Singapore's budget a litmus test for next leaders, with focus on cost of living, jobs amid 'uncertain era', analysts say

Singapore's budget address on Friday is expected to address the rising costs of living and employment, issues seen as a litmus test for its fourth-generation leaders to prove they can take the city state through an "uncertain era" of geopolitical instability, analysts said.

This year's budget will also have added political significance given an expected leadership transition to the so-called fourth-generation, analysts pointed out, with the blueprint set to give citizens a glimpse of how the new administration would execute policies according to a road map set out in a Forward Singapore vision it announced recently.

"Budget 2024 will be a conscious effort to demonstrate that the 4G leadership is equal to the task of leading Singapore in an uncertain era," said Eugene Tan, a law professor from Singapore Management University (SMU).

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"With 18 months left to the current parliament's term, Budget 2024 can be expected to demonstrate renewed urgency and resolve to tackle cost-of-living concerns and the medium- to long-term concerns of ensuring Singapore remains economically relevant," he said.

The budget speech will be Deputy Prime Minister Lawrence Wong's third, and possibly last, before Prime Minister Lee Hsien Loong hands over power and the country heads into its next general election.

While speculation has swirled in recent weeks that the transition could occur soon after the budget debate, which will end in mid-March, and be according to Lee's plan to hand over power by November this year, Tan said the ruling People's Action Party (PAP) was unlikely to be "hasty" about the shift.

"The ruling party needs more time to reduce the political sensitivity of some of the top-of-the-mind concerns such as cost of living, housing affordability and accessibility, and job security," Tan said.

Recommendations in the Forward Singapore report - the result of a nationwide feedback exercise with some 200,000 citizens - are also likely to serve as a pivotal propeller for this year's budget, according to analysts.

The exercise, which covered challenges and proposals on nearly every aspect of Singapore life, was largely viewed as the first concrete sign of the republic's third change of premiership since its independence in 1965 and described as a "primer" and "election manifesto", political observers previously told This Week in Asia.

The budget has to "provide the fiscal muscle as well as initiate the requisite legal and policy changes to fundamentally remake Singapore's social compact", Tan said.

"This means measures to promote inclusivity, ageing and the green transition," said Bernard Aw, chief economist of the Asia-Pacific at Coface, a global trade credit insurance group.

"[This includes] unemployment support, upskilling, new or enhanced initiatives to support lower-income households, investment in renewable and clean energy infrastructure, increased incentives to encourage green transitions."

The budget address comes after Singapore's Goods and Sales Tax rose by 1 percentage point at the start of the year, and ahead of higher water tariffs to be implemented in two phases this and next year.

Headline inflation has fallen from a peak of 5.5 per cent a year ago, but it remained higher than pre-pandemic levels, at 3.3 per cent in December.

Last year, the government unveiled a budget focused on social policies, with a string of measures aimed at insulating young families, older citizens and gig workers from inflation and the GST increase.

In his budget speech last year, Wong, who is also finance minister, unveiled measures such as additional public housing subsidies for new families, doubled paternity leave to four weeks and an enhanced "baby bonus" of up to S$13,000 (US$9,600) to encourage births.

But economists do not expect as many handouts this year.

Last September, the government announced a S$1.1 billion cost-of-living support package to provide relief for Singaporean households amid higher inflation and cost-of-living concerns.

Its Assurance Package - introduced to cushion the impact of the GST hike though the disbursement of various cash payments of up to S$2,250 depending on income level and property ownership - was also enhanced twice last year.

In Maybank's Budget Preview released this month, its analysts said the latest enhancements brought the Assurance Package to an estimated S$10.1 billion.

"There may be less of a focus on cost-of-living measures, given that enhancements to existing packages have already been made," the report said.

Selena Ling, chief economist at OCBC, agreed and said the special transfers to households might be more "tapered" due to a reduced risk in recession and subsiding inflation.

"[It's] hard to justify another huge package per se. But given the policy focus on refreshing the social compact through Forward Singapore, it may still be substantial but maybe not higher than the last two years."

Economists noted that businesses "struggling" with elevated costs were also likely to receive some support.

"The additional 1 per cent in the GST, carbon tax hike, adjustments in various fees - across public transport and healthcare, utilities - and the coming hike in water tariffs, are complicating the economic landscape even as the external headwinds of geopolitical uncertainties persist," Ling warned.

Maybank analysts expect relief measures to help firms cope with the spike in logistics costs following the Houthi conflict in the Red Sea and the Panama Canal drought.

"The disruptions in these waterways have caused delays, raised costs and disrupted supply chains - and the effects were seen in a slowdown in Singapore's logistics growth in December 2023," the report said.

Workers could expect "unprecedented" re-employment support while they upgrade their skills, SMU's Tan suggested.

"It is anticipated that Budget 2024 will provide the funding and significant policy announcements on strengthening the skills and training ecosystem to enable the Singaporean workforce to access more training support throughout their careers," he said.

The government will also want to show, through the budget, that it can take care of citizens amid the leadership transition, according to Mustafa Izzuddin, a senior international affairs analyst with Solaris Strategies Singapore.

Izzuddin expected the leadership handover to happen in the second half of this year. At a party convention late last year, Lee said he would be ready to hand over power some time before the PAP's 70th anniversary on November 21, but few clues have since emerged as to when it would take place.

"I expect the handover to take place between the National Day celebrations in August and the PAP convention in October, and the general election possibly in the first half of 2025, although a snap election in December 2024 cannot be ruled out either," Izzudin said.

This article originally appeared on the South China Morning Post (SCMP).

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