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Budget 2020: Billions in short-term support, while keeping long-term focus for Singapore
EVEN as Budget 2020 sets aside SS$5.6 billion to help firms, workers and households amid the Covid-19 outbreak, it retains a focus on the future, from economic transformation to climate change, said Deputy Prime Minister and Finance Minister Heng Swee Keat on Tuesday.
With bumper amounts such a S$6 billion support package for the upcoming goods and services tax (GST) hike, and S$5 billion to tackle rising sea levels, FY2020’s estimated overall deficit of S$10.9 billion is larger than any actual deficit incurred before.
But this can be financed without drawing on past reserves, said Mr Heng. “With our fiscal prudence since the beginning of this term of government, we have sufficient accumulated fiscal surplus to fund the overall deficit in FY2020," he said.
After weak growth in 2019, the expected recovery this year has been derailed by the Covid-19 outbreak – with its duration, severity, and global economic impact still unclear.
The budget includes S$800 million to aid frontline agencies in fighting the outbreak, the bulk of which will go to the Ministry of Health.
To help firms retain workers and ride out the crisis, there will be a S$4 billion Stabilisation and Support Package of both economy-wide and sector-specific measures. Economy-wide moves include a S$1.3 billion Jobs Support Scheme of 8 per cent wage offsets for local workers, and a 25 per cent corporate income tax rebate to help with cashflow.
Getting additional help are five affected sectors: tourism, aviation, retail, food services, and point-to-point transport services such as taxis and private-hire cars. Measures include a 15 per cent property tax rebate for qualifying commercial properties – which Mr Heng urged landlords to pass on to tenants.
For households, there will be a S$1.6 billion Care and Support Package including cash payouts to all adult Singaporeans ranging from S$100 to $300 depending on income.
The virus outbreak underscores the importance of having “a sound fiscal footing” to deal with surprises, said Mr Heng: “We are able to mount a decisive response to support Singaporeans and workers through uncertain times only because of good long-term planning.”
This extends to the need to raise recurrent revenue. So while the earlier-announced GST tax hike will not be in 2021, it “will still be needed by 2025”. This year’s Budget sets aside S$6 billion for an Assurance Package that will accompany the eventual hike.
Beyond short-term support, the Budget is a strategic financial plan for the future, said Mr Heng, reiterating observations of major structural shifts: declining support for globalisation, the economic rise of Asia, technological advancement, and an ageing society. Transformation must continue, even as economic restructuring begins to bear fruit, he added.
In the last three years, productivity – real value-added by hour worked – rose 2.6 per cent each year, faster than the 2.2 per cent rate in the preceding three years. Citizens’ real median income rose 3.7 per cent each year, improving from 3.2 per cent.
As for the next three years, S$8.3 billion has been allocated for transformation and growth, including as part of earlier-announced schemes.
One aspect of this is building partnerships with the world, and within Singapore. Trade associations and chambers will get funding to hire experienced professionals, while merchants’ associations will get support in rejuvenating their precincts.
Another aspect is deepening capabilities. A further S$300 million will be set aside to catalyse investment in deep-tech startups. As for small and medium enterprises, an Enterprise Grow package will help them go digital and go abroad, while an Enterprise Transform package will support business leader development and enterprise transformation efforts.
A third aspect of transformation is the workforce. The SkillsFuture movement is entering its “next bound” with SkillsFuture Credit top-ups, a new enterprise credit for firms, and a mid-career support package.
While supporting locals, foreign worker policy must also be managed. To encourage firms to hire skilled locals, the S-Pass sub-dependency ratio ceiling – the maximum share of such workers in a firm’s total headcount – will be lowered for the construction, process, and marine shipyard sectors, from the current 20 per cent to 18 per cent on Jan 1, 2021, and again to 15 per cent on Jan 1, 2023.
A similar step will eventually be taken for the manufacturing sector – just not at this point, given the economic uncertainties, added Mr Heng. In view of the economic conditions, foreign worker levy rates will also stay unchanged for all sectors, with earlier-announced increases for marine shipyard and process sectors to be deferred to 2021.
A Senior Worker Support Package will support firms to hire older workers and raise their own retirement and re-employment ages ahead of legislated changes, as well as offsetting half the increase in Central Provident Fund contributions in 2021.
Moving on to retirement, the Basic Retirement Sum will be raised for cohorts turning 55 in 2021 and 2022, while lower-income older citizens will benefit from a Matched Retirement Savings Scheme and improvements to the Silver Support Scheme.
This is alongside social measures such as the Enabling Employment Credit for persons with disabilities, which replaces the expiring Special Employment Credit and Additional Special Employment Credit schemes, and top-ups to existing funds for the elderly and low-income.
Mr Heng identified three further future challenges: climate change, security, and fiscal sustainability.
To tackle climate change, this Budget includes an initial injection of S$5 billion to a new Coastal and Flood Protection Fund, to be topped up in the future when the fiscal situation allows.
Singapore also aims to phase out all conventional internal combustion engine vehicles by 2040, in favour of vehicles that run on cleaner energy. To that end, this Budget will enhance incentives for the adoption of electric vehicles; expand public charging infrastructure, with a target of 28,000 chargers islandwide by 2030, up from 1,600 now; and increase government procurement and use of cleaner vehicles.
Vehicle taxes will also have to be adjusted accordingly. While the eventual aim is for a usage-based tax on electric vehicles, in the interim, such vehicles will face a lump-sum tax to be phased in starting from January 2021.
To boost national cybersecurity, S$1 billion will be set aside over three years to build up government’s cyber and data security capabilities.
And in the interest of fiscal sustainability, Singapore must continue to plan its finances based on "long-term structural drivers", and cannot count on revenue surprises.
Budget 2020 has an estimated basic deficit of S$12.3 billion and an estimated overall deficit of S$10.9 billion or 2.1 per cent of GDP. But fiscal prudence over this term of government has allowed this to be funded without drawing on past reserves.
For FY2019, the overall deficit was S$1.7 billion or 0.3 per cent of GDP. This was less than half the S$3.5 billion deficit forecast a year ago, due mainly to lower-than-expected expenditure because of unforeseen project delays. The basic deficit, which excludes top-ups to funds and the Net Investment Returns Contribution from invested reserves, was S$5.1 billion or 1 per cent of GDP.
For more Budget 2020 stories, visit bt.sg/budget20.