A Budget with something for everyone:PwC

The spectre of inflation – possibly reaching 4% this year – and an economy bouncing along very nicely meant that there was no need to pump prime anything.

PwC has responded to the Singapore Budget 2011, delivered by Finance Minister, Tharman Shanmugaratnam. Entering a period of gradual but steady economic recovery, Gautam Banerjee, Executive Chairman, PwC LLP (Singapore) commented:

"It’s a Budget that gives something to everyone, and lots more for the low income. It aims to share the largesse of government surplus with people at the bottom while at the same time, help to raise productivity across the board and sharpen the competitiveness of several priority sectors. On the whole, a smart and strategic move to help Singapore stay relevant and compete on an advantageous footing against other economies."  

It was never expected that this would be a spectacular Budget, even in the context of a healthy fiscal surplus available for dishing out, and an election just around the corner. The spectre of inflation – possibly reaching 4% this year – and an economy bouncing along very nicely, thank you, meant that there was no need to pump prime anything. Much needed hand-outs for those at the lower end of the income scale could not be given entirely as free cash, as this would only serve to throw fuel on a fire that needs to be put out.

The approach therefore was to ensure that the bounty ($6.6 billion was earmarked as benefits to households) found its way to the target, but in a way that mostly provided longer term benefits for those most in need, rather than simply cash-in-hand. (Having said that, the $1.5 billion in growth dividends did have the feel of a freebie). In addition, some attempt was made to address the increasing issue of the aging population, by introducing certain measures to incentivise retention of older workers. Though the measures are welcome, it is clear this issue needs to be catapulted up the agenda next time round.

On the corporate tax side, the pickings were slim, and were aimed almost exclusively at the local small and medium enterprises. At a general level, a 20% corporate tax rebate was introduced for income earned in 2010 but this was capped at $10,000; and for those not earning enough to benefit fully from this, a cash grant of 5% of turnover is on offer, subject to a cap of $5,000. Perhaps the biggest change came in the shape of enhancements to the Productivity and Innovation Credit scheme, introduced last year to provide enhanced tax deductions for investment in productivity enhancing assets and processes. This showed the Government listens, with some quite generous enhancements being offered.

The thorn in the side however came through a continued Government insistence that the continued reliance on foreign workers could be modified if the stick was made bigger – in the form of a re-asserted commitment to gradually increase the foreign worker levy. This is unlikely to be met by enthusiasm in a number of quarters, where technological innovation is not just something that can be dusted down from the shelf and put into action. The inevitable result is simply a cost to business.

For foreign talent and multinationals – a stony silence – almost. There were some small concessions made in relation to stock options, and the biomedical industry, with the only cross-border tax change coming in the guise of a loosening up of the foreign tax credit rules, which on the face of it look to add to complexity rather than reduce it. It still eludes many as to why the Government does not just simply exempt all foreign-sourced income and be done with it. Hong Kong and Malaysia seem to live happily with such a regime.

Taking a step back then, this was a very local budget with multinationals and foreign talent being put on the back burner, hopefully until no later than this time next year. While the Budget paid attention to and kept a lid on its own inflationary potential however, the fact that people on the other side of the world are printing money like there is no tomorrow, means the threat of inflation still kind of lingers.

Click here to read the entire PwC commentary.