Singapore will have another $11 billion in relief measures to help Singaporeans and local businesses tide through the Covid-19 storm which has panned out to be the republic’s worst recession on record.
Dubbed the ‘Emerging Stronger Together’ Budget, the additional measures announced on Feb 16 builds on the support unveiled across the five Budget packages released in 2020.
Collectively, last year’s measures amounted to nearly $100 billion, or close to 20% of Singapore’s Gross Domestic Product (GDP).
They “averted the worst, and prevented deep economic scarring and permanent impairment of our economic strengths,” said Deputy Prime Minister and Finance Minister Heng Swee Keat. Including the five Budgets last year, this was Heng's tenth Budget Speech since he took on this portfolio in 2016.
Thanks to the measures, the republic logged a full-year contraction of 5.4%, instead of the 12.4% plunge that would have otherwise happened.
It is also estimated to have saved or created 155,000 jobs on average, over 2020 and 2021, added Heng.
This translates to Singapore’s resident unemployment rate coming in two percentage points lower in 2020.
SEE: Singapore announces $24 bil plan to transform businesses and workers over next three years
Heng joked that he hopes to have just one Budget for 2021, unlike 2020 where he had to make four budget speeches and three round-up speeches.
“My New Year wish is to have just one budget,” he said.
The $11 billion relief measures, which is also called the Covid-19 resilience package, has three prongs.
The first arm looks to safeguard public health and reopen Singapore safely. $4.8 billion will be channeled towards with a strong focus being on vaccination.
As of Feb 14, close to 250,000 people had received their first dose of vaccine, of which about 55,000 had also received their second dosage.
Heng hopes that more Singaporeans and residents undergo vaccination to contain the spread of the virus.
The second arm which looks towards supporting businesses and employees, will amount to around $5 billion.
As part of this, the Jobs Support Scheme (JSS) – which provides a blanket wage subsidy for Singaporean employees – will be extended for six months till September for certain sectors.
The current tranche of the JSS measures is slated to cover wages for most sectors till March. So far, $25 billion has been committed to the JSS which has supported over 155,000 employers for up to 17 months.
Going forward, the extent of the subsidy will be adjusted for the different sectors, based on how they have been recovering.
For instance, ‘Tier 1’ sectors such as aviation, aerospace and tourism which have been among the worst hit by the pandemic, will receive 30% support for wages paid between April to June. Following this, the wage subsidy will go down to 10% from July to September.
Meanwhile, ‘Tier 2’ sectors which includes the arts and culture, food and beverages, built environment and retail will receive a JSS subsidy of 10% for two months, with wages being paid till June.
‘Tier 3’ sectors, which encompasses those that have generally been recovering, will continue to receive the JSS till March.
The extension of the JSS will amount to $700 million, says Heng.
Rohan Solapurkar, tax partner and consumer industry tax co-leader, Deloitte Singapore and Deloitte Southeast Asia, reckons this move will be welcomed by firms. This is as it will help them overcome immediate liquidity and cash flow issues, he explains.
Meanwhile, the third and last prong of the resilience package will look to provide more targeted support for the sectors that continue to be ailing.
The aviation sector for one, will receive $870 million in aid. Presently, passenger movement at Changi Airport is only at 2% of pre-Covid-19 levels. The aid will be channelled towards sustaining, upgrading and preparing the sector for a recovery in global air travel.
Land transport in another sector to get help. Specifically, it will benefit from a $133 million Covid-19 driver relief fund which looks to support taxi drivers and private hire car drivers.
Aside from this, Heng is looking to “connect our communities” by extending the arts and culture resilience sports resilience package to support businesses and self-employed persons in these sectors.
The packages will also boast support for capability development and sector transformation to encourage the community to deepen skills, go digital and transform their business models.
Heng puts the extension and enhancements to the arts, culture and sports sectors, at $45 million.
Beyond helping Singaporeans and businesses tide through the pandemic, Budget 2021 allocates $24 billion to support the nation’s transformation over the next three years. This sum will be injected across three areas: developing a vibrant business community, catalysing capital and redesigning jobs and creating job opportunities.
The first goal includes restoring Changi Airport’s connectivity and building platforms for innovation and collaboration.
The second goal will see the government extending risk-sharing arrangements with providers of capital as well as providing grants to encourage transformation.
As for jobs, $5.4 billion has been allocated for a second tranche of the SGUnited Jobs and Skills Package. Of this, $5.2 billion go towards the extension of the Jobs Growth Initiative till September to support the hiring of locals.
Song Seng Wun, senior economist at CIMB private bank, says these measures are in line with his expectations.
“The government has adopted a very pragmatic approach in this semi-normal budget which focuses on both the immediate and long-term needs of Singapore,” he says.
"If we need to do [something] we will do it, if we cannot because of the crisis, we will wait,” he adds on the government's stance.
Song notes that the inclusion of long-term goals comes as the government has taken things within its control, by transforming to stay relevant, without waiting for the global economy to pick up.
A tax hike?
Budget 2021, while expansionary comes at a cost: it is expected to run an overall deficit of $11 billion or 2.2% of GDP, which is more modest than the deficit of $64.9 billion, or 13.9% of GDP in FY2020. This is the city-state’s largest deficit since independence.
“The deficit is driven by lower revenues due to dampened economic activity, and the significant expenditures needed to mount a decisive response to Covid-19,” explained Heng.
This year, the government has proposed to draw on past reserves to fund the $11 billion Covid-19 resilience package, given “the extraordinary and temporary nature" of its measures,” said Heng. A draw on past reserves for two consecutive years is unprecedented.
A draw of $52 billion had been approved for FY2020. This year’s proposed draw takes the total expected draw on past reserves for FY2020 and FY2021 to $53.7 billion - a net increase of S$1.7 billion from what the government originally expected to draw to tackle the Covid-19 crisis.
Song says that this increase is in line with what he had previously expected. He was also not surprised by the announcement of a rise in the Goods and Services Tax (GST) sometime between 2022 and 2025.
“The government has already been signalling that an increase in GST was to come, but the pandemic put it off,” he said.
Song expects the hike to be introduced in the middle to the second half of this government’s term which ends in 2025, so that it ends its five-year term on a balanced budget.
Richard Mackender, a Tax Partner and Indirect Tax Leader, Deloitte Singapore, Southeast Asia and Asia Pacific believes this increase will take place closer to 2022 than later. However, he said this is dependent on the pace of Singapore’s economic recovery, revenue outlook and expenditure.
In his speech, Heng reminded the House that the increase will happen “sooner rather than later".
Such an increase is needed to meet the rising recurrent needs, particularly healthcare spending.
“No finance minister likes to talk about tax increases, certainly not when the pandemic is still raging around the world. But we do this because we plan for the long-term and do not shy away from explaining to fellow citizens why we need to make tough but necessary decisions to ensure that we have enough to provide for our nation’s future,” he stressed.
However, he said that the impact of this will be cushioned with a $6 billion Assurance Package. This will effectively delay the impact of the increase on the majority of Singaporean households by at least five years, reckons Heng.
