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Positioning Singapore for future challenges
SINGAPORE'S economy ended 2018 on a relatively healthy note, growing by 3.3 per cent, slightly lower than the 3.6 per cent growth in 2017. Bear in mind, though, that this was despite the US-China trade tensions, a further cooling in China's economy and eroding momentum in the manufacturing sector.
The Singapore economy is at a crossroads. The GDP growth forecast for 2019 looks slightly softer again. The IMF has downgraded its global growth forecast again to 3.5 per cent for this year, while the Economist magazine warns of an era of "slowbalisation".
However, it is not doom and gloom as Singapore's fiscal health is actually very strong.
Although the government had budgeted for a small deficit of S$0.6 billion (equivalent to 0.1 per cent of GDP) for FY2018, we estimate that the budget out-turn could be a modest surplus of S$0.7 billion (equivalent to 0.2 per cent of GDP) due to slightly better-than-expected revenue collections for the fiscal year-to-date, namely from corporate and personal income taxes and stamp duties (mainly before the latest cooling measures).
We anticipate that a more generous Budget is on the cards, although there is no urgent need to over-react to growth deceleration.
The 2016 and 2017 fiscal surpluses were sizeable at S$5.8 billion (1.4 per cent of GDP) and S$10.6 billion (2.5 per cent of GDP), respectively.
Therefore, there is ample fiscal ammunition to offer more assistance to the local economy, if need be.
If the 2019 Budget is a pre-election Budget, then there may be ample fiscal latitude to be more generous and further boost expenditure, especially in key areas like infrastructure, healthcare and education.
What to expect for Budget 2019?
Finance Minister Heng Swee Keat has said the Budget will focus on keeping Singapore safe and secure and ensuring its industries can continue to transform and create good jobs for workers.
He anticipated a comprehensive agenda including enabling workers to learn new skills to upgrade, enabling companies to build deep capabilities, looking after the environment and quality of life in Singapore, as well as details of the Merdeka Generation package.
Here, we break down what Budget 2019 may hold for an average Singaporean (whether a youth, a working professional with family commitments or an elderly/retiree) and a company (whether a large corporate or a small and medium-sized company).
FOR THE AVERAGE SINGAPOREAN:
For working professionals, the threat from global competition and digital disruption is real. It is timely to top up the SkillsFuture Credit from the initial S$500 quantum. Given the technological and digital challenges enveloping the Singapore economy, the average Singaporean worker needs to continuously upgrade his/her skillsets to stay relevant.
Beyond an absolute quantum top-up from the government to the SkillsFuture Credit, it could also be conceivable to allow an individual to top up his/her account and receive additional one-for-one funding from the government capped at a certain amount, or receive one-off tax relief for retrenched professionals who leverage on SkillsFuture to retrain for new job opportunities. This may encourage individuals to relook at the urgency and importance of re-skilling and up-skilling.
Rising healthcare costs due to an ageing population have been a major theme in recent years. The Merdeka Generation Package is meant to defray healthcare costs for 500,000 Singaporeans born between 1950 and 1959, and will definitely be welcomed. Citizens aged 65 and above are tipped to double to 900,000 by 2030 (or 1 in 4) with an increase in life expectancy and the ageing of baby boomers.
Beyond cost increases, capacity of aged homes may still fall short despite increases in homes and centres, according to Lien Foundation-NUS. Attracting workers to the long-term care sector is also a challenge.
Making elderly care more affordable and comprehensive will become increasingly important over time. The Ministry of Health has said it is on track to meeting its targets of 6,200 daycare places, 10,000 home care places and 17,000 nursing home beds by 2020. Still, the elderly healthcare costs in Singapore are projected to rise to more than US$49 billion annually by 2030, according to a recent Marsh & McLennan Companies report. Hence, more policy attention to these areas, especially for preventive care, beyond the Merdeka Generation Package, will be timely as well.
To encourage a more active lifestyle and combat chronic diseases like diabetes, a sugar tax is likely to be implemented.
On the personal tax front, look out for any potential tax relief for individuals who pay the Medishield Life premiums for their elderly parents and dependent children and/or separate relief for premiums paid for medical or health insurance whether for themselves or their family members. There could also be additional tax deductions for caregiver expenses for aged or special needs persons. To encourage taking greater ownership of personal health responsibilities, there could be tax relief given for regular health screening exercises and or subsidies for community-based sport activities.
In terms of goodies, the 2018 Budget gave a one-off SG bonus of between S$100 and S$300 to all adult Singaporeans, so it's not inconceivable to see another one-off bonus to share in the economic growth upside. Otherwise, the usual enhancements to the GST vouchers, U-Save vouchers and Medisave top-ups may apply.
