Debate on Annual Budget 2012

Sir, widely acclaimed as the "Budget with a Heart", this year’s Budget delights the three targeted vulnerable groups – the elderly, the disabled and the low-income earners. It honours Government’s promise to ensure that these groups, too, have a part in Singapore’s progress and will not be left behind.

With the exception of Small Medium Enterprises (SMEs) who feel the stress from further tightening of foreign labour inflow, there was much approval and respect for this Budget that takes care of the more vulnerable. So, kudos to Deputy Prime Minister and his team. Sir, I have five observations and five recommendations for Budget 2012.

Observation One. Budget 2012 is a sobering reminder of the inevitable outcomes of Singapore’s efforts to survive in an open global economy. Our survival strategy comes at a price of (a) higher cost of living, and (b) wider income gaps between the highly skilled, the globally mobile wage earners and their lower-skilled fellow citizens. Both consequences – higher costs and growing income gaps - are unlikely to disappear. And Budget 2012 signifies that transfers such as the GST Voucher Scheme are a key way to redistribute incomes and are here to stay. That the GST Voucher Scheme is made a permanent feature of Singapore's social safety net marks the crossing of a psychological chasm, conquering the ruling party’s wariness and reluctance to guarantee payouts that run the risk of an entitlement mentality.

Observation Two. Budget 2012’s comprehensive measures for the elderly also recognise the need for a more aggressive Total Solution to support Singapore’s rapidly ageing population – in employment, healthcare options and costs, retirement financial planning and housing.

Observation Three. Budget 2012 confirms that despite being a country with one of the lowest birth rates in the world, the Government or the Deputy Prime Minister has decided that further financial incentives will not yield more babies and other more effective solutions will have to be deployed.

Observation Four. Budget 2012 underpins a strong belief that for political, social and economic reasons, the increasing dependence on foreign workers is not tenable and the Government will face head-on the resistance of SMEs which form 99% of the total number of enterprises in Singapore; and, last but not least, Budget 2012 has answered the cry from a small segment, about 3% of Singapore’s population – the persons with special needs or more commonly known as persons with disability.

Together with the 41 recommendations from the recently submitted Enabling MasterPlan for the Disabled to Government, Budget 2012 responded to the call from this community to be seen, to be heard and to be treated as valued and equal members of the Singapore family. It provided for greater support to maximise their potential of persons with disabilities at key stages of their lives – at education, employment and adult living.

As a VWO volunteer, as a service provider and a client of the special needs community, I thank the PAP Government.

Sir, I would like to make five recommendations for the Deputy Prime Minister’s consideration to further improve the Budget provisions:

(1) to make Special Employment Credit (SEC) permanent for the elderly and the disabled;

(2) to expand the Special Employment Credit to cover more persons with disabilities (PWDs);

(3) to strengthen Singapore’s progressive personal taxation structure;

(4) to review the defence expenditure as one source to fund the transfers; and

(5) to establish an agency to focus and nurture local Small and Medium Enterprises (SMEs).

Recommendation One. Make Special Employment Credit (SEC) permanent for the elderly and the disabled. Sir, while I am extremely grateful for the SEC for the elderly and disabled, I believe there is merit to consider making this feature of the social safety net permanent. This will go a long way to reflect the value that society places on these vulnerable members; to encourage them to work where they can instead of collecting welfare; and to develop a reliable alternative to the foreign workforce. It will also assure employers that the incentive will be available not just for a short term and incentivise them to employ people who are elderly or disabled.

Recommendation Two. Expand the Special Employment Credit to cover more persons with disabilities (PWDs). The Budget provides for Special Employment Credits only for graduates from VWO-run Special Education (SPED) schools. While I appreciate the confidence that the Government places on these 20 SPED Schools, I wish to remind the Government again that there are many persons with disabilities out there in Singapore who did not attend or graduate from SPED Schools. They are either from mainstream schools, or are home-schooled, they stopped schooling or never been to school. Their potential or current employers should not be deprived of the SEC incentives for employing them.

In fact, just last night, I received various SMS confirmations from many VWOs representing the hearing-impaired, the visually-impaired, the physically disabled, those with muscular dystrophy and autism, and they confirmed there are at least a few hundred of them out there who are not special school graduates. Many of them are able to work if they are provided the training and support and if there are willing employers.

The call for an extension of coverage to include this group of non-SPED graduands is the same call that I made when the Special Needs Savings Scheme was introduced earlier this year which similarly excluded them. I, therefore, ask the Government to expand the Special Employment Credit to cover persons with disabilities who did not graduate from special schools.

Next, Sir, on how the increasing social expenditures are ultimately going to be funded. The hon Member, Mr Vikram Nair, mentioned that. I had spoken earlier that Budget 2012 is a sobering reminder that widening income gaps are here to stay and the Government is acknowledging that the gap has to be addressed through transfers to the lower income group.

I would like to propose two ideas to fund the increasing social service expenditures. One, through personal income taxes payable by higher income wage earners; and, two, through budget reallocation, in particular from defence.

