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Short-term fixes vs long-term view: it's a tussle
THE Budget delivered by Finance Minister Heng Swee Keat on Monday outlined the key changes set to take place in Singapore in response to a fast-changing economy. Is the government addressing near-term concerns and doing enough to future-proof our people?
In a roundtable discussion moderated by Michelle Quah, senior correspondent at The Business Times, four panellists expressed their views. They are:
- Melvin Yong, director (Industrial Relations Field) at NTUC;
- Selena Ling, economist with OCBC bank;
- Kurt Wee, president of the Association of Small and Medium Enterprises (ASME); and
- Alan Lau, head of Financial Services, Tax at KPMG (Singapore).
Q: What are your thoughts on Budget 2017?
ASME: I think for the SMEs, it unfortunately doesn't address the near-term concerns. With a budget surplus of S$5.2 billion in 2016, we don't see any new cost measures to help businesses. In fact, we see costs going up. It's still about picking the winners.
KPMG: We see a clear indication from the government to work towards a very balanced and inclusive Budget. I think there were things for SMEs as well as the man on the street, but more could have been done to address rising costs as well as value creation.
Q: The Budget could be split into short-term fixes versus more long-term measures for the future economy. How disappointed were you in the short-term measures that were announced?
ASME: There are some wins in the Budget. For example, the part on IP innovation vis a vis A*Star and the set-up of the SME Tech Hub. If you link it with the SME centre network, I think it can really help the ground in digitisation, but I'm not sure how far S$80 million will go. Businesses have seen a big chunk of the demand disappear and it's not coming back. The S$700 million for construction is advanced expenditure from the future. There're no new bold cost measures to help businesses with the wage bill.
Q: It seems like deferring foreign worker levies for two sectors is not going far enough.
ASME: It's being deferred for the marine sector but for construction, they're going to continue to allow it to increase. We were really expecting to see an expansion in the quantum from S$300,000 to S$1 million or even S$1.5 million for the SME working capital loan, but there's no expansion.
Q: What are your thoughts for the broader economy and the larger-size businesses?
OCBC: Last year's growth was slightly better than expected at 2 per cent, and they're fairly confident that this year's growth outlook is going to be in the 1-3 per cent range, so it's a case of saving some ammunition for the future years to come. Last year's Budget out-turn was a fairly sizeable surplus. I think some people were anticipating what the government could do to help workers with the transition between jobs, like the PMETs (professionals, managers, executives and technicians) in this year's Budget.
NTUC: We're quite happy to note that greater support will be given to improve job matching and job placing, as well as continuation of existing wage support schemes.
Q: Do you think that this suggests that the government is moving away from more broad-based tax measures and into more selective schemes?
KPMG: Yes. The other concern we have is the Productivity and Innovation Credit or PIC. It is intended to expire in 2018 and there's no mention of that. Obviously, that is a broad-based tax incentive that was welcomed by businesses. We were also hoping to see a more focused approach as well, targeted at encouraging and rewarding value creation.
Q: On wages and job creation, do you think the measures are enough to achieve the government's aim in ensuring Singaporeans have jobs and meaningful careers?
OCBC: The Ministry of Manpower is still looking to create 25,000 to 40,000 jobs this year. It's not a case where you have a recession on hand or you have outright contraction on the labour market. Wage increment this year is probably going to be very constrained. In terms of expectations and continuing to grow the jobs and whether people can transition into new jobs when they're displaced, how is the government going to help them in this period?
Q: From NTUC's point of view, do you think that workers are going to be happy enough with the wage scheme measures?
NTUC: There're three challenges facing the labour movement. One is mindset change, both from companies and workers on how to remain competitive. The next challenge is putting in place the relevant infrastructure to facilitate the training and continuous learning so that the workers can transit to these new jobs. The last is enhancing our job matching and job placement abilities. A lot needs to be done to be able to do the transition well and effectively.
Q: SMEs might not be completely happy with what they've got on hand but it still requires a fair bit of a mindset change. Do you think that they're ready to take on these new initiatives?
ASME: If you take into account 155,000 SMEs, of which 120,000 are small and micro, they are going through this tight economic phase during which they can't find margins and their cost remains high, so what is the trajectory for them going forward? They also face challenges from neighbouring countries. We've been calling for broad-based grants for internationalisation to push the SMEs out of the country and build their demand pie in the foreign markets. If things aren't progressing fast here, the MNCs (multinational corporations) and FDIs (foreign direct investments) will go to where economic marketplaces are moving and gaining momentum.
Q: Was there disappointment that there weren't enough tax incentives to push companies overseas?
KPMG: The S$600 million internationalisation fund is certainly a step in the right direction, but I think the devil is in the details. How do we go about implementing it? There are thousands of SMEs out there, but what is the selection criteria the government is going to use to administer the scheme? It's going to be a tough call on the government on which to go along with, who to co-partner and co-invest with. We do not have a broad-based incentive to substitute the PIC scheme and we haven't plugged a gap in the tax incentive scheme.
Q: Are measures enough in the face of rising protectionism from the US?
OCBC: A lot of the measures are an ongoing continuation of last year's Budget and the CFE (Committee on Future Economy) recommendations. No one really knows what will happen with the US economic policy and President (Donald) Trump's plans to adjust taxes. It's not necessarily a bad strategy to keep some ammunition for a rainy day. The government has moved away from cash handouts and they recognise that the environment is evolving so fast.
Q: The Budget tried to encourage Singapore families and give support in terms of housing and preschool education. Do you think this will encourage more Singaporeans to have families?
OCBC: It's the right shift away from monetary incentives like baby bonuses because bringing up a child is a lot more than just money on the table.
ASME: There's a need to decentralise financial resources and let the resources flow to private preschool operators. In Singapore, we tend to concentrate on resources issued out of the Budget. ... Very often, the private sector feels that they don't get enough resource support for their ideas. We should think about decentralising Budget resources towards private enterprises and trade associations or professional bodies if we want to strive for diversity.
Q: The minister seems to be laying the stage for quite a number of tax changes in the future. What are your thoughts on this?
KPMG: I think they're good initiatives but if you look at Canada, Ireland, United Kingdom and China, they have strong tax regimes to incentivise value creation. My concern is that we don't have that in Budget 2017. We could fall behind.
Q: Do you think enough has been done in this Budget to future-proof our people?
NTUC: Singapore is a small and open economy and not in a position to shape the global economy. The task ahead is harder because change is much faster now and the state of the global economy going forward remains unpredictable. Businesses have to constantly reinvent themselves and workers have to be prepared to learn new skills.
OCBC: I'm cautiously optimistic. We do recognise the economic environment is different from the past where the government can set the strategy and pick winners but the world is very different today. What's the catalyst to unite unions, companies, employers, SMEs and individuals together? I think it's a work in progress. It'll take a few more Budgets and committee recommendations to get there.
- For more Budget 2017 stories visit bt.sg/budget17