When presenting the S$47.1bn budget for 2011/12 to parliament, the finance minister said that the Singapore dollar's exchange rate, which is set by the Monetary Authority of Singapore (MAS, the central bank), would be important in controlling inflation, but that fiscal policy also had a role to play. The government has become increasingly concerned about the acceleration in inflation, which in January rose to a 25-month high of 5.6% year on year. A day before the budget speech, the Ministry of Trade and Industry revised up its forecast of average inflation this year to 3-4%, from 2-3% previously. Mr Shanmugaratnam said that inflation was a key concern this year, especially for low-income families.

The budget contained a number of measures aimed at supporting poorer households. Mr Shanmugaratnam said that families on the Workfare Income Supplement (WIS) scheme would receive a "special bonus" payment to be calculated on the basis of work done in 2010-12. There will be two bonus payments this year, the first on May 15th. Mr Shanmugaratnam also said that personal income taxes would be reduced significantly for middle-income and upper-middle-income earners through a reduction in the tax rate on the first S$120,000 (US$94,000) of taxable income. In addition to this, those paying personal income tax will receive a 20% rebate, up to a maximum of S$2,000. The workfare bonus and the income tax rebate are part of the S$3.2bn "grow and share" package of one-off measures aimed at alleviating the effects of higher inflation on disposable incomes. The package also includes "growth dividends" worth a total of S$1.5bn, to be paid to all of Singapore's taxpayers.

Among the budget measures aimed at supporting businesses facing rising costs, Mr Shanmugaratnam announced a 20% rebate on corporate income tax, up to a maximum of S$10,000. Small- and medium-sized businesses may also draw on a cash grant, capped at S$5,000. In addition, there are specific tax incentives for the financial, maritime and pharmaceutical sectors and for commodity-trading markets. Firms will, however, have to make a greater contribution to the Central Provident Fund (CPF, the compulsory national savings scheme): the finance minister announced a 50-basis-point increase in the rate of employers' contributions to the fund, to 16%.

In an attempt to boost Singapore's productivity by a cumulative 30% over the next ten years, in line with the recommendations of the Economic Strategies Committee (a high-level body created by the government in 2009 to look into ways to ensure continued prosperity for the city state), Mr Shanmugaratnam increased support for the National Productivity Fund to S$2bn in this year's budget, from US$1bn in 2010/11, and announced further tax incentives under the Productivity and Innovation Credit scheme. As a result, for tax purposes companies will be able to deduct up to 400% of their expenditure on training, investment and other categories of activity covered by the scheme. The cap for such claims was also raised, to S$400,000 per firm, from S$300,000. In addition, increased support was announced for programmes under the government's continuing education and training plans.

Mr Shanmugaratnam said that as a result of the measures announced in the new budget, operating and development expenditure would reach S$47.1bn in 2011/12, up by 1.5%, while operating revenue would rise by 5.9%, to S$48.1bn, resulting in a primary surplus of around S$1bn, compared with a revised deficit of S$930m (US$690m) in 2010/11. The basic deficit, which includes special transfers, mainly in the form of top-ups to endowment and trust funds and of cash hand-outs in the shape of "growth dividends", is expected to narrow to S$2.2bn, from S$2.5bn in 2010/11. Owing to the improvement in the budget position, Mr Shanmugaratnam said that the government had decided to pay back into its fiscal reserves the S$4bn that it had withdrawn to finance stimulus programmes in the past two years.

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