Budget 2021: S$11b for Covid-19 relief, S$24b to "emerge stronger" in longer term

WHILE Budget 2021 puts S$11 billion towards continued Covid-19 relief - drawing on past reserves for the second straight year - it devotes far more to the future, including S$24 billion to help firms and workers "emerge stronger" over the next three years.

Last year's Budgets and this year's Covid-19 Resilience Package are about "preservation and adaptation" amid an emergency. But the focus this year is on structural change, said Deputy Prime Minister and Finance Minister Heng Swee Keat in his Budget speech on Tuesday.

Amid the Covid-19 crisis, Singapore incurred its largest post-independence overall budget deficit of S$64.9 billion - amounting to 13.9 per cent of gross domestic product (GDP) in FY2020.

This year's Budget, while remaining expansionary, is expected to have a more modest overall deficit of S$11 billion or 2.2 per cent of GDP.

The government also proposes to draw on past reserves to fund the new S$11 billion Covid-19 Resilience Package, given "the extraordinary and temporary nature" of its measures, said Mr Heng.

With a draw of up to S$52 billion approved for FY2020 but S$9.3 billion expected to be unused, this year's proposed draw of S$11 billion takes the total expected draw on past reserves for FY2020 and FY2021 to S$53.7 billion - a net increase of S$1.7 billion from what the government originally expected to draw to tackle the Covid-19 crisis.

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The Covid-19 Resilience Package sets aside S$4.8 billion for public health and safe re-opening measures, including vaccination.

Another S$5 billion goes towards continued support for firms and workers. Of this, S$2.9 billion is for the Jobs Support Scheme, including S$700 million to extend its duration by six months for the hardest-hit Tier 1 sectors - aviation, aerospace, and tourism - and three months for the Tier 2 sectors of food services, retail, marine and offshore, and arts and entertainment.

The remaining S$1.2 billion of the package is for specific sectors, with aviation receiving the lion's share of S$870 million. Also receiving support are taxi and private hire car drivers, the arts and culture sector, and sports.

"Like many countries, we have devoted significant resources to preserve lives and livelihoods in the face of this pandemic," said Mr Heng. "But what will continue to distinguish Singapore are our investments for the future."

Beyond the immediate crisis, Budget 2021 allocates S$24 billion for economic transformation over the next three years. This sum will be deployed towards three broad goals: developing a vibrant business community; catalysing capital; and redesigning jobs and creating job opportunities.

The first goal will include restoring Changi Airport's connectivity as well as building platforms for innovation and collaboration, including a new Corporate Venture Launchpad that co-funds the building of new ventures.

In the area of capital, the government will extend risk-sharing arrangements with providers of capital and provide grants to encourage transformation.

As for jobs, S$5.4 billion has been allocated for a second tranche of the SGUnited Jobs and Skills Package. Of this, S$5.2 billion will go towards extending the Jobs Growth Initiative by seven months. The extension will support the hiring of locals up till end-September 2021.

On the issue of foreign manpower, Mr Heng said the government will support the employment of Singaporeans. This would include deepening their capabilities and promoting capability transfers, while moderating reliance on foreign labour where needed.

To that end, the Capability Transfer Scheme supporting foreign-to-local skills transfer will be extended till end-September 2024. The S Pass sub-dependency ratio ceiling for the manufacturing sector will be cut from the current 20 per cent to 18 per cent in 2022, and further to 15 per cent in 2023.

Besides building a stronger workforce and economy, Mr Heng said, Budget 2021 aims to help Singapore emerge stronger as a society.

It includes a S$900 million Household Support Package with GST Voucher special payments and top-ups to the education accounts of Singaporean children, among others.

And for the even longer term, Budget 2021 features the continuation of sustainability efforts with S$60 million for a new Agri-Food Cluster Transformation Fund and S$30 million for electric vehicle-related initiatives in the next five years.

To discourage the use of internal combustion engine cars, petrol duty rates have been raised with immediate effect - by 15 Singapore cents per litre for premium petrol and 10 Singapore cents per litre for intermediate petrol.

To take the lead in green finance the government will issue green bonds on select public infrastructure projects, with S$19 billion in such projects identified so far.

With Singapore's fiscal prudence and discipline having allowed it to accumulate the reserves needed to tackle the Covid-19 crisis, Mr Heng said that "beyond this crisis" Singapore must "return to running balanced budgets".

He reminded the House of the goods and services tax (GST) increase that will happen "some time during 2022 to 2025, and sooner rather than later", though the S$6 billion Assurance Package in last year's Budget will cushion the impact on households.

From Jan 1, 2023, GST will also be payable on low-value goods imported via air or post, such as those bought from overseas e-commerce sellers, and non-digital imported services.

And the government plans to go ahead with the use of borrowing to finance major long-term infrastructure, having previously said that it was studying the possibility.

It intends to issue new bonds for this under a proposed Significant Infrastructure Government Loan Act, with the Bill to be tabled in Parliament later this year. As a safeguard, a limit of S$90 billion will be set for borrowing under this Act, based on the expected pipeline of such projects over the next 15 years.

With enduring uncertainty from the ongoing Covid-19 pandemic, past reserves may also play a continued role. While the recent draws were for tackling an immediate crisis, the government is prepared to propose using past reserves to invest strategically in new growth areas as well if needed.

"Based on the current outlook, we expect that as the economy recovers, we will be able to balance our budgets," said Mr Heng. But if the global outlook worsens and government revenue cannot support projected expenditure, such investment must still go ahead.

"Should the public health and economic situation deteriorate, and the need arise, the government will seek the President's consideration for the use of past reserves to support these economic investments to ensure Singapore emerges stronger from this crisis."

President Halimah Yacob has been briefed on the government's strategy and contingency plan in the event that Covid-19 has a prolonged economic impact, he added. She has expressed her understanding towards its approach, and will consider the government's specific proposals should there be a need to draw on past reserves.