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Budget 2020: Heng makes a strong statement of confidence
WHAT a difference a year makes. Early last year, Singapore was grappling with slower growth resulting from the negative effects of tariff hikes as trade tensions between the United States and China escalated. There were also concerns over a "no-deal" withdrawal by the United Kingdom from the European Union, and a greater-than-envisaged slowdown in China.
This year, the US-China trade dispute, during which the two sides imposed tariffs on hundreds of billions of dollars worth of each other's goods, has eased, although some of the thorniest issues remain unresolved after both sides signed a preliminary deal. As for Brexit, the UK left the EU on Jan 31, 2020, and has now entered an 11-month transition period.
What has become an even greater bugbear is the slowdown in China, the world's second-largest economy with a population of 1.4 billion, following the outbreak of Covid-19, which has killed over 1,800 people and infected over 73,000 globally since the start of the year. The outbreak could trim China's full-year economic growth rate by as much as one percentage point this year. On a quarterly basis, it could be more acute. China's growth could decline by about two percentage points in Q1, comparable to the drop during the Sars epidemic in 2003.
With China's market share of Singapore's non-oil domestic exports at 17 per cent last year - up from seven per cent in 2003 - Singapore's economy has become tightly entwined with China's, and the city-state is hurting. Gross domestic product (GDP) growth forecast has been revised lower to between -0.5 per cent and 1.5 per cent, from 0.5 per cent and 2.5 per cent previously. Tourism, aviation, retail, food services and transport sectors are feeling the effects of the outbreak in January. Visitors from China to Singapore have grown in importance, accounting for 19 per cent of total visitor arrivals in 2019, compared with 9.3 per cent in 2003, during the Sars outbreak. Visitor arrivals are already expected to drop 25 to 30 per cent this year. Economists have estimated that a decline of about a million tourists could mean a loss of about S$1 billion in tourism receipts for every three months the travel ban is in force.
It is against such backdrop that Deputy Prime Minister and Finance Minister Heng Swee Keat unveiled on Tuesday his expansionary Budget. Dubbed the "Unity Budget", its priority is to help Singaporeans and businesses weather the immediate storm. It comes with two special packages - the Stabilisation and Support Package and a special Care and Support Package - worth S$5.6 billion to help workers keep their jobs, firms, to manage their cash flows, and households, their cost of living.
While alleviating near-term concerns, this year's Budget did not lose sight of the important task of positioning Singapore and Singaporeans for future growth and continued success. Some S$8.3 billion has been allocated over the next three years to drive Singapore's transformation and growth to ensure that the city-state is ready to seize new opportunities as it confronts increasing trade protectionism, growing importance of Asia, rapid technology advancement and an ageing population.
With these changes in the horizon, DPM Heng put emphasis on life-long education, training and re-skilling to ensure good wages and employability. He urged Singaporeans to use the lull period to upgrade their skills, so they can be ready when the tide turns. He promised Singaporeans that "as long as you are willing to learn, we will support you to learn throughout life".
To encourage Singaporeans to take action to learn new skills, a one-off SkillsFuture Credit top-up of S$500 will be provided. Unlike the earlier S$500 credit which had no expiry date, this one comes with a five-year expiry to prevent inertia.
Even as rebates are dished out to help corporates with cash flow, hotels, for example, are encouraged to take advantage of the slowdown to carry out upgrading work and so be better prepared for the rebound.
A basic deficit of S$12.3 billion is expected for FY2020. After factoring in top-ups to Endowment and Trust Funds of S$17.3 billion and Net Investment Returns Contribution (NIRC) of S$18.6 billion, the overall budget deficit is expected to be S$10.9 billion, or 2.1 per cent of GDP. This makes it the largest deficit in terms of percentage to GDP since 2009, when the deficit was 0.3 per cent of GDP. In 2003, when the economy was hit by Sars, the overall deficit was S$1.89 billion, or 1.1 per cent of GDP.
As the government has accumulated surplus of S$18.7 billion from FY 2016-2019, it has more than sufficient funds to fund this financial year's record deficit without drawing on past reserves - a true testament to the discipline and fiscal prudence of the government over the years to have left enough to deal with unexpected shocks and longer-term challenges.
Indeed, the Covid-19 outbreak is a stark reminder of the importance that the government maintains a "sound fiscal footing to deal with surprises and unexpected scenarios". Without that, the government would not have been able to mount such a decisive response and provide with confidence the assurance that "if needed, we can and are prepared to do more" to support Singapore and Singaporeans in times of need.
The fiscal prudence has also given it financial muscle and flexibility to defer a planned hike in the goods and services tax (GST) next year, while setting aside a S$6 billion Assurance Package to cushion the eventual increase for all Singaporeans when the two-percentage-point hike takes effect sometime between 2022 and 2025.
Budget 2020 delivers what's truly needed - a "good plan" and a strong statement of confidence.