SINGAPORE, Feb 18 — Keen to shore up its popularity as election talk rises, the Singapore government is expected to dig into its fiscal surplus to pay for handouts and business tax breaks in its budget on Monday.

The People's Action Party (PAP), which has ruled the city-state since independence in 1965, is credited with transforming it from colonial outpost into a global business hub.

But in the last election in May 2011, the party's share of the vote slipped to 60 per cent from 67 per cent in the previous poll, and a record number of opposition politicians entered parliament.

High living costs and frustration over the widening wealth gap in a country that's a centre of private banking services for Asia's rich lie behind some disenchantment with the PAP.

“It's an extremely important budget because it gives the government a chance... to convince as many Singaporeans as possible that it is in fact deeply concerned about the issue of inequality,” said Garry Rodan, professor of politics and international studies at Murdoch University in Australia.

An early vote?

The next election can wait until January 2017. But there is intense speculation it will be called soon after Singapore celebrates its 50th anniversary of independence in August.

Economists expect the budget for the fiscal year starting April 1, to be unveiled on Feb. 23, will contain measures such as utility rebates for a broad cross-section of society. The budget presented a year ago included an S$8 billion (RM21.1 billion) package for the country's older “pioneer” generation.

With accumulated surpluses of S$12.6 billion, according to a Bank of America Merrill Lynch estimate, the government also has room to help smaller businesses navigate a tough economic landscape and sweeten a tax deduction scheme for investment in innovation and productivity improvements.

The Productivity and Innovation Credit (PIC) programme is part of a push to make the economy less reliant on large number of foreign workers and boost labour productivity, which fell 0.8 per cent last year.

The PAP has often criticised Western-style welfare states, and largely left Singapore citizens to care for ageing parents.

Influx of foreigners

Together with a large influx of foreigners — both highly-paid executives and manual labourers — that approach has fuelled income inequality in one of the world's richest countries.

The government has taken steps in recent years to help the elderly with healthcare costs, increase the supply of public housing and curb previously-surging property prices.

However, some of the policy changes have been too complex and conditional, which has limited their political impact, said Linda Lim, professor of strategy at University of Michigan Ross School of Business.

“One reason for the limited changes in social policies is policymakers' continued adherence to rigid ideological premises of the past, such as patriarchal families, individual self-reliance, and welfare making people lazy,” said Lim.

Finance Minister Tharman Shanmugaratnam, who's also a deputy prime minister, has hinted that the budget will address issues facing all Singaporeans. — Reuters