Channel NewsAsia 15 Feb 08;
SINGAPORE : Finance Minister Tharman Shanmugaratnam warned that inflation remains a major uncertainty for the Singapore economy.
Delivering the Budget in Parliament on Friday, he also announced that the Republic expects to achieve a Budget surplus of S$6.4b for fiscal year 2007.
He added: ""We seek to moderate imported inflation through our Singapore dollar exchange rate policy. There is a limit to how fast the Singapore dollar can appreciate without hurting our economic performance and growth, and eventually causing wages to fall. An overly strong Singapore dollar can bring inflation down, but at the cost of lower growth and higher unemployment."
"This is why, while we can mitigate imported inflation through MAS's exchange rate policy, we cannot insulate ourselves completely from the effects of global inflation."
The Finance Minister spent a good part of his speech addressing the inflation issue, examining the factors contributing to this and also spelled out what the government will do to help Singaporeans cope.
The headline Consumer Price Index - or CPI - hit 4.4 percent in December but averaged 2 percent last year.
However the CPI is forecast to hit 4.5 percent to 5.5 percent this year.
If the barometer of inflation, the CPI, hits 4.5 to 5.5 percent this year, it will be the country's highest full year inflation rate since 1981.
Mr Tharman said the inflationary pressures arose mainly from high prices for food and oil due to the strong demand worldwide.
He added that the government would step up efforts to help Singaporeans cope such as diversifying food sources.
He did admit though that there are local factors for the rise in the CPI, mainly the rise in the annual value of homes.
But he stressed this is one form of inflation that would not hit Singaporeans' pockets since most own their homes.
As for the GST, Mr Tharman noted that this only caused a one-off increase in prices, and does not result in continuing price increases.
He said: "In view of Singapore's good economic performance over the past year and the strong fiscal position, the Government has decided to share some of the nation's surplus with all Singaporeans.
"These surpluses will be distributed in the form of Growth Dividends, additional Post-Secondary Education Account (PSEA) top-up, Medisave Account top-up and Personal Income Tax rebates."
Mr Tharman said a larger portion of the benefits will be distributed to older Singaporeans and the lower and middle income groups, with certain top-ups directed towards helping Singaporeans with their education and healthcare needs.
In addition to the new initiatives announced in Budget 2008, households will also continue to receive benefits from the various schemes announced in Budget 2007.
He also noted: "The S$4 billion GST Offset Package will continue to help Singaporeans cope with the increase in GST through various payouts and rebates to eligible individuals and households over the next 4 years, from FY2008 to FY2011. The Workfare Income Supplement (WIS) scheme continues to supplement the wages and savings of workers, and increase the take-home pay and employability of older lower wage workers." - CNA/ch
Budget to tame the twin monsters
Middle class mentioned 16 times in Tharman's one-and-a-half hour speech
Christie Loh, Today Online 16 Feb 08;
CALL it a perfect storm, a double whammy, even twin monsters. The head-on collision of high inflation and a slowing economy is a rare occurrence that last hit helpless governments worldwide during the 1970s.
Now, as it sets upon the world again, Singapore's Finance Minister is fighting back with long-term measures to make the country an irresistible, top-notch global city, and a basket of instant goodies to keep Singapore a cohesive society.
For the people, there will be direct cash payments as rewards for a good year, personal income tax rebates and, to the delight of wealthy individuals, an answer at last to long-running calls for the scrapping of estate duty known colloquially as "death taxes".
Businesses are looking at carrots aimed at encouraging innovation and research and development. Then, there is the commitment to free up prime space occupied by government agencies for office space-hungry enterprises.
"We are able to deal with immediate problems and weather any short-term difficulties that Singapore might face ... because our fundamentals are strong, we continue to attract major new investments and we expect employment to remain high," Finance Minister Tharman Shanmugaratnam said in Parliament on Friday in his Budget speech titled "Creating a top- quality economy, Building a resilient community".
His financial muscle came partly from the white-hot property market that raked in a record collection of stamp duty, helping to bump up last year's Budget surplus to a 13-year high at $6.35 billion.
The centrepiece in the hamper — which totalled $5.4 billion and was double the special transfers in 2007 — were the Growth Dividends, cash payments varying from $100 to $700 that all Singaporeans aged 21 and above will receive in their bank accounts come April and October.
But what was absent from the Budget was also much talked about.
Analysts' expectations of a personal income tax cut were not met. Big businesses bemoaned the lack of incentives for them, with some disappointed that the corporate tax rate was not reduced further after last year's cut of 2 percentage points to 18 per cent.
Neither were there any hoped-for carrots for companies to go green. Most of the aid rolled out will benefit start-ups and small companies struggling with rising costs, besides encouraging R&D, which usually takes years to pay off.
On the fight-inflation front, if anyone had hoped for outright controls on food prices — which were a big reason why inflation shot up to a 25-year high of 4.4 per cent in December — there was none.
Instead, the Government believes in working on the supply side and using other indirect tools.
As Singapore's inflation is not due to domestic factors but to high global prices, Mr Shanmugaratnam said the Government would continue trying to mitigate the imported pressure via three ways: Allowing the Singapore dollar to appreciate modestly, stepping up the diversification of food sources and helping Singaporeans to own their homes, whose appreciation is generally protected against inflation.
These buffers aside, the reality is that the island cannot totally insulate itself against inflation.
