Government budgets strengthen safety nets, inclusiveness

By Bart Edes on Mon, 25 March 2013

Photo credit: Lester V. Ledesma for ADB 2011
Photo credit: Lester V. Ledesma for ADB 2011

With their middle and lower economic classes being squeezed, governments overseeing several leading Asian economies are responding with greater social spending and tax relief. In some instances, wealthier residents are being asked to help foot the bill for heightened government expenditures to aid those under financial pressure, including elderly and other vulnerable persons. 

For example, Singapore’s new budget has just been introduced under the banner, “A Better Singapore: Quality Growth, An Inclusive Society.“ It provides for government co-funding of 40% of wage increases for Singaporean employees earning up to a gross monthly wage of S$4,000 (US$3,224) over the next three years, thereby covering a substantial share of the working population. In addition, the ceiling for the city-state’s Workfare Income Supplement is being raised to S$1,900 (US$1,531) a month, benefiting about 30% of the Singaporean citizen workforce. The new budget also includes a S$1 billion (US$806 million) top-up to Medifund, the government endowment fund set up to help needy Singaporeans unable to pay for their medical expenses. 

To pay for these and other public expenditure hikes, various progressive tax hikes have been rolled out. The top 1% of owner-occupied residential properties will face a higher property tax, as will the top one-third of non-owner occupied residential properties. Hefty registration fees on luxury cars are also being raised. 

In India, Finance Minister P. Chindambarram unveiled the 2013-2014 Union budget with the following introduction:

Growth is a necessary condition and we must unhesitatingly embrace growth as the highest goal.  It is growth that will lead to inclusive development, without growth there will be neither development nor inclusiveness.  However, I may sound a note of caution. Owing to the plurality and diversity of India, and centuries of neglect, discrimination and deprivation, many sections of the people will be left behind if we do not pay special attention to them.

The new budget includes large increases in rural and social spending, and asks more from the better off segments of society. Specific measures include a one-time 10% tax surcharge on 43,000 taxpayers reporting incomes of 10 million rupees ($181,000) or more, a customs duty on mobile phone handsets costing more than 2,000 rupees (US$36), and higher  duties on sport utility vehicles, imported high-end automobiles, and yachts. Those buying residences with a carpet area of 2,000 feet or more, or a value 10 million rupees or more, will pay a higher service tax equal to 30% of the property’s value.

The budget for the Ministry of Rural Development will rise by a whopping 46% to 802 billion rupees (US$14.5 billion), and some 100 billion rupees (US$1.8 billion) is set aside for costs connected with The National Food Security Bill, which will provide subsidized food to poor people.  The 2013-2014 budget also allocates 373 billion rupees (US$6.7 billion) to the Ministry of Health and Family Welfare. This includes 212 million rupees (US$3.8 billion) for the National Health Mission, a program to improve healthcare in rural India, representing an increase of 24.3% from the year before.

Finance Minister Chindambarram also announced the intention to launch a women-oriented public sector bank to be set up with initial capital of 10 billion rupees (US$181 million). The bank will be run by women, hire mostly women, and cater primarily to women and the self-help groups and businesses they run. 

Meanwhile, John Tsang, Financial Secretary of Hong Kong, China, has announced a 2013-2014 government budget containing several one-time subsidies, particularly for poor and aging persons living in the Special Administative Region. Apart from an old age living allowance approved earlier this year (HK$2,000, US$284, for those over 65 years of age), Mr. Tsang has announced several other measures to support elderly care. 

The new budget also responds to the difficult situation of lower-income (and often young) people who have not been on the waiting list long enough to qualify for public rental housing, and thus are not eligible for a recently announced two-month rent waiver. Many are not senior citizens, so they do not qualify for the old-age allowance payment. Further, they tend not to be sufficiently destitute to be eligible for the extra month of welfare payment that has also been included in the new budget. Many of the people living in such circumstances share apartments, where they may not benefit directly from the governmental electricity subsidy (HK$1,800, US$232) to be provided over the coming fiscal year. In response to their challenges, the Government is adding HK$15 billion (US$1.9 billion) to the Community Care Fund, which finances a variety of social initiatives, including rental assistance.

Among the other measures introduced in the new budget is an extra allowance for Comprehensive Social Security Assistance (CSSA) recipients equal to one month of standard rate CSSA payments. CSSA provides a safety net for those who cannot support themselves financially, and is designed to bring their income up to a prescribed level to meet basic needs. In addition, an additional one month of allowance is being provided to beneficiaries of schemes aiding the elderly and disabled.

Altogether, the Government of Hong Kong, China will boost spending on social welfare in 2013-2014 to HK$56 billion (US$7.2 billion), an increase of 31%.  The government is in a comfortable position to hike such spending, having accumulated substantial budgetary surpluses and starting from a relatively low base of social spending for a high-income economy.

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