More targeted help for low-income households could take the form of enhancements to the Workfare Income Supplements. Additional help for the needy, vulnerable or special needs segments is also feasible. However, with the recent property cooling, there is also less urgency to help first-time buyers. That said, more clarity on the details of the new Voluntary Early Redevelopment Scheme (VERS) for Housing Development Board (HDB) flats aged 70 years or older, and the "less generous" compensation than the Selective En bloc Redevelopment Scheme (SERS), may be forthcoming.
Much has been said about digital disruption, with often cited examples of how Airbnb, Grab, Uber, Amazon Prime, Redmart, Lazada, FoodPanda and others have transformed the hospitality, transport, online shopping, food delivery and other economic landscapes. Singapore already has clear ambitions as a Smart Nation, so e-commerce, digitalisation and implementing digital solutions are nothing new. However, there is a need to broaden and provide end-to-end support for SMEs in their digital transformation journey. This could comprise transforming their business models, providing data analytics, artificial intelligence (AI), customer experience design and digital marketing resources, sharing Asian consumer analytics and market insights, and manpower training as well. This is especially true for the retail sector. Only 33 per cent of SMEs currently prioritise the development of digital business capabilities compared to large companies (60 per cent), according to Singapore Business Federation (SBF).
Singapore has dropped from first (which went to the US) to second place in the top 10 digital-competitive countries. While ranked first in the knowledge and technology segments, Singapore came in 15th place (previously sixth) in future readiness.
More tellingly, despite the existence of high levels of training and education, and an environment conducive to digitalisation, society's attitudes towards the adoption of technologies and the agility of business to take advantage of the digital transformation are rather limited at 20th and 18th place respectively, according to the IMD World Digital Competitiveness Ranking 2018. Interestingly, both large companies and SMEs hope that the 2019 Budget will provide more support for accessing new and critical technologies, as well as help with digital adoption and transformation.
For businesses, the Information Transformation Maps (ITMs) were launched with much fanfare in 2016. A total of 23 ITMs covering 80 per cent of the Singapore economy were touted as an integrated approach for trade associations and chambers, companies and the government to work together to prepare for the challenges of the future economy and stay abreast of global competition.
With the ITM implementation well underway, there remain questions of how to benchmark the progress of ITMs and if more resources need to be allocated to the trade associations and business chambers to play a bigger role of business facilitation, especially in the areas of encouraging "hunting in packs" and joint ventures to crack new and existing overseas markets. The SBF survey showed that eight in 10 businesses believe collaboration with other businesses is important to expedite the market entry, with relevant contacts in the target overseas market (52 per cent) rated as most helpful.
Smaller companies still lag in the innovation and internalisation drive. Often cited constraints include management bandwidth, busyness with daily survival, lack of know-how, etc. These are not new challenges per se, but given the amount of policy attention that has been focused on bringing the SMEs up the value curve, it begs the question of why it remains such an uphill task.
In terms of the differentiation between medium and small enterprises, it may be timely to consider greater enhancement of financial schemes to help the small enterprises overcome the myriad difficulties they face. Ironically, there was a decline in overseas expansion activities among SMEs, from 81 per cent in 2017 to 68 per cent in 2018.
With multi-national companies now relooking their China strategy amid the ongoing US-China trade war, and considering diversifying their manufacturing and production value chains to South-east Asia, Singapore is naturally well-positioned to capitalise on this trend given our financial and transport hub status, robust legal framework, educated manpower and strong network of free trade agreements.
Given the shift in global value chains, companies need to reassess their operational strategies and potentially adopt a global-local approach. Note that the SBF survey highlighted that domestic businesses are optimistic that the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Belt and Road Initiative (BRI) will bring new opportunities.
To build on this, local capabilities need to continue to be sharpened to attract, support and anchor manufacturing and other ancillary services, especially the higher value-adding activities, to be based here. The Enterprise Development Grant, Capability Transfer Programme and the Tech Skills Accelerator (TeSA) are already in place, but time is of the essence, so fast-track approval is necessary.
The government can take the lead in incorporating new technologies into our daily lives and businesses practices, but building cyber resilience is also critical. Recent incidents have reflected the growing importance of cyber-security in order to safeguard Singapore's Smart Nation vision and protect the integrity of Singapore's national databases.
At the micro level, targeted initiatives to fight the war on cyber-related crime could include digital tax incentives or grants to SMEs to invest in cybersecurity products, services and solutions, and enhance cyber resilience.
Additional protective measures, whether in terms of public education programmes and collaborative platforms to facilitate information and knowledge sharing, can also form part of the integral cyber defence for Singapore.
- The writer is head of treasury research and strategy, OCBC Bank.
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