A targeted Budget needed to drive transformation and recovery

ROUNDTABLE PANELLISTS

• Lam Yi Young, chief executive officer, Singapore Business Federation
• Pearl Yu, director of marketing and HR, Keystone Cable
• Eugene Tan, associate professor of Law, Singapore Management University
• Soh Pui Ming, head of tax, EY

Moderator: Dylan Tan, SME editor, The Business Times

Singapore

SINGAPORE'S focus in the 2021 Budget is geared towards pockets of the economy hardest hit by the pandemic, unveiling targeted schemes that seek to drive companies as well as individuals to transform and prepare for recovery.

This pragmatic approach could also help the city-state reach a more balanced fiscal position in the future, industry observers noted.

On Tuesday, Deputy Prime Minister and Finance Minister Heng Swee Keat announced that the government will put S$11 billion towards continued Covid-19 relief, focusing on bringing the structural change needed for economic recovery.

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Observers noted that the deviation from last year's generous Budget was expected, as the government looks to return to fiscal prudence while "emerging stronger" from the pandemic.

Four panellists share their key takeaways from the Budget with The Business Times (BT), and discuss how the initiatives will affect companies in Singapore.

BT: What was your impression of this year's Budget and what were the key takeaways?

Lam Yi Young: I think the message that is being sent to companies outside the worst-hit sectors is about how the government is moving more towards schemes that help companies to transform, recover, and emerge stronger.

Pearl Yu: There were two main areas I picked up on. One is the theme of innovation. That came out really strongly for me throughout the whole budget, especially for companies.

The second part that stood out would be about how the foreign worker quota for S Pass holders in the manufacturing sector will be cut, since this might affect my company.

Eugene Tan: I saw the budget as a very functional budget. I think it's designed to avoid a fiscal cliff. We had a very generous support of about S$100 billion last year, and I think it was clear that they weren't going to take away debt support.

Like Pearl, I noticed that the word "transformation" was probably the most popular word during Mr Heng's budget speech. For me, this raised the question of whether, if companies have not gotten on the transformation bandwagon, is it too late now?

If I sum it up, it's really a combination of a number of Ts - targeted, transformative, technology, talent. And the last one which was more of an underlying concern was about how can we ensure that the Singapore brand continues to be a trusted one.

Soh Pui Ming: I thought the budget is quite targeted. The government has extended the Jobs Support Scheme, but this time it's very specific and designed to help those who need it.

BT: We have seen the continuation of some measures that have helped businesses flow through the pandemic. So some things like the JSS and the temporary bridging loans have been extended. Are these enough to help companies navigate through 2021, and are things pointing to a more optimistic and maybe a brighter second half?

Yi Young: I think the needs of the different companies are quite different, so I think it becomes difficult for the government to extend something broad-based like the JSS to many companies. Because there will be a lot of companies that actually don't quite need it, and they will be taking up the resources that can be better used to help companies that are in need.

For the JSS, the change - for it to be more targeted towards the worst-hit sectors - is expected.

For the rest, I think there are different systems based on what their needs are, so for those that are ready to grow, we are glad to see that there is talk about expanding the Global Innovation alliance, helping companies to expand, to internationalise, to get to know the Asean and global market better.

Eugene: I thought the budget also reflected a certain sense of optimism. This year, the government set aside S$11 billion for the Covid-19 resilience package, which will be funded from past reserves.

Additionally, given that the budget deficit is only 2.2 per cent, it does suggest a certain level of confidence - with the vaccinations, safe distancing and safe management measures - that we can deal with the pandemic.

Pui Ming: I am actually a bit worried about our fiscal position. There could be other pandemics coming, and it is about how to build up that nest egg again. So I'm glad that this year, the budget is quite targeted. Because at the end of the day, I think we do need to move towards a more balanced fiscal position.

BT: I think there's a lot of focus on growth and transformation, rather than giving it outright to keep businesses afloat. So let's talk about jobs as well. The overall unemployment rate fell for the second straight month in December, but the threat of layoffs is still quite real as businesses restructure. How do you think Budget 2021 addressed the concern of stimulating the job market and keeping Singaporeans employed?

Yi Young: I think with the uneven output we do expect on one hand more retrenchments, continued retrenchment this year. But at the same time, there will be new jobs.

One of the things that has not quite been addressed which may continue to have problems, will be this mismatch that we see between the people being displaced, and the jobs being created.

Although we are creating jobs, they may not be the jobs that the people who are being displaced from the sectors that are more affected are able to move into.

