SINGAPORE: When Finance Minster Heng Swee Keat delivers the Budget for 2017 on Feb 20, longer-term transformation measures to bolster Singapore’s restructuring efforts will likely remain a key priority.
Even as growth slows and unemployment creeps up amid lingering global uncertainties, there will be minimal short-term fixes, according to economists who spoke to Channel NewsAsia.
“The Budget will not be a shot of morphine, regardless the state of the economy’s health, but it will be a very targeted administration of long-term vitamin supplements to ensure that Singapore thrives,” said Mizuho Bank’s senior economist Vishnu Varathan.
Given that there is an additional agenda this year to flesh out details of the Committee on the Future Economy’s (CFE) report, what will these “vitamin supplements” be and what else can Singaporeans expect from Budget 2017?
1. BE PRUDENT WITH AN EYE ON THE FUTURE…
First of all, the Budget, which accounts for the Government’s revenues and expenditures, will remain a prudent one even as economists expect it to be in surplus for the financial year ending March 31.
This is largely because the Government is only in the second year of its new term and will want to save up in case of rainier days ahead, suggested Credit Suisse economist Michael Wan.
And this mindset of keeping an eye on the medium to long term is essential as an excessive focus on ongoing risks such as Brexit may end up being counter-productive, Mr Varathan said.
“We know there are many uncertainties right now, like Donald Trump’s policies, Brexit and China’s slowdown. But because we don’t know exactly how this will pan out, trying to pre-empt near-term shocks has risks and we will risk being premature and misguided,” said Mr Varathan.
This might result in the squandering of resources, which could have been directed to the long-term restructuring goals of transforming Singapore’s businesses and workforce, he added.
Mr Liang Eng Hwa, chairman of the Government Parliamentary Committee (GPC) for Finance and Trade, said: “This year’s Budget will have the added vital task of implementing the recommendations of the CFE. Hence, necessarily, the focus will be more medium to long term. I expect the Budget to continue its prudent stance given the uncertainties ahead – that it is the most sustainable way to build resilience.”
Singapore’s economy has been running slow amid a double whammy of macroeconomic risks and an ongoing domestic restructuring. (File photo: AFP/Roslan Rahman)
2. BUT THERE COULD BE SOME COUNTER-CYCLICAL MEASURES
Nonetheless, just like last year’s Budget, there may be some short-term targeted initiatives to help businesses, households and individuals navigate through the current wave of economic challenges.
For instance, Citi economist Kit Wei Zheng expects all planned foreign worker levy increases for vulnerable sectors such as offshore and marine engineering, to be held off. The Government could also help to reduce or defray non-labour costs, like utilities and rentals, to “avoid unnecessary loss of competitiveness”, he added in a report dated Feb 10.
Amid a softening labour market where retrenchment has steadily risen over the course of last year, help will also be made available to displaced workers. Apart from skill upgrading opportunities, help could also come in the form of longer tax repayment periods and a one-off personal income tax rebate, said Mr Kit.
However, given that the growth slowdown has not been as significant as it was during the global financial crisis, experts say a repeat of drastic measures such as the 2009 Jobs Credit Scheme will be unlikely for now.
3. A ‘BUSINESS FRIENDLY’ BUDGET?
Enterprise development will likely continue hogging the limelight at the upcoming Budget. Coming into step with the CFE’s proposals, a “business friendly” Budget is expected to contain initiatives to help companies further leverage technology and enable innovation, said DBS economist Irvin Seah.
At least two initiatives announced last year could return to the spotlight. For one, there could be more details about plans for the remaining 17 industries under the Industry Transformation Maps (ITMs). Over the past year, development roadmaps for six out of the 23 targeted industries under the S$4.5 billion programme have been announced.
Mr Seah is also expecting an enhanced version of the Automation Support Package – a more than S$400 million fund aimed at helping companies automate, drive productivity and scale up – which could entail a bigger grant and higher risk-sharing by the Government.
But investments in digital technologies, as well as research and development (R&D), can be a costly endeavour for homegrown small- and medium-sized enterprises (SMEs). It could also be a potentially risky one when firms are already feeling the squeeze from rising costs, financing and manpower pressures.
“SMEs in the last few years have been fighting tightening labour shortage and rising cost, whilst at the same time, trying to transform their business,” Mr Ang Yuit, vice president of membership and training at the Association of Small and Medium Enterprises (ASME), told Channel NewsAsia. “A slowing growth environment would force them to cut back on innovation activities, and also very likely, scale down their business.”
However, to stay relevant amid the digital wave, he noted that it is imperative for SMEs to “double down on innovation, business model re-engineering as well as R&D”.
As such, ASME is calling on the Government to extend the Productivity and Innovation Credit (PIC) scheme, which Mr Ang described as “one of the easiest grant for SMEs to tap on”.
Apart from that, ASME hopes to see more support for SMEs to make that leap from local to global. According to Mr Ang, current measures are “very little” and are often an ill fit with SMEs. Citing the Double Tax Deduction Scheme for Internationalisation (DTD) as an example, he said: “It may be good for large enterprises, but for SMEs looking to go abroad, it is the availability of business and opening of markets that is important.”
Even though it managed to tap grants from IE Singapore, local restaurant 4Fingers Crispy Chicken faced challenges in areas such as recruitment, searching for business partners and suppliers, when it first ventured into the Malaysian and Indonesian markets.
As it gears up for the opening of its stores in Australia this year, similar obstacles have re-surfaced due to the lack of a local network and resource constraints.
Mr Steen Puggaard, CEO of the fried chicken chain, told Channel NewsAsia: “A single portal for businesses to tap onto IE Singapore’s worldwide resources for market launches would be very beneficial… Apart from resource assistance in supply chain, legal, finance and tax etc, financial assistance in securing these resources would also help us manage our costs in market entries.”
Overseas expansion is a key focus for this homegrown fried chicken chain in 2017. (Photo: 4Fingers Crispy Chicken)
4. HELPING THE WORKFORCE TO LEVEL UP
Also on the cards could be measures to help Singaporeans acquire deeper skills to stay relevant in a fast-changing labour market upended by rapid technological disruption.
Amid a growing mismatch between jobs and skills in the local economy, OCBC’s head of treasury research and strategy Selena Ling said that more can be done on top of existing schemes such as the Professional Conversion Programme (PCP), Adapt and Grow and the Career Support Programme (CSP).
For instance, the existing credit amount of S$500 in the SkillsFuture scheme could be increased to motivate Singaporeans to cultivate a lifelong learning attitude, said Credit Suisse’s Mr Wan. To encourage companies to accommodate workers who take on additional jobs or training, employers could receive tax rebates or subsidies when they send their employees for training, he added.
5. BALANCING SOCIAL SPENDING
With the economy now in focus and a slew of measures such as the Silver Support Scheme already in place, observers said the upcoming Budget will unlikely see further increases in social expenditure or the announcement of big-bang social policies.
Mr Liang noted that the Government is facing a delicate balance to generate enough revenue to meet the ramp-up in social spending and infrastructure over the past few Budgets.
“As the economy slows, does that mean tax revenue will be reduced? We also cannot expect the Net Investment Returns (NIR) contribution to always be (steady) because global markets do have ups and downs that impact overall returns. So the pace of growth in revenue and expenditure is something that we need to watch closely,” he explained.
“At the end of the day, we want to spend on the right thing and exercise prudence.”
To be sure, the Government has said that more support will be given to the elderly, young families and people with disabilities in this Budget. DBS’ Mr Seah said households can expect to receive a helping hand in child education costs, top-ups to various public assistance schemes such as the Comcare Fund, and rebates on utilities, service and conservancy charges.
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