VZCZCXRO1400
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGP #0202/01 0542347
ZNR UUUUU ZZH
R 232347Z FEB 10
FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 7848
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 SINGAPORE 000202 
 
SIPDIS 
 
TAGS: ECON EFIN SN
 
SUBJECT:  SINGAPORE'S 2010 BUDGET TO BOOST LONG TERM GROWTH 
SUSTAINABILITY 
 
REF:  SINGAPORE 167 
 
¶1.  (U) Summary: Singapore's Finance Minister presented parliament a 
budget for FY 2010 focused on raising productivity, improving 
business competitiveness and making the country's economic growth 
more inclusive.  The budget moves away from last year's expansionary 
budget that was designed to protect jobs and stimulate the economy 
out of recession, but nevertheless is predicted to result in a 
revenue shortfall, the country's third consecutive budget deficit. 
To achieve its objectives, the GOS is budgeting S$5.5 billion (US$4 
billion) over the next five years to help enterprises and workers 
deepen skills and expertise and to foster innovation.  The levy on 
foreign workers will rise to encourage companies to improve 
productivity rather than rely on cheap imported unskilled labor. 
The budget also provides further support for the growth of 
Singapore's more globally competitive companies, including 
incentives for more research and development.  Lastly, the budget 
provides further support for low-wage workers to upgrade their 
skills, a more progressive property tax system, and help for 
families with children or elderly dependents.  End Summary. 
 
Another Deficit Budget 
---------------------- 
 
¶2.  (U) Singapore Finance Minister Tharman Shanmugraratnam delivered 
to parliament February 22 a budget for FY 2010 that shifts focus 
from last year's short-term stimulus to longer-term growth 
sustainability.  The budget puts into effect many of the recent 
recommendations by the public/private Economic Strategies Committee 
(ESC), which released a report February 1 with proposals to guide 
Singapore's economy over the medium term (reftel).  In line with the 
ESC report, the budget presents new programs designed to raise labor 
and capital productivity, improve competitiveness of Singapore 
business, and provide more inclusive growth for Singaporeans. 
Parliament will debate the budget in a March 2-12 session, with an 
expected approval vote on March 31. 
 
¶3.  (U) The FY2010 budget includes S$46.4 billion for operating and 
development expenditures, S$3.5 billion more than the previous 
year's budget that had included many stimulus measures designed to 
weather Singapore through last year's recession.  In addition, the 
budget includes S$5.15 billion in "special transfers" to endowment 
and trust funds, as well as special credits and bonuses to 
off-budget accounts, many of which are targeted at students, the 
elderly, and low-income Singaporeans.  The budget is expected to 
show an operating deficit of S$7.2 billion for FY 2010, the 
government's third consecutive budget deficit.  However, when 
returns on investments are included in the budget calculation, the 
overall budget deficit comes in at just under S$3 billion, or one 
percent of GDP.  Last year's budget had been expected to result in a 
deficit of 3.4% of GDP, but the economy's rapid recovery from the 
recession improved revenue and spending projections, and FY2009 
fiscal spending resulted in a budget deficit of only 1.1% of GDP. 
If Singapore's economic growth continues to outpace forecasts, this 
year's projected deficit will shrink as well. 
 
Raising Productivity 
-------------------- 
 
¶4.  (U) The centerpiece of the budget is a range of incentives to 
boost productivity and develop worker skills.  A S$5.5 billion 
package in the budget includes tax benefits and subsidies for 
training, particularly for low-income workers.  The GOS has set a 
goal to raise the country's productivity growth rate to 2-3 percent 
annually, more than double the anemic one percent growth over the 
previous decade.  To boost skills, innovation and economic 
restructuring, the GOS will establish a high-level National 
Productivity and Continuing Education Council, which will be chaired 
by Deputy Prime Minister Teo Chee Hean and include members from the 
government, business community and labor movements. The budget 
package sets aside S$2.5 billion over the next five years for 
continuing education and training (CET) programs. 
 
¶5.  (U) To support enterprise investments in innovation and 
productivity, the budget introduces a Productivity and Innovation 
Credit which will provide tax deductions for investments in a broad 
range of activities, including research and development, 
registration of intellectual property, acquisition of intellectual 
property, design activities, automation through technology or 
software, and training of employees.  The GOS will complement these 
broad-based tax reductions to support enterprise productivity via a 
National Productivity Fund.  As a start, the GOS will inject S$1 
billion into the fund in 2010 with a target to ultimately raise the 
fund to S$2 billion.  The National Productivity and Continuing 
Education Council will establish the priorities and programs of this 
new fund, and tie together the efforts of stakeholders, including 
government agencies, industry associations, unions and enterprises. 
The fund will provide grants to help enterprises in all business 
sectors, but with an emphasis on sectors where there is potential 
for large gains in productivity.  The construction industry is 
 
SINGAPORE 00000202  002 OF 002 
 
 
expected to receive S$250 million out of the initial S$1 billion of 
funding. 
 
¶6.  (U) To complement the investments in productivity, the GOS is 
raising its levies on employment of foreign workers in an attempt to 
encourage businesses to restructure and upgrade their operations and 
rely less on cheaper but lower-skilled foreign labor.  The 
government will gradually phase in the levy increases over the next 
three years, starting in July.  The GOS decided to limit the inflow 
of foreign labor through raising levies rather than imposing quotas 
to allow the foreign workforce to fluctuate across the economic 
cycle, and enable those employers who genuinely need foreign workers 
to continue to hire and not be constrained by a numerical limit. 
 
Growing Globally Competitive Companies 
-------------------------------------- 
 
¶7.  (U) The budget's second priority is to support Singapore 
companies, especially those in clean energy, waste and water 
management, healthcare, education and transport management, to 
expand abroad, improve access to finance, and commercialize their 
research and development.  The GOS will inject an additional S$1.5 
billion into the country's National Research Fund, on top of the 
S$2.2 billion that has already been committed. The aim is to work 
towards the Economic Strategies Committee's (ESC) recommendation of 
growing Singapore's gross expenditure on R&D from 3.0 to 3.5 percent 
of GDP in the next five years.  In addition, the GOS will commit 
S$450 million over a five-year period to start a Public-Private 
Co-Innovation Partnership for government agencies to work with 
private sector companies to co-develop innovations in areas such as 
urban mobility, environmental sustainability and energy security. 
 
Lifting All Boats 
----------------- 
 
¶8.  (U) The budget also makes an effort to make longer-term changes 
to redistribute income to those who have not benefited as much from 
Singapore's economic growth.  Some of the new measures are outright 
giveaways, with S$1.8 billion in direct transfers to households 
budgeted for 2010, with most of the benefit going to lower- and 
middle-income households.  In addition, however, the budget includes 
programs to raise worker productivity (and hopefully wages 
alongside) for lower income workers.  Also, the GOS will restructure 
its current flat property tax rate system for owner-occupied 
residential properties to a progressive property tax rate. 
Nevertheless, the budget is careful to ensure that the new property 
tax, though being progressive, is still lower than that of most 
global cities to maintain Singapore's competitiveness. 
 
SHIELDS