VZCZCXRO7664
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGP #0792/01 0730634
ZNR UUUUU ZZH
R 140634Z MAR 06
FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 9147
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCNASE/ASEAN MEMBER COLLECTIVE

UNCLAS SECTION 01 OF 03 SINGAPORE 000792 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ELAB EINV PGOV SOCI KTDB SN
SUBJECT: SINGAPORE'S FY2006 BUDGET PRIMES PUMP FOR GENERAL 
ELECTION 
 
 
¶1.  Summary.  With an eye on anticipated but still not officially 
announced general elections, Singapore's FY2006 budget offers a 
S$2.6 billion (US$1.6 billion) "Progress Package" targeting 
primarily lower income groups.  The budget also includes the 
usual array of fiscal incentives for specific industries, 
including financial services, maritime, and logistics as well 
sectors dependent on R&D and intellectual property.  For the 
fifth consecutive year, the government will run a primary deficit 
(fiscal deficit minus interest payments and special transfers); 
most analysts agree, however, that the government's revenue 
assumptions are conservative and that its forecasted "largest 
deficit in 20 years" of S$2.9 billion (US$1.8 billion) is 
overstated (Singapore does not, for example, include revenues 
from land sales -- projected to reach S$4 billion or US$2.5 
billion in FY2006 -- or certain investment income from the 
Monetary Authority.)  As in previous budgets, defense (32.8%) and 
education (22.8%) are the largest components of government 
spending. 
 
Detailed information concerning Singapore's FY2006 budget can be 
found at:   
 
End Summary. 
 
(Note:  Exchange Rate - US$1 = S$1.63) 
 
Election Sweeteners 
------------------- 
 
¶2.  Singapore's FY2006 budget (April 1, 2006 - March 31, 2007), 
approved by Parliament March 9, appears tailor-made for an 
election year.  The government has yet to officially announce a 
date for general elections, but the combination of the budget's 
"Progress Package" that extends a lending hand to low income 
earners, and daily reporting of party platforms and speculation 
about voter precinct redistricting in the government-controlled 
media evidence imminent elections.  The Progress Package, part of 
a larger "special transfer" of S$3.6 billion (US$2.2 billion), 
includes a S$1.4 billion (US$860 million) "growth dividend" for 
all citizens, specific bonuses for workers aged 40 and above and 
earning up to S$1,500 (US$920) per month, and a one-time payment 
to individuals who have or are currently performing national 
service (the majority of Singapore's adult male citizens). 
 
¶3.  This represents the government's greatest largesse since it 
allocated S$5.27 billion (US$3.2 billion) during the 2002 
economic downturn.  In the run-up to the last general election in 
2001, the government provided a similar, albeit more modest, 
package worth S$1.81 billion (US$1.1 billion).  Many analysts 
believe that, currying favor with voters aside, this year's 
budget reflects a growing concern about Singapore's widening 
income gap.  According to government estimates, household incomes 
of Singapore's bottom 20 percent declined by an average 3.2% 
annually from 1998-2003; that of the top 20 percent increased 
2.2% annually during the same period (for more information 
concerning trends in household income and expenditures, see 
). 
 
Fiscal Incentives 
----------------- 
 
¶4.  The FY2006 budget provides a number of fiscal incentives for 
industry, including: 
 
-- Enhancing Manufacturing, Financial, Maritime, and Logistics 
Services 
 
A wide range of incentives for these sectors include General 
Services Tax (GST) exemptions for certain tools used in 
manufacturing goods for export; and tax concessions and 
exemptions targeting asset management, capital markets, treasury 
activities, ship financing and management, warehousing, and third- 
party logistics providers.  Tax concessions will similarly be 
extended to the industrial design, and interactive and digital 
media industries. 
 
-- R&D Investment 
 
The government will allocate S$5 billion (US$3.1 billion) over 
the next five years to establish an R&D Trust Fund.  The Fund is 
part of a strategic goal to increase Singapore's R&D gross 
expenditure, from 2.3% of GDP in 2004 to 3% by 2010. 
 
-- Education 
 
As part of its ongoing efforts to develop Singapore into an 
education hub, the FY2006 budget aims to increase funding of 
public universities from S$1.24 billion (US$800 million) to S$1.9 
billion (US$1.2 billion) annually by 2010, equivalent to about 1% 
of GDP. 
 
SINGAPORE 00000792  002 OF 003 
 
 
 
-- Tax Competitiveness 
 
In addition to a further one percentage-point reduction this year 
in the personal income tax rate, bringing it in line with the 
corporate income tax rate of 20%, the budget calls for fine- 
tuning tax exemptions for foreign-sourced income tax, stock 
options, share-based compensation, and incentives for limited 
liability partnerships. 
 
