping to managea higher cost base.”

“The basic tenet that be-ing competitive need notpreclude being compassion-ate is perhaps a keytake-away that the Budgetcould embody.”

For now, Singapore isfar from worried about aBudget deficit. Bank ofAmerica Merrill Lyncheconomist Chua Hak Bin es-timates that Singapore’s

budget surplus for the fiscalyear ended March 31 maycome in at $6.3 billion, farexceeding the official fore-cast of $2.4 billion a yearago.

Assuming that expendi-ture and net investment re-turns are in line with fore-casts, stronger governmentrevenues – thanks to bet-ter-than-expected GDPgrowth in 2013 and hikesin property-related stampduties – are expected to padup the surplus, Dr Chuasaid.

By LEE U-WENleeuwen@sph.com.sg

[SINGAPORE] The furthertightening of foreign work-er inflows in Singapore lastyear may have resulted insome firms downsizing andothers relocating else-where, but the policy chang-es did produce some posi-tives too.

A new survey has foundthat one in two companieshere said they ended up re-cruiting more locals, whilea similar proportion saidthey sent their workers forupskilling and put in placemeasures to improve theirproductivity.

About a quarter of the1,014 firms polled by theSingapore Business Federa-tion (SBF) for its latest Na-tional Business Survey saidthey invested in automa-tion or upgraded their oper-ations. About 19 per cent ofthem made use of outsourc-ing or shared services in or-der to cope with the re-duced foreign manpower,the survey found.

The government’s ongo-ing effort to moderate thegrowth of the foreign work-er population did forcesome companies to bite thebullet, however.

About 15 per cent ofthem reported downsizingtheir companies in 2013,while 11 per cent said theyended up moving their oper-

ations out of Singapore tocheaper locations.

While this may beviewed as a sign of howsmall and medium-sized en-terprises are struggling tocope with the tighter for-eign labour supply, SBFchief executive Ho Meng Kitprefers to see things from adifferent perspective.

“I wouldn’t be undulyalarmed because this is re-flective of the dynamic na-ture of our economy,” hesaid at a briefing yesterday.

“In any economy, thereshould be some healthy re-structuring. There will besome percentage of peoplewho cannot make it . . . andthey should relocate andfree up resources.”

Many Singapore compa-nies, he added, are activelythinking of moving over-seas in order to boost theircompetitiveness, both local-ly and across the region.

Mr Ho noted how 5 percent of those surveyed bySBF reported already hav-ing a presence in Malay-sia’s booming economicgrowth corridor Iskandar,while 9 per cent were ex-ploring the possibility of in-vesting there.

Meanwhile, in a sepa-rate survey conducted bythe Association of Smalland Medium Enterprises(Asme), nearly 70 per centof SMEs here hope thatnext month’s Budget will in-clude measures to helpthem in hiring Singapore-ans. Asme has called formore incentives to be givento Singaporean employeeswho work for SMEs andmore benefits to be offeredto bring retirees and moth-ers back into the work-force.

Manpower shortage,however, will continue tobe a “substantial chal-

lenge” for SMEs to over-come in the comingmonths.

The association saidthat while Singapore’s econ-omy was almost at full em-ployment, there may exist“pockets of local talents”who are under-employedor could be further trainedto take on more meaningfuljobs. “Overall, businessesare generally optimisticabout the business outlookin the next six months de-spite recognising that thelandscape will remaintough.”

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Moves to boost govt revenues seen as spending rises amid rapidly ageing population

Higher wealth taxesmay be on the cards

See Page 2 forMarkets Digest table

Poll shows morelocals hired, moreworkers ‘upskilled’

Foreign worker crunch: upside unveiled

■ Act quickly to raise productivity, SMEs urged

■ Balancing business and social priorities

■ The subtle messages in the Budget logo

PAGE 4

COMMENTARYRole of trade in poverty reduction PAGE 23

LAND TRANSPORTNew Corolla Altis changes with tastes PAGE 26

COMPANIESLooking for a place to park $63m cash PAGE 10

EXEC MONEYA ‘home bias’ can work against investorsPAGE 32

?

BUDGET 2014

Some positivesReaction to further tightening of foreign worker policies

More local staff employed

Improve staff productivity/upskill staff

Invest in automation/upgrade operations

Outsource/look for shared services

Company has been downsized

Relocate operations

0 10 20 30 40 50 60(%)

50%

50%

25%

19%

15%

11%

Source: Singapore Business Federation

THE BUSINESS TIMESS$1.00 online at http://www.businesstimes.com.sg CO REGN NO 198402868E MCI (P) 085/08/2013 Wednesday, January 15, 2014 ●