Budget takes firm aim at Singapore's future economy

S$2.4b earmarked to flesh out strategies put forth by the Committee on the Future Economy

Published Mon, Feb 20, 2017 · 09:50 PM


SINGAPORE on Monday unveiled a Budget to decidedly realign its economy with medium-term restructuring plans, while soothing near-term worries and shoring up social support measures to tackle demographic challenges.

In his 90-minute speech to Parliament, Finance Minister Heng Swee Keat sharpened his focus on future challenges that Singapore will face.

With economic growth surprising on the upside last year, Singapore's Budget 2017 looks ahead by earmarking S$2.4 billion to roll out multi-year schemes in response to proposals from the recent report of the Committee on the Future Economy (CFE).

These are in addition to the industry-level transformation initiatives, totalling S$4.5 billion, rolled out in last year's budget.

But at a time of slowing growth, some S$1.4 billion is also set aside to help firms and workers, as well as additional support for individuals, families, and disadvantaged groups.

The medium-term focus impressed economists, who called Budget 2017 "well-balanced".

"Budget 2017 characterised the second phase of Singapore's restructuring where policy measures are more supportive and forward looking," said Irvin Seah, senior economist at DBS.

Taken together, the Budget 2017 measures reiterated what Mr Heng, in his second year as finance minister, sounded last year: the government wants to imbue a sense of self-reliance in companies, workers and families, so that all can partner one another to drive the Singapore economy forward.

He is also eschewing broad stimulus and instead going for targeted measures. "It is critical that we take decisive action to reposition ourselves for the future," said Mr Heng in his speech titled "Moving Forward Together". It was also his first parliamentary appearance after suffering a stroke last year.

"Budget 2017 is an investment in our economic transformation and social resilience," he added.

The Budget is firmly expansionary. Total expenditure will come to S$75.07 billion, some S$3.68 billion more than for FY2016.

Budget surplus, lifted by S$14.11 billion in net investment returns, is expected to be at S$1.91 billion, or 0.4 per cent of gross domestic product (GDP). This is S$3.27 billion smaller than the FY2016 surplus.

"This budget position is prudent," Mr Heng assured the House, "while supporting firms and households in the midst of continued economic restructuring."

Budget 2017 comes at a time when Singapore is undergoing a "key transition" as the economy matures, said Mr Heng.

The trade-dependent economy reported 2 per cent growth for 2016. Though stronger than expected, it was still one of the slowest years since the 2009 financial crisis.

Structural shifts are also weighing on companies and the labour market.

At the same time, deep shifts and uncertainties are happening rapidly and globally for trade and investments, businesses and jobs, noted Mr Heng.

"When I presented the last Budget, Brexit seemed remote and the US had just started the process of electing their new president. Events since then are a stark reminder of how quick and unpredictable change can be."

In his speech, Mr Heng unveiled a S$2.4 billion response, spread over four years, to execute the CFE recommendations. The report, issued two weeks ago, laid out strategies to help Singapore remain relevant amid a fast-changing world. Mr Heng is also co-chair of the CFE.

Rejecting the "inward-looking mood" of some advanced economies, Mr Heng said that a key thrust is to help Singaporeans and companies tap overseas opportunities.

A S$600 million fund will be set up to support firms in expanding overseas. Called the International Partnership Fund, it will co-invest with Singapore-based firms to help them scale up and internationalise.

There will be help for small and medium enterprises to gain digital technological capabilities, and to use them effectively. Plans were also drawn up for research agencies to help companies tap innovation or co-develop intellectual property so that companies can grow.

In a nod to the slow-growth environment, Budget 2017 also responded to the near-term concerns of firms and workers.

To tackle cyclical concerns, foreign worker levy increases for the marine and process sectors will be deferred by one more year, while S$700 million worth of public-sector infrastructure projects will be brought forward to support the construction sector.

There will be enhanced corporate income tax rebates, while eligible businesses, especially smaller ones, will receive help in coping with higher wage costs. Some S$26 million per year will be set aside to help train workers looking to take new jobs or go for work attachments.

Measures were also unveiled to support families, including more public housing grants and a personal income tax rebate.

With increasing spending demands, the Budget put in place measures to ensure fiscal sustainability, while pointing to longer-term tax policy changes.

Mr Heng said that all ministries and organs of state will lower their budget caps by 2 per cent permanently.

A new carbon tax on emission of greenhouse gases was proposed, while water prices will be hiked by 30 per cent in two phases.

Parliament will convene on Feb 28 to debate the Budget.

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