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Singapore forecast a smaller budget deficit for the fiscal year ending March 31, 2010 and plans to spend S$5.5 billion over the next five years to increase productivity. The government expects the economy to grow around 4.5% to 6.5% in 2010.
In his budget statement on Monday, Finance Minister Tharman Shanmugaratnam said the government now sees a lower overall budget deficit of S$2.9 billion or 1.1% of GDP for fiscal year 2009 ending March 31 this year, compared with the S$8.7 billion deficit last year. After taking into account the top-ups to endowment and trust funds, the budget deficit of around S$3 billion is expected for the year ending March 2011.
At the same time, the basic deficit is seen at S$7.2 billion for FY2010. This basic deficit at 2.6% of GDP was slightly smaller than last year's 3.3%. The basic deficit is the balance of operating revenues and expenditures before taking into consideration the net investment returns contribution and the top-ups that are made to the endowment and trust funds.
The minister told the Parliament that the government will commit S$1.1 billion a year over the next five years in the form of tax benefits, grants and training subsidies to support a combined, national effort to raise productivity. The government intends to build up an outstanding Continuing Education and Training system for adults, to complement a first-rate education system for young. In total, it will cost S$2.5 billion over the next five years for government.
"The Budget 2010 will provide a major investment for this future," said Shanmugaratnam. The government's initiative to help enterprises and workers raise productivity will cost S$5.5 billion over the next five years alone, he said. The government will provide tax incentives for businesses in all sectors to invest in upgrading their operations and creating new value. Shanmugaratnam said, first, a 'Productivity and Innovation Credit' will be introduced, which will provide significant tax deductions for investments in a broad range of activities along the innovation value chain.
Further, the government will create a National Productivity Fund for which the government targets to put S$2 billion. As a start, the government will inject S$1 billion into the fund in 2010, which is expected to be able to support initiatives over the next five years. The National Productivity Fund will provide grants to help enterprises in all sectors, with special emphasis initially on sectors where there is potential for large gains in productivity
Firms hiring overseas workers should pay higher levies. The government will gradually raise the foreign worker levies, and tighten the levy tiers that are based on the proportion of foreign workers in a company's workforce, Shanmugaratnam added. The levy rates will be raised by between S$10 and S$30 for most Work Permit holders on July 1, 2010.
"Raising skills and productivity is the only viable way we can achieve higher wages, and is the best way to help citizens with low incomes," the minister said. With 2% to 3% productivity growth each year, incomes can be raised by one-third over a decade.
The Workfare Income Supplement is extended to workers earning up to S$1,700 a month, up from the current limit of S$1,500. Maximum payouts for the WIS will be raised by between S$150 and S$400, with older workers a larger part so as to encourage them to remain in the workforce.
He also announced measures to support households. Similar to the current scheme for husbands, Shanmugaratnam said now wives who are taxpayers can also claim a spouse relief of S$2,000. For dependent related reliefs, the current income threshold of S$2000 is raised to S$4,000. This increase recognizes taxpayers' efforts in supporting family members who are genuinely dependant, while giving them the flexibility to do some incidental work. The tax relief for course fees is increased to S$5,500 from S$3,500, with effect from Year of Assessment 2011.
The government plans to introduce a progressive property tax rates based on the Annual Values of the properties. For owner-occupied residences, the first S$6,000 of annual value will be exempted from property tax. The next tier will be taxed at 4% and the balance of annual value in excess of S$65,000 will be taxed at 6%.
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