The Bridging Budget

Budget Day is probably one of the most significant days in the political calendar for most countries in the Commonwealth. It’s a time when even the most politically apathetic citizen becomes glued to the media watching events in parliament. Why? This is the one day in the political calendar when you get to find out how your personal finances might be affected by the government. The Finance Minister (Chancellor of the Exchequer in the UK) gives a report on national finances and you get find out who ends up paying more or less taxes and who gets what subsidy.

Singapore’s Budget has just been announced. The Finance Minister, Mr Tharman Shanmugaratnam , a highly regarded economist (high enough for the IMF to make him chairman of the   International Monetary and Financial Committee), delivered a two-hour speech outlining the state of government finances and how he was going to manage the finances for everyone’s benefit.

What was particularly striking about this year’s budget was the fact that it seemed so obviously aimed at political issues. Generally speaking, politics in Singapore is a very technocratic affair. Election results are obvious and politicians, to use a PAP phrase, have been focused on doing “What’s right instead of what’s popular?” It’s argued that Ministers can afford to take the “long-term” view and things like immediate voter emotions are of very little concern.

Well, if this budget was anything to go by, things have changed. Mr Tharman’s budget was directly aimed at addressing “hot-button” political issues. Issues like the supply of foreign workers and growing income inequality were addressed in the budget.

Most strikingly was the announcement that he was going to raise property taxes on “investment” property – that is the property that only the mega-rich can afford. While the tax itself is not high or at least high enough to make the mega-rich squeal, the very announcement that he was going to tax “wealth” rather than “income” and that it was “fair” was earth shattering.

 The Singapore Government has taken great pains to send out the “right” message to the super-rich. We've spent the last decade selling ourselves as a place that welcomes the super-rich and a place that’s immune from populist measures of wanting to tax the rich out of existence. Singapore takes pride in welcoming billionaires from around the world. The Singapore Government is very tax friendly (I've never had a tax bill of more than $800 a year on an income of a shade over $40 grand and I have the whole year to settle my tax bill). Not only does it sell itself to the rich, the government also makes it a point to tell the population that being a playground for the rich is exceedingly beneficial.

So, its earth shattering for a Singapore Finance Minister to talk passionately and firmly about raising a tax on wealth and arguing that it’s the fair thing to do. He even went as far as to say that this was not something that could be avoided with efficient tax planning.

So, why is Mr Tharman going down this road? Well, the answer is politics. Talk to enough Singaporeans (I’m included) and most of us will inevitably tell you that we find that the cost of living is becoming ridiculously expensive. The public sentiment is such it believes that the government is rolling out the red carpet for the superrich and the expense of the ordinary wage earner.

It’s clear that Mr Tharman has read the ground well and he’s doing the politically astute thing by making a visible effort to do something about the ‘concerns of the people.’ He’s even defied various pressure groups – namely businesses or employers. The “foreign worker levy” is being raised significantly. This is something businesses are against. However, instead of caving into the demands of employers, the finance minister of the world’s most employer friendly country has proceeded to carry on his course.

All this sounds very good to me as an ordinary pleb. I don’t think I’m going to be able to afford a house in Singapore anytime soon. However, I am assured of the fact that my restaurant worker persona is going to stay employed for quite some time. Suddenly, a job that has traditionally been shunned by people with any sense (low wages and long hours) is going to look a bit more attractive.

While I am happy with Mr Tharman’s efforts and gestures, I wonder who is going to ultimately benefit. Will things actually turn out for the better?

I take the newly announced “Wage Credit Scheme.” This is a scheme that is meant to encourage employers to raise wages, particularly of the lower income group. The idea behind it is deceptively simple. If an employer raises a monthly wage, the government will pick up 40 percent of the tab. So if an employer raises a wage by S$200 a month, the government will give that employer S$80 a month for the next three-years. (http://www.singaporebudget.gov.sg/budget_2013/pc.html)

While this should provide an incentive for employers and employee’s to become more ‘productive’ on paper, the question remains, is it enough to work on the ground.

Let’s take the issue of the “jobs credit” scheme, which was announced in the 2009 budget. The idea behind this scheme was to encourage companies to keep jobs instead of outsourcing them or sacking workers. The scheme involved providing a 12% cash grant on the first $2,500 of each month’s wages for each employee on the CPF payroll (http://www.mof.gov.sg/budget_2009/key_initiatives/jobs.html)

Well, I don’t doubt that some jobs were saved. However, there were companies that simply didn’t know how to work the scheme. Take the SMRT Corporation as an example. Back in November, 2012, the SMRT Corporation got a nasty slap in the face when 100 of its bus drivers from China went on strike to protest against low pay.

The drivers were duly arrested and the system went into over drive about how the drivers had disrupted our social harmony and so on.

However, the online media decided to talk about the low wages that the SMRT Corporation was paying the bus drivers. The question of why can’t give equal pay for equal work was raised (An issue which the trade union leader promptly described as being “more complicated than that). Then the more crucial question of why we needed to hire bus drivers from China and elsewhere instead of hiring Singaporeans was raised.

The SMRT Corporation proceeded to talk about the high cost of hiring Singaporeans or the fact that Singaporeans were not interested in the wages that were being offered. The corporation also went onto talk about how it was losing money on its bus services, thanks to high wages and diesel prices.

This was an interesting claim to make. The SMRT Corporation has a virtual monopoly on a service that everyone has to use.  The company controls valuable real estate and has vast sources of income. How can it have insufficient funds to pay Singaporeans half way decent wages?

More interestingly, the SMRT Corporation has been a happy recipient of “jobs credit” vouchers.  If you look through the summary reports of their financial performance from 2009 – 2011, you’ll see that the company received this grant from the government. In the 2011 report, it even goes as far as to state that it’s wage cost went up because of “lower jobs credit.”  (http://smrt.com.sg/Portals/0/PDFs/About%20SMRT/Investor%20Relations/Annual%20Report/2011_SR.pdf)

So, here’s an interesting question. What happened to all that “jobs credit” grant? Not only does the corporation make monopoly providers profits, it also receives a subsidy from the tax payer.  That subsidy is given on the understanding that the company will not sack people and keep Singaporeans in a job.

So, how is it that the company has no money to hire more Singaporeans, particularly those at the lower end of the social ladder?

The government has come up with another scheme to help businesses improve productivity and get working. One has to question whether some of our biggest government owned companies will keep in line with the government’s objectives.