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Budget 2015 - Budget that looks forward and corrects a policy course

Budget that looks forward and corrects a policy course

Budget that looks forward and corrects a policy course

Published on Feb 24, 2015 2:40 AM
A MEASURE of any government Budget is the extent to which it positions a nation for the future, rather than merely plugging gaps in the present or, worse, making up for past mistakes.

The two clearly future-focused parts of Budget 2015 are SkillsFuture, to help workers gain expertise and mastery, and new moves to spur small and medium-sized enterprises (SMEs) to innovate and internationalise.

The same cannot be said for the Central Provident Fund changes. Although welcome, they effectively restore contribution rates for older workers and salary ceilings to what they were before controversial cuts in 2003 that have eaten into people's retirement savings. But first, SkillsFuture. It "marks a major new phase of investment in our people", said Deputy Prime Minister Tharman Shanmugaratnam. It is a vision to transform Singapore from "a hierarchy of grades earned early in life" to a "meritocracy of skills". And it puts the skilled worker front and centre, which is apt for a nation whose only resource has always been its people.

Mr Tharman shared an anecdote to show how far Singapore workers have come, a story centred on Jalan Tukang in Jurong, so named as tukang is Malay for skilled worker. It used to be home to the Swan Socks factory, founded with Japanese investment, opened by former deputy prime minister Goh Keng Swee in 1964 and one of the first to offer significant employment for women. Today, Swan Socks is no more. In its place are Tukang Innovation Park and MedTech One, a dedicated facility for the fast-growing medical technology industry.

Another big change is in wages. Since the 1960s, the average pay of a lower-income worker has risen by more than five times, and that of a median-income worker by six. Where Singapore used to lag behind other Asian economies, its median wage is now higher than that of Hong Kong, South Korea and Taiwan and only 10 per cent lower than that in Japan.

But workers here and worldwide now face a brave new world where jobs are constantly reshaped by technology, and "no one can honestly tell what they will be doing a decade or two after leaving school". Singapore workers must be prepared to learn and adapt at every stage of their lives.

The Government will help them with deposits and regular top-ups to their SkillsFuture Credit accounts, starting with $500 for every Singaporean aged 25 and older. The aim is to enable "every individual to decide on his or her own learning journey: when to go for fresh infusions of skills or knowledge, and whether it should be in specialised professional training, acquiring soft skills or developing a new interest", Mr Tharman said.

Also in the pipeline are professional career counselling and internships for students, enhanced education and training subsidies for mid-career workers, and SkillsFuture Study Awards and Fellowships. They form an exciting vision to empower workers to chart their own way forward. The estimated cost: $1 billion a year on continuing education and training from now until 2020, up from $600 million a year for the last five years.

Success, however, hinges on how well the plans are executed, and many questions hang over how the vision will be translated into reality. Singaporeans, too, will have to step up to the challenge of lifelong learning. The efforts of workers have to be complemented by those of enterprises. The bar for them has been raised, from value adding - which may have earned them a good living in the past - to the next frontier of value creating.

The Government will stay the course on economic restructuring, even though its productivity drive has so far produced dismal results in non-export sectors. Mr Tharman appealed for yet more time, saying "the business transformations that underpin a major shift in productivity will take time, and it also takes time for the market to restructure, with adopters of new ideas and technologies gaining share at the expense of those who stand still". Budget 2015 sharpens support for SMEs that innovate, by providing grants, R&D investments and a pilot venture debt risk-sharing programme to help high-growth enterprises secure financing. To succeed, these will have to yield better results than previous rounds of productivity incentives.

On the second big theme of strengthening social security, CPF changes took centre stage. The big criticism here is that several changes announced yesterday simply reverse what some consider to be ill-judged policy decisions of the past. These include significant cuts to contribution rates of workers aged 50 and above - which many resented and found unfair - and the lowering of the CPF salary ceiling from $6,000 to $4,500. Both took place in 2003, in the wake of the Sept 11, 2001 attacks and the Sars outbreak, which caused unemployment to spike. What accounts for this course correction?

Well, the employment rate among older workers has risen, as Mr Tharman noted, from 64.4 per cent in June 2004 to 71.4 per cent in June last year, an improvement he linked to schemes such as the Special Employment Credit introduced post-2003. Still, as any financial planner knows, time is of the essence in building up one's nest egg and the CPF cuts cost thousands of workers over a decade in lost savings.

Yesterday's announcement that the CPF Board will pay an extra 1 per cent on the first $30,000 in the accounts of members aged 55 and older, will be a significant boost to those with lower balances. Lower-income seniors with insufficient CPF savings will also benefit from a new Silver Support Bonus that tops up their retirement income every quarter. In this age of austerity, what is worth celebrating is that Singapore still has enough in its coffers to make big investments for the future - including $26 billion on public transport infrastructure over the next five years - and still balance its Budget.

But spending has outpaced revenue and continues to rise. The country would be in deficit if not for the returns on past savings known as the reserves. Overall spending is projected to hit 19 per cent to 19.5 per cent of gross domestic product on average over the next five years, 1 per cent more than the revenues of today.

To bolster fiscal resources, the returns from Temasek Holdings' investments will be included in the Net Investment Returns framework, and the top personal income tax rate will rise from 2017. Both these revenue measures together are expected to provide for increased spending needs "till the end of this decade". The need to spend and invest judiciously will grow in the future.

The Straits Times / Top of The News                              Published on Tuesday, Feb 24, 2015

 By Lydia Lim, Associate Opinion Editor              

Budget that looks forward and corrects a policy course 

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