SINGAPORE : Finance Minister Tharman Shanmugaratnam warned that inflation remains a major uncertainty for the Singapore economy.

Delivering the Budget in Parliament on Friday, he also announced that the Republic expects to achieve a Budget surplus of S$6.4b for fiscal year 2007.

He added: ""We seek to moderate imported inflation through our Singapore dollar exchange rate policy. There is a limit to how fast the Singapore dollar can appreciate without hurting our economic performance and growth, and eventually causing wages to fall. An overly strong Singapore dollar can bring inflation down, but at the cost of lower growth and higher unemployment."

"This is why, while we can mitigate imported inflation through MAS's exchange rate policy, we cannot insulate ourselves completely from the effects of global inflation."

The Finance Minister spent a good part of his speech addressing the inflation issue, examining the factors contributing to this and also spelled out what the government will do to help Singaporeans cope.

The headline Consumer Price Index - or CPI - hit 4.4 percent in December but averaged 2 percent last year.

However the CPI is forecast to hit 4.5 percent to 5.5 percent this year.

If the barometer of inflation, the CPI, hits 4.5 to 5.5 percent this year, it will be the country's highest full year inflation rate since 1981.

Mr Tharman said the inflationary pressures arose mainly from high prices for food and oil due to the strong demand worldwide.

He added that the government would step up efforts to help Singaporeans cope such as diversifying food sources.

He did admit though that there are local factors for the rise in the CPI, mainly the rise in the annual value of homes.

But he stressed this is one form of inflation that would not hit Singaporeans' pockets since most own their homes.

As for the GST, Mr Tharman noted that this only caused a one-off increase in prices, and does not result in continuing price increases.

He said: "In view of Singapore's good economic performance over the past year and the strong fiscal position, the Government has decided to share some of the nation's surplus with all Singaporeans.

"These surpluses will be distributed in the form of Growth Dividends, additional Post-Secondary Education Account (PSEA) top-up, Medisave Account top-up and Personal Income Tax rebates."

Mr Tharman said a larger portion of the benefits will be distributed to older Singaporeans and the lower and middle income groups, with certain top-ups directed towards helping Singaporeans with their education and healthcare needs.

In addition to the new initiatives announced in Budget 2008, households will also continue to receive benefits from the various schemes announced in Budget 2007.

He also noted: "The S$4 billion GST Offset Package will continue to help Singaporeans cope with the increase in GST through various payouts and rebates to eligible individuals and households over the next 4 years, from FY2008 to FY2011. The Workfare Income Supplement (WIS) scheme continues to supplement the wages and savings of workers, and increase the take-home pay and employability of older lower wage workers." - CNA/ch


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