For many people going about their daily lives, Budget 2016 may have sounded like any other in the past few years. Take accountant Cheong Ying Fen. The 27-year-old said she read the news reports but nothing really stood out for her.
“It sounds the same as last year’s Budget, if you ask me. Productivity, automation, and some GST vouchers,” she said, with a shrug.
Indeed, panellists of a post Bud- get roundtable organised by The Straits Times yesterday agreed, noting that the approach taken by Finance Minister Heng Swee Keat was an evolutionary one, despite it being a Budget of firsts in many ways.
The Budget, delivered last Thursday, was the first for the term of the new Government after last year’s general election, the first after the milestone SG50 celebrations, and the first for Mr Heng, who took over as Finance Minister last year.
But on long-term challenges, the Budget took the approach of building on the foundations that have been laid down over the past few years, said Dr Walter Theseira, senior lecturer at SIM University. “When you look at economic restructuring and you look at basically what the Government is doing with the Budget towards that, the Government is largely staying the course,” he said.
Similar themes of restructuring for the long term and building social cohesion were present, he added.
Director of the National Trades Union Congress’ youth development unit and MP for Tampines GRC Desmond Choo said Budget 2016 was the continuation of a “nation-building Budget done in a very balanced way”.
However, he picked up on something that should make the likes of Ms Cheong take note: This is that the main difference was in the way the new Finance Minister is approaching the issues at hand.
“I think what Minister of Finance is really trying to look at is: Can we do things in a targeted fashion and set the stage and context for how to do proper industry transformation?” he said.
As to why the Budget’s focus on industry transformation, small and medium-sized enterprises (SMEs) and the economy matters to ordinary workers, The Straits Times’ Roundtable discussion throws up some answers.
EVOLUTION OF AN APPROACH
The Budget’s shift in direction is most perceptible in three main areas, said panellists.
One is the change in the Government’s approach to handing out financial help for firms, shown most clearly by the $4.5 billion Industry Transformation Package.
One big chunk of this policy is the new Automation Support Package, which will cost more than $400 million over three years, aimed at getting companies to scale up the use of automation in their operations.
At the same time, Mr Heng said the Productivity and Innovation Credit (PIC) scheme, which gave out generous financial incentives to companies to raise their productivity, is expiring in the 2018 tax year of assessment, with benefits to be cut from this tax year of assessment onwards.
This is the result from an implicit acknowledgement that the push from using broad-based incentives to raise productivity may not work for everyone, said Mr Jimmy Koh, UOB’s head of global economics and markets research.
To be sure, there are good examples of companies that have used the PIC incentives to buy machines that helped them make more of their products with less manpower.
“So (now) this is a very targeted approach, rather than the examples we see of companies going out there trying to buy laptops, iPads for everybody,” he said.
Dr Theseira agreed, arguing that there has been little accounting of the positive effects, if any, arising from the huge subsidies given out by the Government to companies.
“So the concern I have – the subsidies the Government has been giving out towards restructuring, I don’t think have been spent efficiently by a lot of companies,” he said. “Perhaps that is because sometimes, companies don’t even know what to do with the money, right? I give you money for automation in robotics, robotise what?”
But the president of the Association of Small and Medium Enterprises, Mr Kurt Wee, warned against doing away entirely with a broad-based incentive approach.
He said that for every bad example of companies frittering away PIC grants, there are more of companies which used them for good.
“When you want to make changes at the ecosystem level, the broad-based schemes are important and it helps you to move that needle,” he said.
PARTNERING FOR THE FUTURE
The second area in which Mr Heng has differed from his predecessor is in how he is positioning the Government as more of a partner than a leader in confronting the challenges of the future, said Mr Choo.
The Budget is signalling that it is less interested in trying to take a direct lead on how to find a solution. Instead, it now wants to work with trade associations, companies and unions more closely.
Mr Choo noted that there will be increased funding and support for trade associations and chambers to improve their outreach to companies, a clear sign of the Government wanting to tap networks.
Instead of adopting a top-down approach to picking industries for growth, the approach now is that the Government is choosing to help a firm of a certain size to grow, regardless of which industry it belongs to.
The Automation Support Package, for example, is clearly targeted at helping companies of a certain size with the capacity and knowledge to expand the use of machines in their operations. It will subsidise up to 50 per cent of a project, which will help companies scale up the use of automation, to a cap of $1 million. Firms likely to use this are most likely those with plans to grow overseas, or are of medium size.
This is not a bad approach, said Mr Choo. “Let’s bet on the winners, let the winners get Singapore to the next stage. Let us vary the way and change the way we use money – betting on the ones that have delivered on growth, support them the best that we can, letting other companies not doing so well go through some pain and restructure,” he said.
“But we ought to make sure that there is a social system to take care of the workers.”
The third area where change can be seen is a shift away from productivity to innovation. In his speech, Mr Heng acknowledged that productivity growth has “not been as strong as we would like”. He said: “While productivity has grown by an average of 2.7 per cent per year over 2009 to 2015, most of this increase was due to the cyclical rebound in 2010 and 2011. Productivity growth has remained relatively flat over the past three years.”
Innovation does not mean using high-tech software to mine data or using robots to drive growth. It is in the application of existing technologies, a creative and lateral way of thinking that can also work, said Mr Wee. He cited Pestbusters, which has started using satellite technology and drones to streamline its operations, as an example of a small firm doing a lot with technology. This creative thinking is the kind that he thinks the Government is seeking to encourage.
