Budget 2023 strengthens Singapore’s social compact, signals time for greater self-reliance in SMEs

LOWER to middle-income earners tuning in to Finance Minister Lawrence Wong’s Budget speech on Tuesday (Feb 14) would probably have been heartened by the help in store.

A non-exhaustive list of highlights would include: higher cash payouts from the GST Voucher and Assurance Package schemes; a staggered raising of the Central Provident Fund (CPF) monthly salary ceiling, which means lower take-home pay but also higher employer contributions; and government-paid paternity leave doubling to four weeks, with the additional two weeks on a voluntary basis to start with.

But bosses of small and medium-sized enterprises (SMEs) following the same speech would likely have been less cheery.

There were schemes to encourage innovation and productivity, but little that would count as direct aid for SMEs. Meanwhile, changes such as the raised CPF monthly salary ceiling and the doubling of paternity leave translate to increased pressures for employers.

No one is disputing the importance of augmenting retirement savings, or giving fathers more time with their newborns. But there are real business costs to these policies, even after accounting for transitory government aid to mitigate some of these expenditures.

A back-of-the-envelope calculation by Christopher Gee, head of the governance and economy department at the National University of Singapore’s Institute of Policy Studies, showed that the higher CPF monthly salary ceiling of S$8,000 would mean an annual increase in labour costs of S$2 billion to S$2.5 billion, once fully implemented in 2026.

The two additional weeks of paternity leave remain voluntary for now. But the government intends for this to be made mandatory in the future – though Wong gave no timeline – which means that SMEs, perennially lacking manpower, may find themselves even more short-handed.

With SMEs already facing cost pressures and labour shortages, such pills may be especially hard to swallow.

“One disappointment for us was the lack of measures to address the ongoing manpower issues (including labour shortages and rising labour costs) impacting many businesses, especially the in-person services sectors,” wrote UOB senior economist Alvin Liew in a post-Budget analysis. To be fair, the extension of enhancements to the Enterprise Financing Scheme will aid SMEs that face tight financial conditions. But it does so by facilitating loans that still have to be repaid eventually, rather than providing direct aid.

Meanwhile, the extended Energy Efficiency Grant will continue to help SMEs defray higher energy costs – if they change their equipment. It does not help those who have gone green but still face high utility bills. And it remains limited to the food services, food manufacturing, and retail industries, even as some hoped its remit would be expanded in Budget 2023.

The Budget did have much to offer for innovation and productivity, including a S$4 billion injection to the National Productivity Fund, tax deductions under the new Enterprise Innovation Scheme, and a top-up to the SME Co-Investment Fund for promising SMEs.

But considering a business’ hierarchy of needs, SMEs may find it difficult to get too excited about such schemes when fundamental needs – such as costs and manpower challenges – continue to dominate their headspace.

In the Singapore Business Federation’s National Business Survey 2022/2023, 74 per cent of businesses had hoped for Budget 2023 to support them in addressing costs, while 57 per cent highlighted manpower challenges as another area of concern. However, such manpower needs were not fully addressed in this year’s Budget.

But SMEs have enjoyed plenty of direct help during the pandemic years. There were the multi-billion-dollar Jobs Support Scheme, the Jobs Growth Incentive, and the SGUnited Traineeships. All of these supported them in wage subsidies and helped them to keep and hire workers. Many businesses were also beneficiaries of property tax rebates and some had also enjoyed Foreign Worker Levy waivers and rebates.

Perhaps SME owners should take heart that there was no crimping of foreign worker quotas or raising of foreign worker levies this year. In fact, a loosening of foreign worker policy may not guarantee a definite inflow of foreign workers either, as many are choosing to be closer to families or are contented with home market wages, which would have risen as well.

The messaging appears to be that, with the ongoing economic recovery, SMEs need to start operating in the new normal. Business costs may never return to those levels seen during pre-pandemic times. The old days of sustaining with easily available foreign labour are gone. They need to make their organisations more appealing, find new ways to improve profitability (other than cutting costs), pay decent wages, and develop their local talent. This way, they will also contribute to a more resilient nation.

Cost pressures and manpower woes are par for the course for SMEs anywhere in this post-pandemic reality, not just in Singapore. Though the relative lack of support may be disappointing, one response might be that companies ought to play their part in building a kinder, more inclusive Singapore – and adjust their mindsets and business strategies along with that.