Singapore budget filled with handouts ahead of elections: Update 1

Singapore unveiled a budget on Friday filled with handouts for poorer citizens, with an eye on elections that may be called as early as the second quarter.   

Measures for the upcoming financial year included a package of benefits for Singaporeans worth $6.6 billion, as well as lower income taxes for all middle-income families in the city-state, Finance Minister Tharman Shanmugaratnam told parliament in his budget speech.

In response to growing inflationary pressures, he said the central bank would allow the currency to appreciate in order to moderate price increases, but warned that any sharp gains in the Singapore dollar posed dangers to the economy.

“However, using the exchange rate to offset sudden spikes in prices, such as what have seen in oil prices over the last six months, would require a sharp appreciation of the Singapore dollar. This would disrupt our exporters,” he said.

Although the economy is booming and Singapore is one of the world’s richest nations in terms of per capita GDP, the government must address a widening income gap and worries about rising inflation, which could hit 5-6% year-on-year in the first quarter of 2011.

There were also some benefits for companies in the budget, including enhanced tax rebates for firms that invest to raise productivity, but these were offset by an increase in employers’ contributions to employee pensions and higher levies on firms that employ lower skilled foreign workers.

“We will take further measures to ensure an inclusive society, where everyone can contribute and share in the country’s progress,” Tharman said.

“In Budget 2011, we are moving ahead with major measures for our future to build up a vibrant economy and enable an inclusive society. Our strong budget also allows us to provide an additional package of benefits to all Singaporeans this year.”

Helped by strong economic growth of 14.5% last year, Tharman said Singapore will report a small overall budget deficit of $300 million, or 0.1% of gross domestic product, for the financial year ending March 2011.

Singapore’s actual fiscal surpluses are even higher, as proceeds from land sales are put directly into reserves and not reflected as revenue in its annual budgets.

The government had previously projected a S$3 billion deficit for FY2010/11.

Tharman also said in a budget speech that government will put back into reserves $4 billion that it had withdrawn earlier.

Prime Minister Lee Hsien Loong must hold general elections by February 2012, but the government has indicated it will call a poll in the second quarter.

Lee’s People’s Action Party has ruled Singapore since independence and is widely expected to win most of the seats at the next election.

Rising prices for everything from food to housing is expected to be a major campaign issue.