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Singapore plans to splash out $2.5 billion in 2011 to boost the living standards of lower-income workers ahead of elections expected within the next year.
Singapore's 2011 national budget will target lower- and middle-income workers with tax cuts and rebates, subsidy increases and cash handouts, Finance Minister Tharman Shanmugaratnam said in parliament Friday. Altogether they will cost 3.2 billion Singapore dollars ($2.5 billion).
The ruling People's Action Party, which has held power since Singapore split from a shortlived federation with Malaysia in 1965, has traditionally boosted public spending before a general election.
Analysts expect the PAP to maintain its overwhelming majority in parliament at elections that must be called by February 2012. But if poorer Singaporeans who feel left out of the country's prosperity bring their discontent to the polls, the ruling party could find itself with a weaker mandate.
"We can't leave social cohesion purely to market forces," Tharman said. "Left to the market, incomes will continue to diverge."
"That's why the government has intervened significantly to tilt benefits in favor of those lower down the income ladder."
Better-than-expected revenue last year due to a surging economy helped the government increase spending.
Tharman said he expects a budget surplus including investment returns of SG$100 million this year from a deficit of SG$300 million last year.
Singapore's economy soared 14.5 percent last year, rebounding from a 0.8 contraction in 2009, as global demand for the city-state's exports recovered from a slump.
Singaporeans, except for the highest income earners, will receive a personal income tax cut this year of between 4 percent and 39 percent and a tax rebate of 20 percent up to SG$2,000 -- measures that will cost the government SG$1.2 billion in lost revenue.
The government also plans to spend SG$1.5 billion to give all Singaporean adults a cash payment of between SG$300 and SG$800 by May 1, Tharman said.
The government will increase grants to first-time buyers of public housing and to the retirement accounts of older workers, as well as give rebates for utilities bills, he said.
Tharman also announced SG$3.4 billion of long-term investments in worker training programs, health care for the elderly and promoting the arts.
For businesses, the budget was a mixed bag. Tharman said the government would cut corporate tax rates on investment in productivity and innovation by 60 percent and give a 20 percent tax rebate up to SG$10,000.
But companies will also have to boost their contribution to worker retirement funds and pay a higher fee for foreign workers.
"We shouldn't be ever more dependent on foreign labor," Tharman said.
The government expects worker productivity and real wages -- salary increases minus inflation -- to both grow 30 percent by 2020, he said.
The government also plans to return SG$4 billion to the country's reserves that was borrowed to pay for spending during the recession of 2008 and 2009.