A Budget on steroids for a city on MC

“It is slowly killing the man [on] the street trying to make ends meet,” said Png Eng Huat, Workers’ Party MP for Hougang SMC, on April 6 in a Parliamentary debate on the additional support measures to help Singapore cope with the pandemic.

Recalling a recent conversation he had with two dishwashers at a coffeeshop in his constituency, Png said they were worried about what the circuit breaker measures would mean for their jobs. “They knew there would be no dishes to wash come Tuesday morning [April 7]. You could tell by the look in their eyes that they were worried about what is to come, the bills to pay and the living expenses,” he adds.

Meanwhile, Tin Pei Ling, MP for MacPherson SMC, recounted how the children of one of her residents had gone hungry after their father— a Grab driver who is the sole breadwinner of the family — was unable to take home enough money to make ends meet.

Deputy Prime Minister Heng Swee Keat calls the month-long circuit breaker measures “painful” but “essential”. Aside from the collapse of businesses and job losses, the restrictions will further reduce demand for Singapore’s exports, thereby impeding this year’s Gross Domestic Product (GDP) growth. “But we must make these hard decisions, make the difficult adjustments, and do all that we can in the next few months, to protect the lives of our people,” he adds.

With this in mind, the government is injecting another $5.1 billion in relief measures to help Singaporeans and local businesses tide through the month-long circuit breaker period. Unveiled by Heng on April 6, the package — officially called the Solidarity Budget — brings the city-state’s total coronavirus relief measures to $59.9 billion, or some 12% of GDP.

This $5.1 billion relief package, the third one in two months, comes after the first Unity Budget announced on Feb 18 and the Resilience Budget unveiled on March 26. Its aim is to render even more help to businesses and households, particularly in light of the circuit breaker measures.

“The shortening time between the Unity to Resilience Budget and from the Resilience to Solidarity Budget tells you the economic urgency [for more aid],” observes Selena Ling, head of treasury and strategy at Oversea-Chinese BankingCorporation (OCBC). “This is a much-needed steroid shot, where the government is using a holistic approach to reach out to firms and households under stress,” she adds.

While the latest budget requires the government to dip deeper into past reserves and run a budget deficit of $44.3 billion for FY2020 — which comes up to around 8.9% of GDP — Heng believes it is a necessary move to protect Singapore’s ailing economy. “We must take short term pains to avoid even sharper pain later. Let us bear all these immediate pains with fortitude, and stay strong,” he reiterates.

Saving jobs

The Solidarity Budget has allocated $4 billion to help businesses refrain from cutting jobs. The key thrust is to give a blanket wage subsidy of up to $3,450 this month to all Singaporean workers. Previously, this subsidy, which was pegged at 75% of wages up to $4,600, was given only to companies which were hit hard by the outbreak, especially those in the aviation, tourism and hospitality industries. Those in other sectors could only enjoy a subsidy of 25%.

The move is slated to benefit all of Singapore’s 1.9 million local workers. For most companies outside of the aviation and tourism sectors, the wage offset will revert to 25% from May till the end of the year. In addition, the first payout under this Jobs Support Scheme (JSS) will be brought forward to April, instead of May. “I expect firms to make use of this JSS support to continue paying your workers and refrain from putting workers on no-pay leave during this period, or worse, retrenching them,” says Heng.

Chua Hak Bin, senior economist at Maybank Kim Eng (MBKE), believes the additional support is critical to firms and will help tide them over the economic slowdown. “The generous increase in payout will go a long way in helping firms keep their workers,” he says, “There will still be job losses, but the severity will be cushioned by this third package.”

Ho Meng Kit, CEO of the Singapore Business Federation (SBF), agrees, noting it offers “immediate, direct and substantial help which our businesses need so as to survive the circuit-breaker period and save jobs”.

Meanwhile, to ease the load on firms hiring foreign workers on work permits and S-passes, the monthly foreign worker levy due in April will be waived. Employers will also receive a foreign worker levy rebate of $750 for each work permit or S-pass holder, to cover the levies paid previously this year.

According to Heng, this will help businesses reduce costs, relieve pressure on their cash flow as well as enable them to preserve their business structure and quickly resume operations once the crisis abates.

Apart from this, Singapore has introduced a Bill on April 7 to let business and individuals temporarily defer certain contractual obligations, such as paying rent, repaying loans or completing work during this time. Under this Bill, non-residential property owners will be required to pass on property tax rebates — announced in the Unity and Resilience Budgets — in full to their tenants.

Other measures supporting employment include the extension of the Self-Employed Person Income Scheme to $21,000 from the current $13,000. The enhancements will see a total of about 100,000 self-employed persons receiving three payments of $3,000 starting May.

Help is also available for households through a $1.1 billion package that will trickle down to adult Singaporeans aged 21 and above through an additional $300 cash payout. Together with the payouts announced previously, Singaporean adults can expect to receive a combined Solidarity payment of $600 each.

Adequacy of package

While analysts unanimously agree that the Solidarity Budget is generous and helpful in this current slowdown and uncertainty, they appear divided on the adequacy of the package. To Low Hwee Chua, regional managing partner for tax & legal at Deloitte Singapore and Southeast Asia, the “generous and simple-to-implement” measures spell good news for businesses.

“This is in contrast to some other countries where there are complicated rules for companies to qualify, including proving there was a drop in revenue (such as 50%) in some countries,” he notes.

SBF’s chairman S S Teo agrees, saying, “We need to work together with the government to ride out this storm and overcome this crisis. The message is clear: our companies need to preserve jobs to protect our workers and livelihoods”.

However, there are others who defer. “The Solidarity Budget will contain job losses, but will not prevent a deepening recession,” observes MBKE’s Chua. He estimates that the non-essential services sector that has been ordered to stand down in this month-long hiatus, accounts for 30% of the republic’s GDP. He estimates the month-long loss in output from these sectors could amount to $10 billion, or 2% of GDP.

During this period, Chua expects some 1.3 million workers to go into “cold storage”. Drawing reference to the unemployment levels of 3.3% during the peak of the 1997/1998 Asian Financial Crisis (AFC) and the 2008/2009 Global Financial Crisis (GFC), Chua cautions that Singapore’s resident unemployment rate will climb to around 5% from the current 2.3%. Job losses, he adds, could spike as high as 200,000 this year, “far greater than even the magnitudes seen during the AFC or GFC”. At the height of the crises, layoffs here hit 28,300 in 1998 and 23,430 in 2009.

OCBC’s Ling agrees, but says offering further support to save jobs will be a challenge. “With all industries getting a 75% wage offset, it’s hard to see how much more [the government] can do, unless they do 100% — but that may be anathema to policymakers due to the moral hazard,” she says. However, she says the government could possibly give out more cash payouts to unemployed Singaporeans if the situation deteriorates.

To this end, the economists — like Heng — believe the adequacy of the collective measures of Singapore’s three Budgets for this year is left to be seen. However, they predict that more help may be needed.

“As this is a rolling crisis, the bottom line is about helping companies. So, if more enhancements are needed, they will be done depending on how the situation evolves,” says CIMB economist Song Seng Wun.

“Nobody knows if the one-month circuit breaker is sufficient. So, more supplementary Budgets may not be off the table,” warns Ling. However, she cautions that the “marginal impact of the extra Budget may suffer from the law of diminishing marginal returns” whereby additional aid rendered brings about fewer benefits than intended.

For now, market watchers believe the Solidarity Budget brings some reprieve to this unprecedented pandemic. And as Heng puts it, the package “symbolises Singaporeans standing together in this difficult time”.