For example, those displaced in the service sector might not want to consider jobs in manufacturing. In terms of image expectation, it's still challenging to get job seekers to want to go into some of these areas which are typically viewed as more laborious jobs.

Pearl: I completely agree with Yi Young. We are looking to hire, but it's not easy to hire locals into the manufacturing sector. Last year, because of the lockdown, we did lose some of our foreign workers, and it's difficult to replace them.

Eugene: Beyond the headline figures, and also prior to the budget, we talked about how 155,000 jobs are being created, helping to keep unemployment down. But behind those numbers, are people meaningfully employed? Will they take away relevant skills with them, post pandemic? Are they being positioned for the recovery?

Pui Ming: I want to point out that job redesign is included under the Productivity Solutions Grant (PSG), which was increased to 80 per cent funding. This could be a good thing for companies to take advantage of in order to redesign the jobs that we have.

BT: Pui Ming, earlier on you mentioned some of the grants, schemes and funding opportunities companies could tap on. What would you recommend to businesses who are looking to really grow during this period?

Pui Ming: EY helps some companies, especially SMEs, with job redesign. So about 80 per cent of the professional fees is subsidised by the government. This has been quite popular.

There is also another improved version whereby companies can identify a few employees to go for training on technology, which is also very popular.

Yi Young: There are many grants available, and I think companies really need to start from recognising their needs, and identifying what key issues they face. From there, they can look at which of the schemes best match their businesses.

Eugene: Yi Young has brought up a very pertinent point. Companies concerned about cash flow might think that they can just apply for a grant to help them tide through this difficult period. But that may not be exactly what they require.

It's crucial that even as we have these many schemes in place, government agencies must remember that these schemes should help to solve problems, rather than kicking the can further down the road.

BT: Let's move on to climate change. The fight against climate change in the push for sustainability continues to feature quite prominently in the annual budget. This is on top of the unveiling of the Singapore Green Plan 2030 a week ago. In what ways do you see Budget 2021 accelerating that push towards a greener and more sustainable future, especially in a business environment?

Yi Young: When it comes to sustainability and the company's perspective, we can look at it in two ways. One is as a responsible corporate citizen and wanting to do the right thing. Next, it also comes from customer demand.

If the customer wants a green supply chain, companies will respond to it. But companies can also look at sustainability as a business opportunity. It has potential to be a big business - whether businesses can sell sustainability to the region and build that up as another business area for Singapore.

Eugene: The budget statement dwelled a lot on electric vehicles. And I thought that shouldn't be front and centre of Singapore's effort towards climate change.

Singapore could be an ideal place to test some of these green technologies, and I think the government could have done a lot more in this budget towards making Singapore become a brand name for green technology and sustainable solutions.

BT: We have also seen a budget deficit, because of the pandemic. It's not unexpected, but of course it's unusual given that the government recently started a new term. What are your thoughts on that and how do you see the government steering things back?

Pui Ming: I was just looking at Singapore's tax revenue in the past few years. It's been around 2 or 2-plus per cent every year, which in my view, is not sufficient to sustain the ongoing increase in spending.

The other worry is the BEPS (base erosion and profit shifting) initiative. As a result of the BEPS, it could actually adversely impact the attractiveness of Singapore as a location for MNCs.

I would assume that increasingly Singapore will have to go into a consumption tax model, and not so much an income tax model.

My guess is that (the GST increase) might be in 2023, because it's said to be between 2022 and 2025. If it is announced in 2022, they would still need to give individuals and businesses a runway to prepare for the increase.

Eugene: The big challenge now is can the government, during this term of office, be able to achieve a net balanced budget? How do we wean ourselves off tapping into reserves? I think the government is also anxious to go back to balanced budgets.

There is a certain constitutional expectation that the government should have a balanced budget throughout this term, but the fact that the government can draw down on past reserves with the president's approval does suggest that the government can end this term without a balanced budget.

But knowing the PAP (People's Action Party) government, I think they would want to avoid a situation where the term was denominated, or characterised by successive budget deficits.

We don't know how Covid-19 is going to pan out. There may be a need to dip more into the reserves. And I thought that Mr Heng was very frank, when he said at the start that hopefully, this is the only budget that he needs to present before the House.

Pearl: I thought that the net drawing of the reserve of S$11 billion doesn't seem that bad as compared to last year. Mr Heng has given many hints from the past budgets as well that likely, tax revenue will be supplemented through GST. I also hope that that is the way, rather than corporate tax, which would affect our competitiveness in the region.

- With additional reporting by Elysia Tan

READ MORE: Firms need calibrated support to change structurally: panel