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2 ASIA HAND Fiscal
finagling in Singapore By
Shawn W Crispin
BANGKOK - Singapore's
economy is booming, with gross domestic product
(GDP) on course to expand 7.2% this year after
racing ahead 7.9% last year. But the strong
economic-growth figures mask a structural weakness
in the island state's economic-policy mix, one
that threatens its long-term international
competitiveness, and one that the ruling People's
Action Party (PAP) clearly
has no intention of amending.
This week,
the PAP-led government rewarded itself with a 60%
pay increase, boosting ministers' annual base
salaries to about S$1.25 million (US$823,000), the
highest pay scale for government officials
anywhere in the world. Big budget surpluses
provide the financial power behind the PAP's
political monopoly, which steers the national
economy and maintains a strict system of social
controls.
To generate that largesse, the
PAP maintains a highly austere fiscal policy,
taxing more and spending less than perhaps any
other government in Asia. The government contends
on its official website that fiscal policy is
directed primarily at promoting long-term economic
growth rather than cyclical adjustment or
redistributing income through "fair" tax policies
and "prudent" expenditure programs. It contends an
"ethos of fiscal rectitude" extends throughout the
public sector to help ensure price stability and
confidence in the local currency.
Beyond
the official jargon, Singapore's fiscal policy
consistently generates outsized surpluses, which
come largely at the expense of the island state's
private consumers and businesses through a complex
web of income and various other hidden taxes. As a
percentage of GDP, Singapore's domestic
consumption historically ranges between 10% and
20% less than that of Hong Kong, where average per
capita salaries are comparable. Anemic consumption
coincided with Singapore running a current-account
surplus of 28% of GDP last year - far and away the
highest such ratio of any advanced economy in the
world.
According to independent financial
analysts who spoke with Asia Times Online,
Singapore's outsized surpluses are habitually
hidden away off-budget, often through the use of
accounting gimmicks that diverge from
internationally accepted norms. They note that
government-linked companies and investment
corporations buy and sell among themselves at
undisclosed transfer prices, obscuring their
profit and loss profiles. Nor, they note, does the
government publish statistics related to its share
of overall national savings.
Throughout
the 1990s, the government reported surpluses
averaging around 3.6% of total GDP. That, the
government says, has contributed to a high
national savings rate and one of the highest
investment rates in the world without incurring
foreign debt. Independent analysts and academics
have calculated over the same time period an
average closer to 10%, or three times the amount
stated on the national accounts. And even those
figures likely understate the true high level of
the surpluses, as they fail to include undisclosed
information on government land lease revenues,
investment income and profits from off-budget
state entities, and other hidden cash cows.
The government's fiscal reaction to the
1997-98 Asian financial crisis gave a glimpse of
just how prohibitive both its on- and off-budget
tax structure has become. Then in panic mode, the
PAP-led government granted an on-budget 5% rebate
on income tax, a 15% rebate on property tax, a tax
exemption for land under development, and an
abolition of so-called stamp duties on all
financial instruments except those related to
stocks.
Off-budget, it temporarily allowed
for an additional 40% property-tax rebate, a
suspension of car-parking surcharges and stamp
duty on contract notes, a deferment of stamp duty
by buyers of uncompleted property, a 10%
corporate-tax rebate, removal of tax on household
bills, an increase in electricity-tariff rebates,
and sweeping reductions in foreign-worker levies,
customs duty on
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