Singapore’s 2015 Budget Reflects Far-Reaching Social Changes

By Nigel Cory

Singapore’s Deputy Prime Minister and Minister for Finance Tharman Shanmugaratnam unveiled Singapore’s 2015 budget on February 24. Source: International Monetary Fund’s flickr photostream, used under a creative commons license.

Deputy Prime Minister and Minister for Finance Tharman Shanmugaratnam unveiled Singapore’s 2015 budget on February 24. Source: International Monetary Fund’s flickr photostream, used under a creative commons license.

Singapore’s just-released 2015 budget reflects the transformation underway in every aspect of the city state: society, politics, and the economy. In recent years, the effects of rising costs of living have turned social policies into a major area of concern for the Singapore government, which has long stressed the need to continue improving infrastructure, competitiveness, and innovation.

The centerpiece of the budget is a Robin Hood-like approach that raises tax rates on the rich to help pay cost-of-living allowances for low-income elderly people over the age of 65. Singapore will raise its top marginal tax rate for the first time in 30 years by increasing it to 22 percent from currently 20 percent for people earning over S$320,000, or roughly $256,000.

Another increasingly sensitive issue that resulted from the increase in costs of living is retirement, especially since many Singaporeans have come to see the state-run pension system as inadequate. In fact, care for the elderly has the potential to become a serious political issue for the long governing People’s Action Party (PAP) given the number of people over 65 is forecast to triple by 2030. A 2,000-strong protest against problems in the state-run pension system in June 2014, a large demonstration of public dissent in tightly-controlled Singapore, was interpreted as a strong message to the PAP.

As it redirects funding to social issues, the government still aims to keep Singapore atop global competitiveness rankings with new initiatives and policy reforms in education, training, and infrastructure. The budget sets aside roughly $730 million for Singapore’s National Research Fund to help encourage innovation among small and medium-sized enterprises and an extra $290 million for SkillsFuture, a program that helps Singaporeans identify their professional interests from an early age and pay for continuing education throughout their lives.

Singapore’s status as a world-class transport and logistics hub also gets a boost with an infrastructure budget that is forecast to increase by 50 percent to $22 billion by 2020. Of this amount, over $2 billion will go toward a new terminal at the acclaimed Changi International Airport, and over $17 billion will be spent to upgrade and extend Singapore’s metro rail network.

The government reiterated its commitment to restructuring Singapore’s economy away from a reliance on low-cost foreign labor. Some in Singapore increasingly see the influx of foreign workers from less developed countries, who are usually employed in labor-intensive sectors such as services and construction, as a source of ethnic tensions, and blame them for taking jobs from ordinary Singaporeans and rising income inequality. Singapore has been gradually tightening the supply and cost of foreign labor since 2010, but the resulting labor shortage and rise in labor costs have hit parts of Singapore’s manufacturing sector hard and led to some firms relocating, including across the border to Malaysia’s Iskandar special economic zone. The targeting of foreign workers also serves a political purpose following a number of incidents involving foreign workers, such as the large outbreak of violence in Singapore’s Little India district in December 2013.

Singapore’s defense budget, which tends to not receive much attention, has increased by 5.7 percent to almost $9.5 billion. Singapore has a history of providing few details on defense priorities or major purchases, and the 2015 budget was no different. But there have been reports that Singapore plans to expand its fleet of U.S.-made F-15 fighter jets. Growing tensions in the South China Sea does concern Singapore policy makers since the city state sits on the strategic Malacca Strait, despite the fact it is not a claimant in the various maritime disputes.

A factor working in Singapore’s favor is the fiscal space it has to increase spending in both new and traditional areas. The government was able to cover the almost $5 billion increase in the budget, or 1.7 percent of gross domestic product, by tapping Singapore’s fiscal reserves and state-owned investment firm Temasek, which contributes over $2 billion to government budget annually.

There have been talks that the PAP may decide to hold the next general elections in late 2015 or early 2016, ahead of the previously planned January 2017 timeline. Against this backdrop, a budget that focuses on often times thorny social issues is important in calming public discontent and is perhaps the PAP’s best defense against the political opposition, which has had some successes in recent elections.

Mr. Nigel Cory is a researcher with the Sumitro Chair for Southeast Asia Studies at CSIS. He previously served as an Australian diplomat in Malaysia and the Philippines.

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1 comment for “Singapore’s 2015 Budget Reflects Far-Reaching Social Changes

  1. K F
    March 11, 2015 at 03:38

    The 2pc tax increase applies to earnings above S$320,000 a year, not $118,000.

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