Yes, it’s been a while since I last wrote a post. Work has overwhelmed me, but thankfully, there is a small breather in which I can write. And what better to write about than the Budget?
Since the announcement of the Budget Statement by the Deputy Prime Minister and Minister for Finance, Mr. Tharman Shanmugaratnam, on Monday, reactions have been mixed. Because there are many more policies yet to be announced, it is not quite possible to give a fair overall evaluation of the Budget. However, I would still like to give a preliminary assessment of the Budget. Hence, I posit that this Budget, while well-intentioned, fails to sufficiently address the cost of living issues that we currently face. In this post, I will not be talking about how smart Mr. Tharman is in being able to hand out so many transfers and yet run a surplus. No. I will be talking about issues that have gone unaddressed.
Sandwiched as it is, the middle-class has faced a lot of financial pain as their wallets are squeezed and yet this Budget fails to deliver substantial assistance to them. This is not to say that I am not aware of the initiatives that Mr. Tharman has introduced. Here’s a list:
1. Extra GST Vouchers
2. S&CC Rebates (1 to 3 months)
3. $200 CPF Medisave Top Ups
4. Personal Income Tax Rebate (30% rebate capped at $1,500 for resident taxpayers below 60, 50% capped at $1,500 for those 60 and above)
5. Lower Concessionary Foreign Domestic Worker Levy (reduction of $50 from $170 to $120 for families with young children, elderly dependents and disabled)
As mentioned, these are well-meaning handouts but they are simply insufficient. An average middle-income family will receive $1,500 in benefits but that will quickly evaporate before June. These come in dribs and drabs and are used up in a day, very quickly. The best way to deal with middle-class money worries is to put more cash into their hand by alleviating cost pressures through addressing two issues: inflation and taxes. But before I elaborate, a quick point. The $50 reduction in maid levies amounts to nothing because they still have to pay $1,440 a year. Be more aggressive, reduce it further to $800.
There was no mention of a plan to deal with soaring inflation. For all his financial genius, Mr. Tharman was silent on this. I hope that he addresses this in the coming debates. Firstly, with inflation at 4%, any income growth is eroded by inflation. Some argue that, oh, there is still 1% real wage growth. For a person earning $5,000, a 1% real wage growth is $50. Secondly, many middle-class workers are employed by SMEs. Needless to say, the SMEs are facing a hell lot of pain from the hikes in the foreign worker levies. These very same hikes contribute to structural inflation – it’s like self-mutilation; this inflationary pain is self-induced. Rental costs are also killing businesses. Anecdotally, I have heard of owners finding it more profitable to rent than to continue production. That’s a disturbing fact. Also, there are bigger firms that wish to come here but are finally deterred by the cost of rental (and the tightened foreign worker quotas). Despite all these facts on the ground, there have been no measures to rectify them. SME owners are also largely middle-class. If businesses don’t get help in terms of reducing structural inflation, you can be sure that their costs of doing business and costs of living are not being addressed.
On taxation – the $1,500 cap is an amount that is neither here nor there. Why not increase it to $3,000? That’s a great deal more. And if we are talking about progressive taxation, why not revamp the high income brackets as well, or add a few more? Mr. Tharman made some amendments to the property tax structure but overall these result in loss of revenues for the Government instead of net gains. Therefore, this change is purely symbolic: it means that the rich will have to pay more so that there can be redistribution downwards. But if there are net losses overall, I fail to see how that achieves redistribution.
Everybody seems to be talking about the new amendments to car taxes as well. The new regulations effectively kill off middle-class dreams of having a car. While some may call it a dream, others have a real need for it, especially if they need to take care of their elderly parents and young children. What should have been done? For starters, COE applications should be similar to HDB flat applications – fill in the names of the family members, thereby indirectly justifying the purchase of a car. COEs for small cars (1,600 cc or less) can then be allocated to those who meet these criteria. Of course, there’s a need to pay the COE, but the prices within this category can be reduced considerably. Singapore should not become a playground of the rich.
As the title of the post asks: for whom the Budget bells toll? My preliminary answer: the lower-income and the rich. They ring not for the middle-class (yet).