Sunday, March 23, 2014

Budget 2014: A Popular One (16th March 2014)

Our Singapore Happenings
16th March 2014

Budget 2014: A Popular One

                The Budget 2014 was a popular one amongst Singaporeans, no doubts about it. Despite the many areas of focus, the Pioneer Generation Package is the cornerstone of this year’s budget. I will discuss the various aspects of the Budget by section, first by examining the micro then the macro aspects of it.

The Pioneer Generation Package
               The Package is the cornerstone of this year’s budget with over 450,000 pioneer generation Singaporeans benefitting from it. The government has set aside $9billion, with interest taken into consideration, for the package. The amount was taken entirely from this year’s budget .On a micro level, the package made sense since healthcare would be the main concern of these pioneer generation Singaporeans; and the package is focused on covering all aspect of healthcare for them. The main concern I have about the package is the possible cliff-hanger effect it creates with the eligibility factor of the package. Singapore citizens have to meet two criteria to be eligible: a. Aged 16 and above in 1965 (born on or before 31 December 1949), which also means they are aged 65 and above in 2014; and b. Obtained citizenship on or before 31 December 1986. This creates a very sudden break-off and a stark difference in benefits for someone born in 1949 and someone born in 1950. A more gradual decrease in benefits according to age qualifications could have been done. The other concern I have is the nature of the package, the package focused on the users of medical services – the demand. With Specialists Out-Patient Clinics (SOC) treatments being subsided up to 85% for the most need, it would cause SOCs to be overwhelmed with patients. Singaporeans under the scheme may now find SOCs a much better choice as compared to GP clinics given its attractive price and the mindset that a specialist provides better treatment than GP clinics. More could have been done to address the supply of these SOCs in the form of grants for specialize care to ensure that supplies can meet demands in the future. An overload on the system will only cause waiting time at these SOCs to lengthen; lengthening the wait for those who need the specialize attention.  

                  This package is more than a monetary hand-out to citizens, the message behind it is that the government values the hard work of these pioneer generation Singaporeans and that it is only right for us, as a nation, to honor their contributions. It is a popular policy, not a populist one. The difference between the two is in its intention; is it meant to please or is it the right thing to do? I believe it is the latter. Some may argue that this is a vote-buying package to secure the votes of the pioneer generation in the coming General Elections.  I beg to differ; the money for the package is guarantee by the government regardless of the government in power after the next GE. Thus, it cannot be used as a “carrot-stick” to persuade voters to vote the ruling party back to power. Timing wise, if it is meant to be a vote-buying package, it is way too early. Come the next election, the effect of the Pioneer Generation package would have already sinked in.  

                 In addition, The Pioneer Generation package also demonstrates the financial capability and prudence of Singapore.  In a time where countries grapple with financial difficulties and economic slow-downs, the fact that Singapore can set aside such a huge amount of money to honor its pioneer generation speaks volume of the countries’ economic foresight and prowess.

                 Some may argue that this handout may set the precedent of Singaporeans wanting “more, more”. It is true that the package is generous and may be seen as a left-ward shift in the government’s policies. However I personally feel that this package was created with commemoratory purpose. It is meant to appreciate the efforts of these seniors and dispel the perception that “you can die but cannot afford to fall ill in Singapore”. It is important to note that this is a one-off package as well.

CPF Contribution Rate Change
                 Another key change would be the increase in CPF contribution rates with employers increasing their contributions by 1 percent for all workers. In addition, contributions will be further increased for older workers with an addition 1.5% (1% from employer, 0.5% from employee) for workers aged 50 to 55 and 0.5% (from employer) for those aged 55 to 65. My only concern/question is: Why did contributions decrease for those between 55 to 65 as compared to those between 50 to 55?  Shouldn’t contributions increase as age increase since the probability of falling ill increases with age? Could it be move to encourage companies to rehire older workers and help these older workers find reemployment into the work force?

                 But in principle, this move is a right one. The government is sending a simple reminder to firms that they have an active role and responsibility to their employees’ welfare and health. With this added 1%, it would mean higher production cost for companies, but I believe it is still bearable and will not be a big financial burden for employers. Traditionally, employees are seen as individuals that help the companies reach its productivity and financial goals. However, companies now have social corporal obligation to care for the social and health welfare of their employees. It is basic corporal social responsibility and it starts with their employees.

 Education Subsidies Policy
                Pre-school education is a big focus of the budget with Singaporeans with household income less than $3000 paying only $3 as compared to $48 and those earning $4800 paying only $85 as compared to $135. Bursaries will also be given to tertiary students and will cover 2/3 of all Singaporean households.

                The above measures ensure that social mobility continues to be possible in Singapore. If you observe, the above two measures targets two key stages of education – the beginning and the ending. The government recognizes that a head-start during pre-school is important for the future academic development of the student and thus wants to make it accessible to all. Similarly for tertiary education, the bursaries serve as an incentive for Singaporeans to continue their studies. This removes all forms of monetary barrier that Singaporeans may have about furthering their studies. These policies will be effective in leveling the playing field to some extent. However, we must note that students from more fortunate backgrounds will inevitably gain an extra edge in the form of external tuitions or better education resources available to them. If we really want to level the playing field and help students from less fortunate backgrounds succeed, more must be done on a local level, not so much from a policy level. Grassroots initiatives such as after-school tutoring programmes conducted by volunteers or vouchers for educational resources can come into play.

Business Transformation
                Many new schemes were announced aiming to boost productivity of firms in Singapore, this comes as no surprise after Singapore’s labour productivity growth was 0% in 2013. The new schemes are innovation and ICT solutions focused, incentivizing companies to reinvent and work creatively to boost productivity. These will definitely be a booster for Singapore-based companies. It might be helpful for the government to facilitate the learning of best practices from similar industries abroad, for example technological companies in Silicon Valley. This would fast-track local SMEs to adopt these best practices and boost productivity.
              The scheme aids companies/SMEs who are already established, however none of the schemes were aimed at aiding starts-up take-off. I personally feel that this is one key pillar that was missed out. If more monetary support and guidance can be given to budding entrepreneurs, Singapore could see a very vibrant SMEs community in the near future.

               There is no further foreign worker quota and levy implemented in this year’s budget other than in the construction sector. This may be an indication that the government understands the manpower constraints SMEs are facing and do not wish to tighten the labour supply further. The construction sector has been constantly lagging in productivity and innovation; thus there is a real need to drastically boost productivity in this sector thus the further regulations.

                Overall, this budget is a really sweet and popular one on many fronts. There is really nothing much to complain about unless you are an employer (the extra 1% CPF contribution) or in the construction industry (increase in worker levy) or a smoker, drinker or better (increase in taxes!).

                                                       --THE END--

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