Budget Deficit 
-------------- 
 
¶5.  The government is projecting a S$2.86 billion (US$1.8 
billion) deficit in FY2006, equivalent to 1.6% of 2005 nominal 
GDP: 
 
                        FY2006        FY2005     (%) Change over 
                        Budget       Revised     FY2005 Revised 
                        -------      -------     --------------- 
                        (S$ billion) 
 
Revenue                 28.96         27.48      5.4 
Expenditure             30.62         28.85      6.1 
                        -----         ----- 
Primary Deficit         (1.66)        (1.37) 
 
Less: Special Transfers  3.59          0.87     310.2 
 
Add:  Net Investment     2.39          2.67     (10.6) 
     Income 
 
Surplus/(Deficit)        (2.86)        0.43 
 
 
Revenues 
-------- 
 
¶6.  The government's projected operating revenue of S$28.96 
billion (US$17.8 billion) assumes real GDP growth in 2006 of 4- 
6%; tax revenue will account for approximately 90% of the total. 
Tax revenue as a percentage of GDP has fallen from 13.6% in 2004 
to 12.2% in 2005.  Contributions from GST have increased in 
proportion to total operating revenue from 8.3% in 2002 to 13.5% 
in 2005.  For the first time in five years, the government did 
not increase tobacco and alcohol duties. 
 
Table: Estimated Tax Revenue for FY 2006 
---------------------------------------- 
(S$ billion) 
 
                        Budget     %     Revised    % 
                        FY2006   Share   FY2005    Share 
                        -------   -----  ------   ----- 
Direct Tax               14.17     56.1   13.26     55.8 
  Corporate               7.68     30.4    7.10     29.9 
  Personal                4.60     18.2    4.30     18.1 
  Assets                  1.89      7.5    1.86      7.8 
 
Indirect Tax             11.10     43.9   10.52     44.2 
  Goods & Services Tax    3.75     14.8    3.60     15.1 
  Customs & Excise Tax    2.01      8.0    2.02      8.4 
  Motor Vehicle Tax       1.78      7.0    1.47      6.2 
  Betting Tax             1.50      5.9    1.49      6.3 
  Others                  2.06      8.2    1.94      8.2 
 
Total                    25.80    100.0   23.78    100.0 
 
 
Expenditures 
------------ 
 
¶7.  Total expenditures for FY2006 are estimated to increase 6.1% 
over FY2005 to S$30.6 billion (US$18.8 billion).  Spending is 
equivalent to 16% of nominal 2005 GDP, in line with official 
guidelines to keep expenditures below 20% of GDP.  Major 
allocations go to defense (32.8% of total expenditures or 5.2% of 
2005 nominal GDP), education (22.8% or 3.6% of GDP), home affairs 
(7.9% or 1.2% of GDP), health (6.6% or 1.0% of GDP), and 
transport (6.0% or 0.9% of GDP). 
 
Table: FY2006 Expenditure by Sector and Ministry 
--------------------------------------------- --- 
(S$ billion) 
                                            %     % Change 
                                FY2006    Share  from FY2005 
                                -------    -----  ----------- 
TOTAL EXPENDITURE               30.6       100.0     6.1 
 
Social Development              12.8        41.8     8.1 
 
SINGAPORE 00000792  003 OF 003 
 
 
  Education                      7.0        22.8    14.1 
  Health                         2.0         6.6    11.5 
 
  National Development           1.2         4.1    -8.3 
 
  Environment                    1.1         3.4   -11.9 
  Community Development          1.0         3.4     9.5 
    & Sports 
  Information, Communications    0.5         1.6    11.4 
    & the Arts 
 
Security/External Relations     12.8        41.8     8.1 
  Defense                       10.1        32.8     8.5 
  Home Affairs                   2.4         7.9     6.4 
  Foreign Affairs                0.3         1.1     7.0 
 
Economic Development             3.8        12.3     3.0 
  Transport                      1.8         6.0    -2.1 
  Trade & Industry               1.6         5.3     6.5 
  Manpower                       0.3         0.8    17.4 
  Info-Communications            0.1         0.2    24.4 
    Technology 
 
Government Administration        1.2         4.0   -16.6 
  Finance                        0.6         1.9   -22.0 
  Organs of State                0.2         0.8     1.1 
  Prime Minister's Office        0.2         0.7    12.1 
  Law                            0.2         0.7   -34.8 
 
HERBOLD