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    Feb 20, 2014

    Budget to balance clashing demands

    BALANCING the Budget has never been a problem for the Singapore Government. But

    balancing the needs and wants of various groups - and deciding how best to keep a surplus - is getting ever more tricky.

    A marked increase in public spending looks inevitable. The question is: How will this be financed?

    Citi economists Kit Wei Zheng and Brian Tan said: "Redistribution and social spending costs will likely be borne first by tapping returns on the fiscal reserves, followed by higher wealth taxes, with higher income taxes for the rich as a last resort."

    While the avenues to raise funds are open, each comes with trade-offs.

    Choosing to raise the current ceiling on the amount of net investment returns contribution (NIRC) the Government can take into its Budget, or even raise the NIRC nearer to the current cap, means less is squirrelled away into the reserves. That trade-off is seen as the least costly one.

    Raising the top personal income tax rate or wealth taxes would fit well with last year's moves towards a more progressive tax system, benefiting the average worker. But it could dent Singapore's attractiveness to top talent, which is, in turn, key to global companies' investment decisions.

    Beyond balancing the Budget, the social and economic policy changes being sought are, at times, in opposition to one another.

    The combination of rising health-care costs and a rapidly ageing population has led the labour movement to call for the Central Provident Fund contribution rate to be restored for older workers. But this means added costs for employers, at a time when economic restructuring is pushing wages and rents higher.

    Which is also why trade associations and business chambers are asking for a halt in the stiffening of the foreign manpower curbs.

    Economists, such as Mr Irvin Seah of DBS, reckon that the tightening will continue, but in a more targeted fashion.

    Business groups have said that uncertainty over their ability to hire skilled workers may affect future investment decisions in Singapore.

    Businesses, in particular, will be keen to see how the Government chooses to balance these priorities on Budget Day tomorrow.