Sir, the Singapore personal taxation system is progressive and levies taxes according to one’s income. Hence, an individual with high income will pay more in taxes than an individual with a lower income. A good progressive tax system ensures income redistribution but, at the same time, also has to ensure that high-income taxpayers are not demotivated from taking on higher paying jobs or, worse, emigrate to more tax-friendly countries.

Although our traditional fiscal strategy is to keep Singapore’s corporate and personal income tax rates low to compete with the likes of Hong Kong, there is merit to consider strengthening the progressive nature of the personal income tax system. The highest income tax rate for anyone earning a taxable income of over S$320,000, today in Singapore, is 20%. This is way below the tax payable rate of 30% to 50% by higher-income earners in countries such as the Nordic countries, Australia, New Zealand, China and the US.

Singapore is reputed to have the highest proportion of millionaires in the world. Perhaps those who are most blessed can be persuaded to bear more responsibility for the society in which they live. I ask the Government to review the personal taxation system and consider having Singapore’s top income earners who have benefited from Singapore’s solid infrastructure, growth policies and public goods to bear some of the responsibility of funding the transfers to the poor and needy in society.

Recommendation Four. Review budget allocation, in particular defence. Another suggestion I would like to propose to help fund future social needs is to review the traditional way the Budget is allocated. Sir, defence traditionally consumes the highest proportion of total Government expenditure each year. This year’s allocation, for instance, represents close to 25% of total budget and even sees an increase of 4.3% from last year – about $12 billion, I believe.

Sir, whilst I know that the security of our small nation-state is critical and defence is not an expenditure to be dispensed with easily, I urge the Government to study the optimal resources Singapore should expend on defence versus other new and pressing social needs. The study should consider the changing nature of warfare the defence team has to wage, from traditional to cyber wars and terrorism; and balance it with the upcoming and costly social needs of a maturing Singapore.

Last recommendation. To establish an agency to focus and nurture local small and medium enterprises. Sir, Budget 2012, whilst popular with many Singaporeans, I understand, received a cool response from some 150,000 SMEs who are concerned with the further restriction on foreign labour inflow. These SMEs employ more than 50% of the workforce in Singapore. And the wellness of this critical group of companies is important to our country.

In a full employment market, many SMEs continue to face difficulties trying to find local employees needed to support their business growth. Besides labour constraints, the key challenges they face are high costs especially in rentals and material costs as a result of higher oil prices, for example.

According to a very positive SME owner I surveyed last night, the leap would require more than the writing of cheques by the Government. Many SMEs aspire to innovate and make the leap from being an SME to a big multinational. Who would not want that? But many of them also know that the Government is very serious about its economic committee strategies and SMEs who do not make the change or the cut will have to exit from Singapore.

However, transformation through productivity and innovation is easier said than done. Not through one-time process re-engineering or one-time grants, but through building a culture of productivity and innovation which, from my experience, takes at least two to three years to build, if well done. Sending employees to training when the organisation is fighting operational fires due to a shortage of workers seems counter-productive. Training that is not reinforced by workplace practices – by the bosses – is also similarly counter-productive.

Despite SPRING’s efforts, many SME owners are still unsure about what grants there are, who to apply to and how to apply for the numerous grants. If the full suite of financial schemes and incentives that the Government is providing does not yield the take-up rate and the desired outcome, then, surely, the root causes have not yet been completely addressed. Sir, unless we address these root causes on the ground, it is likely that the Government’s well-intended schemes will not bear enough fruit and many entrepreneurs will leave the scene.

My recommendations, on behalf of SMEs, are as follows:

(1) In the face of a full-employment labour market and the difficulty of trying to build a culture of productivity and innovation, I urge the Government to be more empathetic to the SMEs in approving Work Pass applications for proven foreign employees who are working in, one, industries which traditionally do not hold certificates or where jobs do not come with certificates; and two, industries in which jobs are not easily filled or shunned by locals such as in cleaning, healthcare, F&B and public housing construction, amongst others. I would also ask the Government to be more empathetic in approving PR and citizenship applications to skilled foreign employees who have served in Singapore for many years and who have raised families in Singapore;

(2) Next, I urge the setting up and staffing of a Special SME Unit with corporate turnaround leaders and experts in various disciplines that can be deployed to nurture and transform high-potential SMEs to play in bigger leagues; and

(3) I also propose the assignment of SME Account Managers to conduct more effective communication and handhold SMEs on the use of available productivity and innovation schemes.

In conclusion, Sir, Budget 2012 is not only a Budget with a heart that targets the three most vulnerable segments of Singapore’s population. It is also a Budget from a head that knows that unless it takes the unpopular step of managing the otherwise unstoppable escalation of the foreign workforce, the DNA of Singapore will change for the worse. But the hands of execution play an important part too. The quality of execution and the readiness to finetune the policies when needed will determine, finally, the Budget’s success. I thank the Deputy Prime Minister and his team and the Prime Minister for this well-crafted Budget. Sir, I support the Budget.