Singapore Budget Seen Aiding Poor as 14-Year Low Unemployment Spurs Costs
Singapore’s 2012 budget will probably feature assistance for the poor even after the island reported its lowest unemployment rate since the late 1990s, as policy makers seek to address the soaring cost of living and help citizens cope with a slowing economy.
The government may improve a program to supplement the income of low-wage earners and give them rebates on municipal service fees, Singapore-based lenders Oversea-Chinese Banking Corp. (OCBC) and United Overseas Bank Ltd. predict. Citigroup Inc. said the budget may prioritize middle- and lower-income households over businesses in the short run.
Prime Minister Lee Hsien Loong has signaled a shift toward addressing public discontent over rising prices and an influx of foreigners, after his ruling party suffered its weakest electoral win since independence in 1965. Efforts to boost the economy by allowing casinos and luring pharmaceutical companies have stoked jobs growth while propelling transportation and housing costs higher, making life harder for the city’s poorest.
“With the focus on fostering inclusive and sustainable growth, there will be additional support to the low and middle- income Singaporeans to help them cope with the rising cost of living and improve their employability,” said Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore. “A certain degree of wealth redistribution is expected.”
Finance Minister Tharman Shanmugaratnam will present the budget in parliament tomorrow, the first annual spending plan since the general election in May. A report today showed Singapore’s economy shrank an annualized 2.5 percent in the fourth quarter of 2011 from the previous three months.
Lee’s administration handed out cash to all adult citizens last year as a “dividend” from record growth in 2010, part of S$6.6 billion ($5.2 billion) of benefits announced in the 2011 budget that included tax cuts and utility rebates. Lower-income households received more money as the government sought to narrow the wealth disparity.
Singapore’s Gini coefficient, an income inequality measure, rose to 0.482 in 2011 from 0.48 the year before, and has climbed from 0.444 in 2000, according to the statistics department. Accounting for pension contributions and government benefits, the reading fell to 0.452 last year from 0.455 in 2010. A reading of zero means income equality, while a reading of one means complete inequality.
The island’s growth has pushed the jobless rate to an average 2 percent in 2011, a 14-year low, and made Singapore home to the highest proportion of millionaire households globally, according to the Boston Consulting Group. The average monthly income for the poorest 10 percent of households increased by S$250 to S$1,581 in the decade to 2011, compared with a S$10,400 jump to S$27,867 for the top 10 percent.
Inflation (SICPIYOY) averaged 5.2 percent last year and prices are forecast by the central bank to rise 2.5 percent to 3.5 percent in 2012. In the nine months through September, wages rose 1.5 percent from a year earlier after adjusting for inflation.
This year’s budget will probably continue to push for improvements in productivity as the nation moves away from relying on boosting its population to spur growth, said Chua Hak Bin, an economist at Bank of America Merrill Lynch.
“The new political norm necessitates the implementation of measures that address the electorate’s concerns, but the government will maintain its overall pro-growth strategy,” said Edward Lee, Singapore-based regional head of rates strategy at Standard Chartered Plc. “We expect stronger incentives to encourage employers and workers to upgrade skills.”
More than a third of the 5.2 million population is made up of foreigners and permanent residents, and Prime Minister Lee has said the island is tightening the number of overseas workers entering the country to a “more sustainable” rate.
Since the middle of 2010, the government has increased levies imposed on companies such as SembCorp Marine Ltd. for hiring non-Singaporeans. It tightened rules on overseas labor and made it more expensive for foreigners to buy property in Singapore after the 2011 elections.
The government probably won’t bring out the “big guns” of fiscal measures in this week’s budget proposal as the global slowdown isn’t expected to be as dire as the crisis in 2009, said Selena Ling, head of treasury research at Oversea-Chinese Banking.
Singapore’s economic contraction last quarter reported today was less than the government’s initial estimate in January. The global economic outlook remains “subdued,” and the island’s current growth forecast of 1 percent to 3 percent for 2012 doesn’t factor in risks such as a disorderly sovereign default in the euro area and an escalation of geo-political tension in the Middle East, the trade ministry said.
“The 2012 challenge of below-trend growth and elevated inflation will likely imply a need for some immediate counter- cyclical measures and help for needy households,” Ling said. “But policy makers would likely want to calibrate the short- term measures to keep some policy powder dry should the global economic environment deteriorate further.”
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