Singapore: Singapore Budget 2019 – Deepening enterprise capabilities, strengthening social support
- Policy measures on economic transformation are focused on deepening enterprise capabilities
- A generous social support package was announced to strengthen the safety net
- Restructuring the economy and helping local companies internationalise further is important
- Overall fiscal balance for FY19 is projected to record a deficit of SGD 3.5bn (0.7% of GDP)
- Fiscal prudence is preserved despite an expansionary budget
Budget 2019 was announced amidst a challenging economic climate, and uncertain global geopolitics. While facing external headwinds, the government has continued to focus on strengthening Singapore’s security, enhancing economic transformation, and fostering an inclusive society.
Doubling down on economic transformation
Policy measures pertaining to economic transformation are focused on deepening enterprise capabilities. Besides the Scale-up SG, SME Co-Investment Fund III and the Innovation Agent programmes, which are new initiatives to help start-ups and younger companies,policymakers have opted to “double-down” on existing schemesand worked on enhancing the effectiveness of these schemes, which is in line with our expectations.
For example, the Enterprise Financial Scheme (EFS) will be streamlined and consequently include the SME Working Capital Loan to pack more punch in providing financial support for SMEs across the various stages of their growth. In addition, the government will also increase its share of the risk to 70%, up from 50% for schemes under the EFS.Increasing the government’s share of the risk will encourage Participating Financial Institutions (PFIs) to loan to smaller companies with relatively weaker financial standings instead of favoring bigger corporates.
Perhaps the only surprise came from the tightening in foreign manpower in the services sector. The foreign worker dependency ratio ceiling (DRCs) for the services sector will be reduced from 2020 to 2021 in a staggered manner. The aim is to encourage businesses to leverage on technologies and to reduce their reliance on foreign workers.Compared to the previous rounds of tightening, the announced policy move is comparatively mild. In addition to the absence of levy hike, companies are also given more time to adjust.
There are plans to develop a pipeline of global-ready talent for Singapore enterprises looking to internationalise. More support for the trade associations (TACs) will also help in the internationalization efforts.These efforts are especially crucial amid the ongoing trade disputes between China and the US, which will likely spur a reshuffling in global supply chains and investment diversification towards ASEAN. Singapore companies must be ready to leverage on the resulting opportunities.
Strengthening social support
In line with past budgets, Budget 2019 aims to foster an inclusive society. The Merdeka Generation Package (SGD 6.1bn) was announced to offer more healthcare support for those aged between 60-69 in the coming years. The SGD 1.1bn Bicentennial Bonus will help to defray cost of living for the lower income groups. The Long-Term Care Support Fund worth $5.1bn was announced to address the healthcare needs of Singaporeans going forward.Together, these three initiatives account for 80% of the entire Special Transfer package.
And in line with our expectations, retrenched Professional, Managers, Engineers and Technicians (PMETs) will get more help from an extended Career Support Programme, and the expansion of the Professional Conversion Programme (PCP). For the past nine years, the percentage share of PMETs amongst all retrenched workers has been rising. In fact, the share of PMETs amongst retrenched workers has now surpassed that for lower skilled workers. Beyond accounting for a relatively higher percentage of the retrenched workers, resident PMETs also face relatively greater difficulties getting back into the workforce. This seems to defy conventional wisdom that being better skilled, the PMETs would be relatively more employable.Perhaps more policy focus on this segment of the labour force may be required should the trend persist.
Building a sustainable city
Measures on enhancing the living environment and fostering inclusivity have also been announced. The new Carbon Tax that would take effect this year could affect the bottom-line of some sectors in the longer term, although this is certainly a sustainable and responsible way forward. The excise duty for diesel will also be by SGD 0.10/litre, to SGD 0.20/litre. This is partially offset by reduction in the Special Tax for diesel vehicles, as well as road tax and cash rebates for commercial vehicles and school bus operators.
There was also extensive discussion on Singapore’s infrastructure needs, and more importantly, to fund these long-term projects via borrowing. The government will pursue new investments using a differentiated fiscal strategy, taking one approach for major infrastructure investments, and another for recurrent social and security expenditures. Specifically, for these large and lumpy infrastructure spending, borrowing is deemed a fairer and more efficient approach as the financial burden of these costs will be borne across different generations, likewise for the benefits of these projects. In contrast,recurring spending should be offset by recurring revenue in order to preserve fiscal sustainability as well as inter-generation equitability.
Preserving fiscal prudence despite an expansionary budget
Overall budget position for FY18 has turned in a surplus. The FY18 overall fiscal balance registered a surplus of SGD 2.1bn (0.4% of GDP), compared to a budgeted deficit of SGD 600mn. This came on the back of marginally better outcome in both revenue collection and expenditure. A smaller primary deficit of SGD 5.3bn was posted, compared to what was previously assumed in the budget (-SGD 7.3bn).
For FY19, a marginally wider primary deficit of SGD 5.4bn is projected. Revenue is likely to rise only marginally (+1.7%) on the back of a softer economic outlook. Growth in expenditure is also expected to be modest. With a slight uptick in the assumption on the NIRC (SGD 17.2bn), the government is able to roll out a very generous Special Transfer package worth SGD 15.5bn, an astounding jump of 70% from the previous budget. With that, overall fiscal balance for FY19 is projected to record a deficit of SGD 3.5bn (0.7% of GDP).
Despite catering for a wider overall budget deficit, we reckon that the government has remained fairly prudent. This is considering the accumulated surplus of about $14-15bn even after accounting for the projected deficit in FY19. With the accumulated surpluses, policymakers could afford to be slightly more aggressive. Fiscal prudence is preserved despite an expansionary budget. Moreover, this also implies that policymakers are in a solid position to roll out counter-cyclical measures should economic conditions warrant that.
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