To the Government, the ultimate vitamin is a competitive economy and good growth. "This is the best offset to global inflation, which will be with us not just for a few months but possibly a few years," said Mr Shanmugaratnam, who took over the portfolio of Finance Minister from Prime Minister Lee Hsien Loong in December.
This strategy is tied to encouraging Singaporeans to stay employed and to upgrade their skills. In other words, groom a first-class workforce, which has always been the nation's way of dealing with economic vagaries including globalisation and downturns.
Therefore, it is no surprise that this Budget continues to contain measures that provide education opportunities — seen as an effective social leveller — for all Singaporeans regardless of their financial situation.
MIDDLE CLASS GETS SPECIAL MENTION
What is worth highlighting is the Budget's unprecedented attention to middle-class concerns.
After years of complaints that this sandwiched group is left to fend for itself in an environment of rising living costs despite paying taxes, Mr Shanmugaratnam mentioned the word "middle-income" 16 times, as opposed to the three times in his maiden Budget speech last year.
For instance, he said the extension of the Ministry of Education Bursary Scheme for students would benefit middle-income Singaporeans.
So will the immediate abolition of estate duty, because the low exemption limits "tend to affect our middle and upper-middle-income estates disproportionately compared to wealthier ones".
As for help for them to cope with inflation, Mr Shanmugaratnam believes he has extended a helping hand through the growth dividends, which middle-income Singaporeans would receive more of than the richer folks, and the three-year distribution of Goods and Services Tax (GST) credits, which started last year when GST rose to 7 per cent.
"Both these exercises give the middle-income group support at a time when they, too, face higher costs of living," he said.
The question is, will they satisfy the middle class?
Their pain — and especially that of the low-income — will worsen this year, as inflation is forecast to come in between 4.5 and 5.5 per cent, which is much higher than last year's 2 per cent.
But Mr Shanmugaratnam made it clear that quick-fix measures such as handouts will not be the way.
"Whether we succeed as an economy and whether we remain a resilient society, will not depend on how much we hand out, how much we top up each year or how large the bonuses are," he said. "We will ultimately succeed and remain a country that all Singaporeans feel proud of if we continue to be a place where every Singaporean can aspire, where there is opportunity to develop every skill and talent, and where everyone does his utmost to do better and surprise with his abilities."
Five-pronged strategy to fight inflation
A key problem is imported inflation, especially of food and oil
Ronnie Lim, Business Times 16 Feb 08;
SINGAPORE will adopt a five-prong strategy to tackle inflation which is expected to stay high at 4.5-5.5 per cent this year, more so especially in the first half, said Finance Minister Tharman Shamugaratnam.
This includes steps like diversifying the Republic's food sources and more fundamentally, keeping the economy competitive.
Inflation is a concern 'not expected to go away soon', he warned, adding that Singaporeans have to brace themselves for more cost rises.
Over the last year, global oil prices have spiked by 50 per cent, raw food prices by 55 per cent and commodity prices by 31 per cent. These have cascaded down into higher transport costs, more expensive manufactured goods, and costlier consumer foods.
'We cannot say how long it will last, but we have to expect that it will remain high, in the first half of this year especially. For example, China's worst winter in 50 years will likely add pressure to prices of certain foods in the next six months,' he added.
While last July's Goods and Services Tax (GST) increase had partly contributed to inflation, this has been compensated for by substantial GST offsets - spread over four years - for most Singaporeans, Mr Tharman said.
'The key problem we face going forward is that of imported inflation caused by high global prices, especially of food and oil.'
Outlining his five-prong anti-inflation plan, Mr Tharman said that this firstly involves the Monetary Authority of Singapore's (MAS) use of the exchange rate to moderate imported inflation.
'Had the MAS not allowed the Singapore dollar to appreciate over the last two years, our CPI inflation in the last quarter would have averaged 6.5 per cent, instead of the 4.1 per cent that was actually recorded,' he said.
However, there is a limit to this strategy as it can hurt the Republic's economic performance and growth, he warned.
An overly strong Singapore dollar can bring inflation down, but at the cost of lower growth and higher unemployment.
Secondly, Singapore is stepping up the diversification of its food sources so as to minimise spikes in the prices of imported foods.
The Agri-Food and Veterinary Authority of Singapore (AVA) is helping private importers buy from new overseas sources and the government will also continue to work with retailers to increase public awareness of cheaper food choices and substitutes.
The third way has been the government's support of home ownership, especially through the heavy subsidies provided to lower-income Singaporeans to own a home.
This insulates Singaporeans, especially retirees, from increases in rental costs which are a significant long-term concern in other countries, he said. In the US, for example, about a fifth of older Americans rent their homes, with rentals accounting for close to one-third of their monthly expenditures.
Fourthly, the government provides assistance directly to Singaporeans who face problems coping with the cost of living, such as through the Workfare Income Supplement scheme and GST Offset Package.
'This approach of helping those in need directly is better, and more sustainable than taking reflex actions such as imposing price controls on essential goods,' he said, adding that the latter will only lead to negatives like hoarding and black markets.
Finally, the government aims to keep the economy competitive and build up capabilities for strong economic growth.
'This is the best offset to global inflation - to educate and train up our people, attract new investments, create jobs, and sustain good growth of incomes for our whole population.
'If global inflation stays high, all countries will be affected by it and we will not be able to totally insulate ourselves. But there is no reason why we cannot keep growing, and keep outperforming,' he stressed.
