* Billions to be spent helping the 'Pioneer Generation'
* Deficit of 0.3 pct of GDP seen in new budget year
* Comes amid growing unhappiness over inequality
(Adds details on budget measures, reaction)
By Masayuki Kitano and Rachel Armstrong
SINGAPORE, Feb 21 Singapore plans to allocate
billions of dollars to support the elderly and low-income
families in the coming fiscal year, during which the city-state
expects its first budget deficit since 2010.
The government unveiled on Friday a budget for 2014/15 that
includes steps to support citizens born by 1949 via subsidies to
help cover health-care costs. It said it will set aside S$8
billion ($6.33 billion) in the year starting April 1 to help its
Singapore's electorate has become increasingly angry over
the high cost of living and a gap between rich and poor, forcing
the long-ruling People's Action Party (PAP) to re-set its goals
and focus on providing more affordable healthcare and extra
support measures to the less well-off.
While Singapore historically has eschewed Western-style
'welfare states', it has started to bring in a series of
subsidies to help citizens struggling to cope with rising
medical, education and other costs.
"We are strengthening social safety nets, and mitigating
inequalities," Deputy Prime Minister and Finance Minister
Tharman Shanmugaratnam said in his budget speech.
In 2014/2015, government spending in Singapore is expected
to rise 8.3 percent from the current year to S$56.7 billion.
After including the Pioneer Generation Fund and other
measures, the overall balance in the 2014/15 budget should be a
deficit of S$1.2 billion, or about 0.3 percent of gross domestic
product, Tharman said.
That compares to an estimated surplus of S$3.9 billion, or
around 1.1 percent of GDP, for the current fiscal year.
Most years, Singapore has produced a budget surplus. The
last time there was a deficit was 2009/2010.
HIGHER SPENDING NEEDS
Tharman said the Pioneer Generation fund will ensure that
future budgets can focus on addressing needs such as
infrastructure investment and expected rises in government
healthcare spending for the population as a whole.
"Our spending needs will grow significantly in the next 10
to 15 years," he said.
Even if there are more budget deficits ahead, Singapore's
large current-account surpluses and hefty reserves give it
financial strength and room to raise spending.
"The government has fairly deep pockets in terms of its
reserves," said Song Seng Wun, director of Singapore research at
Some economists had expected the government to make some
changes in income-tax policies to get more revenue from
Singapore's many wealthy residents, but no such steps were
announced. Last year, some taxes on luxury cars were increased,
as were stamp duties for purchases of multiple properties.
"We could see wealthier households being called up again -
there are plenty of alternatives in terms of funding sources in
the coming years if spending were to be higher," said CIMB's
To help fund future health-care costs, the government said
it will raise employers' contribution rate to the Central
Provident Fund by 1 percentage point for all workers.
GETTING MORE PRODUCTIVE
The budget also included measures to help the government in
its long-running mission to boost productivity and reduce
reliance on foreign labour.
The construction sector in particular, will get incentives
via higher levies on lower-skilled foreign workers to focus
instead on automating processes and retaining more skilled
Unhappiness about the presence of many foreign workers
contributed to the ruling party's worsening performance in
recent elections. In the 2011 general elections, 40 percent of
votes went against the PAP, its poorest result since
independence in 1965.
The government also announced an extension of a Productivity
and Innovation Credit Scheme for three years that is aimed at
helping businesses improve their automation processes.
Figures released by Singapore's Ministry of Trade and
Industry on Thursday showed that the city-state saw zero
productivity growth last year, following a contraction of 2
percent in 2012.
On the tax front, excise duties on tobacco, alcohol and
lotteries were all raised.
There were no measures announced on the property market.
Since 2009, the government has taken eight rounds of measures to
prevent a property bubble, and Tharman said it was too early to
The cooling effort looks to be paying off with prices of
private properties falling 0.9 pct in the last quarter of 2013,
the first drop in almost two years.
"We are not engineering a hard landing, but neither are we
able to eliminate cycles in the property market," Tharman said.
($1 = 1.2648 Singapore dollars)
(Additional Reporting by Brian Leonal, Jongwoo Cheon, Laura
Philomin and Mohaini Ibrahim; Editing by Richard Borsuk)