Deputy Prime Minister and Minister of Finance, Tharman Shanmugaratnam made the Budget Speech 2014 in Parliament lat Friday, which was broadcast live.
The summary of the Budget statement that has been delivered in Parliament can be found here.
CPF and Medisave contribution rate increases – boon or bane?
In the speech made by the Minister, he said: “We will raise CPF contribution rates for those aged above 50 to 55 by 1.5 percentage points – 1 percentage point from the employer and 0.5 percentage points from the employee.”
While this would mean an increase of CPF contribution to build own one’s retirement fund, it also means that the take-home pay of this group of workers will be reduced by 0.5%.
With the statistics indicating widespread age discrimination as workers age, their real pay increase decreases, particularly for lower-income workers. This may contribute further to their financial stress.
Minister also announced that Medisave contribution rate will increase by 1% for all workers, to be borne by the employer.
The above CPF contribution rate increases may add further wage pressures to employers and may translate into lower real wage increase.
Combined annual healthcare cash outflows still less than inflows
With the 1% increase in the Medisave contribution rate, the Government may continue to, from a cashflow perspective, not need to spend a single cent on healthcare, as the total annual Medisave contributions and interest credited on the the Medisave accounts’ balance of $60 billion (FY2012), is estimated to be about $10 billion.
Indeed, if we compare this to the combined total government operating and development expenditure on healthcare:
- Medisave Scheme – $798.5 million
- Private Medical Scheme- $484.1 million
- Medifund payouts – $102 million
- Recently announced annual increase in Government healthcare spending on the Pioneer Generation Package subsidies for MediShield Life
- Expanded subsidies at Specialist Outpatient Clinics (SOCs)
- Additional bills at polyclinics, Community Health Assist Scheme (CHAS) benefits, Disability Assistance and Medisave top-ups of $200 to $800
- Medisave top-ups of $100 to $200 annually to those not eligible for the Pioneer Generation
It is highly doubtful if the the total sum of these expenditures will even add up to the estimated $10 billion annual Medisave inflow.
The disproportionate values on inflow versus outflow prompts an important question: Even with the enhanced subsidies (more for the older ones) for MediShield Life, SOC, etc for the pioneer generation, what happens if one is still unable to pay? With no clear indication, they would likely have to apply under Medifund Silver as per current practice. This would mean that the entire family will have to be subjected to vigorous means testing.
$1.16 Budget deficit or $6.84b Budget surplus?
Singapore is expected to have an overall surplus of S$3.9 billion, or 1.1% of GDP, for FY2013.
The overall Budget balance is reportedly a deficit of $1.2 billion for FY2014, or about 0.3% of GDP, with a $8 billion one-time transfer to the newly created Pioneer Fund.
Does this mean that if not for this new transfer, the overall Budget balance in FY2014 is actually projected to be a whopping $6.84 billion? Yet another year of “under-reporting” of the Budget surplus through transfers to endowment funds being treated as an expenditure item?
Median wages increased 9% last 5 years?
The Minister also said that “median wages for citizens increased by about 9% in real terms in the last 5 years”.
As this is, I believe, based on wages including employer CPF contribution for full-time workers, what are the statistics for full-time and all workers (full-time and part-time) excluding employer CPF contribution?
Billions well spent on PIC?
On improving productivity, the Minister announced: “The Productivity and Innovation Credit (PIC) scheme is due to expire in Year of Assessment (YA) 2015. There have been many calls for its extension. We have decided to extend the PIC scheme for another three years until YA2018. This extension will cost the Government a total of $3.6 billion.”
Minister also mentioned that “productivity has increased by 11% since we began the restructuring journey four years ago.”
According to the Department of Statistics (DOS) Yearbook of Statistics 2013 – labour productivity growth was 0%, -2.6%, 1.3%, 11.1% and -3.4% for 2013, 2012, 2011, 2010 and 2009 respectively. So, how did we conclude that productivity has increased by 11% since we began the restructuring journey four years ago? In averages, should it not be 9.8% and 6.4% for the last 4 and 5 years, respectively?
Also, since PIC was introduced in Budget 2010, productivity growth following its introduction was a miserable 1.3%, -2.6% and 0%, in 2011, 2012 and 2013 respectively!
In this connection, according to former NTUC Income CEO, Mr Tan Kin Lian who spoke at the Pre-Budget 2014 Public Forum on 15 February, said: “In year of assessment 2011, a total of 57,000 companies reported a total profit of $90.4 billion, while 106,000 companies reported a total loss of $63.8 billion.”
He also said, “The number of loss making companies increased from 104,000 in 2003 to 165,000 in 2011. The average loss per company increased from $210,000 to $600,000″.
Effectiveness of Workfare
The Minister also claimed that “we are mitigating wage disparities, by using tax revenues to top up the wages in the lowest 20% through Workfare.”
Workfare only helps lower-income workers age 35 and above. Moreover, the bulk of it goes to CPF and is not paid in cash. For example, when I used the Workfare calculator for a 61 year old worker earning $1,800 – what I got was only $177 in cash for the whole year of 2013, and $261 to CPF. Can this constitute a top-up in wages?
Leong Sze Hian