TR Emeritus

Feb 21, 2014

http://www.tremeritus.com/2014/02/22/analysis-of-some-questionable-points-in-budget-2014/

I refer to the Budget statement that has just been delivered in Parliament.

CPF contribution rate increase by 1.5% for aged above 50 to 55?

“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.”

Take-home pay decrease by 0.5%?

– This means that the take-home pay of this group of workers will be reduced by 0.5%.

With the statistics indicating widespread age discrimination in that as workers age, their real pay increase decreases, particularly for lower-income workers – this may contribute further to their financial stress.

“We will also raise the employer contribution rate for those aged above 55 to 65 by 0.5 percentage points.”

Medisave contribution rate increase by 1% for all workers?

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.

Govt still need not spend a single cent on healthcare? 

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.

0.52 ratio of annual CPF withdrawals to contributions?

The total CPF contributions to all accounts (Ordinary, Special and Medisave) was $28.6 billion in 2013 against total withdrawals of $14.9 billion.

Combined annual healthcare cash outflows still less than inflows?

Against this the combined total of Government operating and development expenditure ($5.2 billion), Medisave Scheme ($798.5 million), Private Medical Scheme ($484.1 million); Medifund payouts ($102 million) and the just 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, etc

– may all still add up to less than the estimated $10 billion annual Medisave inflow.

What happens if pioneer generation still can’t pay?

The question is 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? Apply under Medifund Silver like what is currently happening, and have the entire family being 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.

“Overall Budget balance is 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?

“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?

After spending billions on PIC?

“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.

While 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 grew by (0 (zero growth), -2.6, 1.3, 11.1 and -3.4 for 2013, 2012, 2011, 2010 and 2009 respectively. So, how did we get “productivity has increased by 11% since we began the restructuring journey four years ago”? Isn’t it 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!

65% of companies losing money? 

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 – “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.

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″. 

Workfare really helps a lot?

With regard to “Second, 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.

Leong Sze Hian

*Leong is the Past President of the Society of Financial Service Professionals, an alumnus of Harvard University, has authored 4 books, quoted over 1500 times in the media , has been host of a money radio show, a daily newspaper column, Wharton Fellow, SEACeM Fellow, columnist for Malaysiakini, executive producer of the movie Ilo Ilo (24 international awards). He has served as Honorary Consul of Jamaica and founding advisor to the Financial Planning Associations of Brunei and Indonesia. He has 3 Masters, 2 Bachelors and 13 professional qualifications.