Signalling this new approach is the upcoming $100 million National Trade Platform. Among other things, it will allow service providers to develop applications or value-added services on top of the platform, akin to an open-source environment.
Another is the commitment to transforming Jurong West into a cluster of areas that promote and incubate innovation.
But Mr Koh said there has to be a balance in this. “Innovation is an elusive idea and the more one tries to cultivate it, the harder it is to realise it,” he said.
The better approach, he said, is to create the right ingredients for creativity and innovation to flourish. And that will mean taking risks, difficult for a country used to seeing structured approaches to problems.
“So sometimes in Chinese, we say it’s qi fa (to enlighten). That means you come in, think through how we evolve out from this space. It’s creating a culture and an ecosystem.”
A MORE RADICAL APPROACH?
For Dr Theseira, however, his main beef with the Budget is that it is moving too slowly in acknowledging how things are changing.
The labour market, for instance, could be in for a big shock, especially if Singapore is going to transit into a more “normal” economy, where structural, or long-term unemployment, is significantly higher than the 0.6 per cent experienced today.
He suggested revisiting the idea of unemployment insurance, because when structural unemployment starts to rise, there will be many people out of a job for extended periods of time.
“You change industry, maybe you’re not suited for it, you are not being unemployed for a while, right. And so I think again that’s the second reason why we need to think about providing the scaffolding or support, because without it, you can’t realistically expect people to take these kinds of risks,” he said.
He hoped this Budget will “lay the groundwork over the next couple of Budgets or this term of government for a more radical relook at some of the ways we do things”.
Mr Choo agreed, saying: “It’s balanced, it has quiet confidence, and I think that let’s not think that one Budget will be the silver bullet to our economic slowdown.”
Mr Heng himself seemed to pre- empt “silver bullet” solutions, pointing out: “Budget 2016 is the first step of the next lap in what we hope will be a long, successful journey.”
Vital to strengthen partnerships
MR KURT WEE, PRESIDENT OF THE ASSOCIATION OF SMALL AND MEDIUM ENTERPRISES
“I think the Budget is really about pushing ahead with the resources and needs for transformation and the move into the next era of robotics… and ensuring that those companies which wish to transform have the resources to do so.
We are also quite heartened by the efforts towards strengthening the support ecosystem for SMEs and trade associations.
Where I think it was lacking is in the area of helping with the costs of doing business. It quite surprised me that the levies for the services and the construction industry will actually continue to increase because, especially in the service industry, they are highly dependent on manpower and manpower is their main cost…
The Budget addresses some of the structural needs, going forward, but what is going to be really important is how we strengthen partnerships (between Government, business and the labour movement).
If we can close the gaps between these sectors, I think we will be able to (go even further).”
Prepare for a more radical reloook at methods
DR WALTER THESEIRA, SENIOR LECTURER AT SIM UNIVERSITY
“The Budget is mostly parametric reform to what exists and I think that’s not a bad thing, because in continuing with the themes of economic restructuring and social inclusion, we’re starting from a very strong base, and I think we’re going to go on to greater heights.
But at the same time, we should be laying the groundwork over the next couple of Budgets or this term of government, for a more radical relook at some of the ways we do things.
One of the areas that I think we need to put a lot more emphasis on is this issue of social safety nets for the unemployed.
This is something we talked a lot about in the past that we’ve been reluctant to embrace for maybe ideological reasons, but which could become increasingly relevant as we become a more developed and mature economy.
(Also), we are not tracking the right things in the economy right now… This is not something that the Budget can solve by itself, (and) it requires quite a big rethink of the way we monitor and understand the economy.”
A call-out for everyone to take a stake in future
MR DESMOND CHOO, DIRECTOR OF NTUC’S YOUTH DEVELOPMENT UNIT AND AN MP FOR TAMPINES GRC
“I really appreciated the fact that (the Budget) exudes a certain quiet confidence; that we are quite aware of what made us successful but at the same time we are willing to tackle some short-term issues…
The emphasis on partnership is really a call-out for everyone to take a stake in Singapore’s future. And you can find it not only just in the Industry Transformation Programme but also in the way the Minister for Finance wanted philanthropy to be done, that corporates have a big role in helping the less privileged in society, and that trade associations, industry and workers have a role in industry transformation.
We should not just look to the Budget for big-ticket items or for that knee-jerk reaction to a slow economy. It should focus on the foundations of Singapore’s success in the next 10 to 20 years.
We are not going to see immediate results… but I think that each Budget will layer on top of the previous ones; sometimes there will be big changes, sometimes there will be incremental ones.”
Differentiation key in the long run
MR JIMMY KOH, HEAD OF GLOBAL ECONOMICS AND MARKETS RESEARCH AT UOB
“We all know that the world is slowing down and one of the key reasons is because China is deliberately slowing down its economy.
What it means is that that (impact) cascades down in a significant way on our businesses here. This slowdown from China, along with the slower growth in the West because of their structural issues, is not a cyclical change. This is a new structural norm. So we will have to live with this slower growth for the next five to 10 years unless something changes.
On top of that, we have all the technological changes that are creeping into every part of our lives. We hear of businesses coming in to take our lunches through Silicon Valley.
Being relevant today will only help companies survive. If you want to succeed, you have to differentiate yourself. We want not just small companies differentiating themselves, we want to see the whole industry evolving, because we know we are not a low-cost centre around the world, we have to create that value.”
aaronl@sph.com.sg
This article was first published on March 27, 2016.
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