By JAMES CLEMENCE AND JAMES COLEMAN

THE perennial dilemma is with us again - what would you like to see included in the Finance Minister's Budget speech this year? This is not quite as simple a question as it may have been in previous years.

The current economic conditions present the Finance Minister with a difficult dilemma - whether to give away generously to individuals via the personal tax system as a means to stimulating the stuttering economy; or to play things more cautiously, keeping the purse strings tight on the tax system and use the money on more targeted economic stimulation projects such as infrastructure.

Whether you are in favour of a giveaway Budget or a more prudent approach, most would agree that it would be helpful to ensure that at least two goals are achieved with any reforms that are made to the personal tax regime:

• The working population should be recognised for the contribution that they make to the successful and diverse economy of Singapore. Any measures introduced should continue to encourage more of the same commitment to push on through this difficult period; and
• The working population of Singapore needs jobs. Therefore, existing employers need to be encouraged to maximise employment opportunities and new employers, whether foreign or local, need to be encouraged to set up or relocate their businesses here.

If both goals are simultaneously achieved in the Budget reforms, Singapore should be well-placed to emerge stronger from the crisis than other less agile competitors. The Budget therefore represents an excellent opportunity to do this.

Personal tax rates and reliefs

If we start with the basics, there are some obvious measures that may be universally popular and may meet both of the goals.

• Top marginal personal tax rate - Bringing down the top rate of income tax (currently 20 per cent) to at least match the corporate rate (18 per cent) would put more money in the hands of higher earners to enable them to invest more money back into the economy. It would also help to make Singapore more competitive than other regional locations, in terms of headline tax rates.
• Starting rates of taxation - At present, annual income of $20,000 or below attracts zero per cent taxation with the next $10,000 of income attracting tax at only 3.5 per cent. By increasing the zero rate tax band from $20,000 to $30,000, a sizeable proportion of employees would be removed from the tax net completely.

The administrative cost for employers to comply with tax filing requirements for these employees would be removed as would the cost of the tax authority collecting the tax of less than $350. It would also put a bit of extra money in the hands of all taxpayers.

• Income tax rebate - This was used last year (albeit for very different reasons) and is an excellent way to inject good news and extra cash into the system without being committed in the longer term to repeat the measures year after year. Whilst this is not a 'means tested' or focused measure, it is a welcome 'windfall' that may boost morale in addition to short-term spending power.
• Family-friendly policies - Earlier in the year a number of family-friendly measures were announced which helped new and existing parents by reducing their income tax bills. Is there scope to further enhance this by increasing the 'spousal' relief for married couples?

There are pros and cons to each of the above proposals, but they have one thing in common - they are simple to understand and to administer.