Budget 2007

The big one is here. Yesterday for a mind numbing 2 hours or so, 2nd Finance Minister Tharman Shanmugaratnamn delievered a speech meant really for technocrats. Chockful of minor details and a bland emotionless description of the vision the government has for SIngapore, he delivered one of the most impactful Budgets for a while.

Check the speech out here (its forty-plus freaking pages long, I warn you all first): Singapore Budge 2007

First, the three major thrusts of the budget, in my humble amateur opinion.

1) Raising GST/Lowering corporate taxes -> Move towards indirect taxes
2) Raising CPF contributions, but stifling the increase for low wage workers, so that they become more competitive
3) Workfare - psuedo-welfarism


Man there's just so much to talk about. But let me give me initial asssesment.

It's a big move to do what the govt has done. It is essentially pushing the economy and tax system to face the new Singapore. A singapore powered by foreigners, businessmen, tourists and high-rolling gamblers.

It will be a Singapore populated by more PRs than citizens, where most if not all of the jobs that will be available will be to service these high-networth foreigners.

It will also become a place where hopefully the majority of the Singaporean working population occupies the middle to the higher level type of jobs, where more than half of the population will have degrees.

Is this a grand vision of us tapping the world or a vision which shows that we are totally at the mercy of the world?

I reserve judgement.

But what I am interested in is that although sweeping, the changes mean little to the heartlander. In an example Tharman gave, a worker earning $800 can look forward to taking back $57 after the changes. Woopee. And after you minus the GST increase, he will get about mmm $30 more a month. But wait there is the GST credits to help him right? Well, as most of the people I speak to, who are poorer, most of this money that is given will automatically go to paying off debts.

The one big flaw the govt has in these big policies changes is that it assumes people are rational. Of course, that is the assumption one starts with if and whenever you use economic analysis. But damnit, most people are not. If you give someone $200, do you think he will put it aside and distribute it over the nxt 2 years to offset GST? Heck no. That guy will probably use it to buy a handphone or give angpows to his relatives. Or buy him a small comfort in life.

Is the govt right in saying that GST credits of $1,000 will help offset a poor family's GST impact over 19 years? Yes and no. On paper, yes. In reality no. It has wised up though, and decided to distribute the money over 4 years so the relief can be felt over a longer period.

Sweet things last a short while, while bitterness stays in the mouth for a long long time.