Singapore’s budget on Feb 16 is expected to offer more targeted measures to support the economy’s recovery from its worst year since independence, setting up a third straight budget deficit for the traditionally fiscally conservative city-state.
See: 'Emerging Stronger Budget' to give more support to businesses and households
While the nation appears past the worst of the pandemic and its spending shortfall is narrowing, industries including food and beverage and those associated with travel remain crushed by mobility restrictions. Firms are also still grappling with restructuring staffs and supply chains.
“Certain sectors are still struggling with weak demand, high operating costs and manpower constraints and may require continued policy assistance,” Selena Ling, head of treasury research and strategy at Oversea-Chinese Banking Corp. in Singapore, said in a Feb 5 report. “Some of these support measures are gradually reaching the end of their shelf life, but a premature full-scale withdrawal is also unlikely in order to forestall a ‘cliff effect.’”
The spending plan for the year starting April 1 may result in a budget deficit equivalent to 4% of gross domestic product, according to the median estimate in a Bloomberg survey of economists.
While this would mark a third straight year of shortfalls, it’s quickly narrowing from 2020’s record deficit, which is estimated to come in 15.5%. That number had ballooned last year from the government’s initial projection of 2.1% as the severity of the pandemic’s impact triggered multiple stimulus pledges.
“Targeted” is the watchword in the new budget as officials balance additional support for vulnerable businesses and households against long-standing caution on debt management. The government already pledged about $100 billion on pandemic-related stimulus, with approval to fund about half of that from past reserves.
Bigger questions lie on the revenue side, with a planned increase in the goods and services tax after 2021 potentially delayed, while other duties might be levied to offset higher spending.
Six of the 12 analysts polled by Bloomberg through Feb 11 said the single-most urgent economic need for the budget to address was supporting small- and medium-sized enterprises to ensure that the whole economy recovers.
Here’s a look at what might be in Tuesday’s budget speech to Parliament, to be delivered by Deputy Prime Minister and Finance Minister Heng Swee Keat:
Small Businesses, Hard-Hit Sectors
SMEs were cushioned last year by wage subsidies and tax and rental relief, though managers largely remained downbeat about the outlook at year-end, according to a Singapore Business Federation survey.
Nine of the 12 Bloomberg survey respondents expect small businesses to be the biggest winners out of this budget.
Hospitality and retail sectors will be in focus, as well as aviation. Tourism-impacted businesses probably will be the only ones to get an extension of wage subsidies, Citigroup Inc. analysts Kit Wei Zheng and Kai Wei Ang said in a Jan 28 report.
Innovation, Technology
The government’s tagline “emerge stronger” has been tied to plans over the past year to accelerate the transition to a more digital economy, including cashless payments and helping workers transition to next-generation roles.
Singapore has laid out a five-year plan to invest $25 billion for research and development and debuted a special work visa for technology jobs. Its No. 2 ranking in the ninth annual Bloomberg Innovation Index reaffirmed its standing as a world-class innovator.
A pandemic-era push to prioritise the workforce’s “Singaporean core” has re-kindled debate over relying on foreign staff versus developing local talent in some high-value sectors. Last year, total employment contracted by 172,200, with 181,500 non-resident jobs lost versus a gain of 9,300 for residents.
“Policymakers may want to capitalise on this window to further nudge companies toward fostering a Singaporean core workforce, and to invest in automation,” Irvin Seah, senior economist at DBS Bank Ltd. in Singapore, said in a Jan 19 report.
GST, Other Taxes
The government has signalled that a planned rise of the Goods and Services Tax from 7% won’t happen until at least next year. Any hint of an alteration in the timeline could impact inflation projections and monetary policy.
David Sandison, head of tax for Grant Thornton Singapore Pte Ltd., a business adviser, predicts a GST increase in 2023 and “possibly, with only a 1% hike, the rest hot on its heels.” Maybank analysts project a rise in 2022 or 2023.
Grant Thornton partner Eng Min Lor suggests that corporate income tax rebates and their caps — which typically are announced for the next year — could be charted for the next two years to help businesses plan. She will also be on the lookout for cash grants to loss-making companies.
Climate, Digital Economy
Singapore’s officials have trumpeted the “green economy” and efforts to be a world leader in combating climate impacts.
OCBC’s Ling suggests it might be time to boost the carbon tax from US$5 per metric tonne, given the government’s goal of US$10-US$15 per tonne by 2030. She’s also looking for green finance incentives given the flurry of such deals lately.
