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News analysis: Reducing immediate Covid-19 relief, Budget 2021 looks longer term to secure S’pore’s competitiveness

SINGAPORE — With Covid-19 causing seismic socio-economic and political shifts globally, Deputy Prime Minister Heng Swee Keat on Tuesday (Feb 16) introduced a S$107 billion Budget that will focus the nation on adapting to these changes, while continuing to provide support to the workers and firms who were worst-hit by the effects of the pandemic.

Deputy Prime Minister and Finance Minister Heng Swee Keat arriving for a Parliament sitting on Feb 16, 2021.

Deputy Prime Minister and Finance Minister Heng Swee Keat arriving for a Parliament sitting on Feb 16, 2021.

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  • DPM Heng's two-hour-odd Budget speech focused on Singapore’s longer-term priorities
  • A S$11 billion Covid-19 Resilience Package is being prepared to give immediate aid to the worst-hit sectors
  • Over the next three years, S$24 billion will be allocated to firms and workers 
  • The Government will also give out a S$900 million Household Support Package
  • Analysts said that Budget 2021 has a strong focus on sustainability measures to mitigate long-term threat of climate change

 

SINGAPORE — With Covid-19 causing seismic socio-economic and political shifts globally, Deputy Prime Minister Heng Swee Keat on Tuesday (Feb 16) introduced a S$107 billion Budget that will focus the nation on adapting to these changes, while continuing to provide support to the workers and firms who were worst-hit by the effects of the pandemic.

Budget 2021 — titled Emerging Stronger Together — thus stands in contrast to the five national budgets last year as a forward-looking document that scales back on the immediate aid needed in the midst of the pandemic, but ramps up moves needed to keep Singapore competitive in the years to come, several analysts told TODAY.

Delivering a Budget statement that lasted more than two hours, Mr Heng highlighted how the coronavirus has widened inequalities, slowed economies, accentuated the rift between the United States and China, as well as emphasised the importance of sustainability and biodiversity.

Mr Heng, who is also Finance Minister, said: “To stay on top of these changes, we must stay alert and bring all stakeholders together swiftly to respond to and seize the diverse opportunities.

“So while last year’s Budgets were tilted towards emergency support in a broad-based way, this year’s Budget will focus on accelerating structural adaptations.”

SUPPORT IS TARGETED, NOT BROAD-BASED

In a nutshell, the Government proposes to commit S$11 billion to a Covid-19 Resilience Package that addresses Singapore’s immediate needs, including in health and in hard-hit industry sectors, such as aviation, land transport, arts and culture, and sports.

Out of this, S$4.8 billion will go towards public health and safe reopening measures, including vaccinating the population. Another S$5 billion provides support to workers and businesses, including the Jobs Support Scheme (JSS), which was introduced last year to ward off retrenchments amid the pandemic.

The JSS wage subsidies, which amounted to around S$26.9 billion in special transfers in the 2020 financial year (FY), will be extended by up to six months only for these sectors. For FY2021, this will cost S$2.9 billion.

Other moves include S$870 million cost relief to the aviation sector, aimed to secure Changi Airport’s position as a safe and trusted air hub, Mr Heng said.

This S$11 billion package of measures are essentially extensions of what was announced in 2020, though on a smaller scale, analysts said.

The Government allocated nearly S$100 billion in 2020 alone to combat Covid-19, compared to over S$20 billion during the 2009 global financial crisis.

Senior economist Irvin Seah from DBS, the bank that accurately predicted that Budget 2021 would incur an overall deficit between S$10 and S$12 billion, said: “Essentially, I see that the fiscal thrust has shifted from measures that were broad-based and counter-cyclical to something that is more targeted for the near term.”

“The main reason is that the economy is on the recovery phase — some of the industries no longer require the support that was given, and so it is critical to taper off those resources and direct them to other medium-term needs.”

The latest Budget also puts to bed suggestions that the five national budgets last year, which gave out aid generously to people affected by the pandemic, were part of a more permanent “new deal” for Singapore.

The idea was mooted by Mr Pritam Singh of the Workers’ Party a year ago during the Unity Budget, referring to the New Deal support measures implemented by the United States following the Great Depression of the 1930s, which established the US’ welfare system.

Singapore Management University's law lecturer Eugene Tan who has interest in public policy research said: “It is probably still early days in trying to make an assessment of the mega Budgets of 2020 — but it is clear (with the latest Budget) that 2020 should be looked at as one-off.”

POSITIONING THE ECONOMY

Over the next three years, S$24 billion will be allocated to help workers and firms emerge stronger, including S$5.4 billion in FY2021 for the second tranche of the SGUnited Jobs and Skills Package as well as an extension to the Jobs Growth Incentive, among others.

One key announcement that several analysts highlighted was the move to moderate Singapore’s reliance on foreign labour in the manufacturing sector by cutting the S-Pass quotas, which will be reduced from 20 per cent to 18 per cent on Jan 1, 2022, and to 15 per cent on Jan 1 the following year.

This reduction of the sub-dependency ratio ceiling will limit the number of foreign S-Pass holders that manufacturing companies can employ.

These moves are part of Budget 2021’s goal to boost job redesign and digital transformation efforts, as well as to give opportunities for Singaporean workers as the economy recovers, analysts said.

As Singapore recovers from Covid-19, many companies may take the “easy way out” and simply hire more S-Pass holders if the quotas were not tightened, former Nominated Member of Parliament Walter Theseira told TODAY.

The associate professor from the Singapore University of Social Sciences said: “Another important point especially for the manufacturing sector is that I see this as a move away from our past model that Singaporeans only want to take up PME (professional, managerial and executive) jobs.” 

In his Budget speech, Mr Heng said that Singapore has to strike a delicate balance in local and foreign manpower while stepping up industry transformation.

“The way forward is neither to have few or no foreign workers, nor to have a big inflow. We have to accept what this little island can accommodate,” he said.

Mr Heng added that the Government will also enhance the salaries of nurses and other healthcare workers such as support care staff. This will apply to those working in public healthcare institutions, publicly-funded community hospitals and long-term care service providers.

On top of these measures, he introduced a S$900 million Household Support Package for families, with low- and middle-income households receiving more.

This package includes Goods and Services Tax (GST) Vouchers and service and conservancy charges rebates, as well as a S$100 Community Development Council voucher for each Singaporean household that can be spent at heartland shops and hawker centres.

Assoc Prof Tan rom SMU said: “It shows that the Government is prepared to do what it takes to protect people from the harshness of the pandemic ... by providing assurance that there will be support measures to allay people’s concerns on day-to-day expenses.”

GREEN FOCUS

Budget 2021 featured a heavy focus on environmental sustainability measures as well, with several analysts noting the announcements to issue green bonds to fund select public infrastructure projects as well as to hike petrol duties by as much as 23 per cent, among other announcements.

All these were done keeping in mind that the next global crisis after Covid-19 could very well be the climate emergency, analysts said.

Assoc Prof Theseira said: “Sustainability has acquired a new prominence and the timing is about right — the pivot to electric vehicles would not have made economic sense five years ago, but the market has shifted quickly and now many countries are embracing them. We cannot be late to that party.”

KPMG Singapore’s director of sustainability services Cherine Fok highlighted the new GreenGov.SG initiative, which aims to position the public sector as a leader in helping Singapore reach its national environmental sustainability goals.

Ms Fok said: “Hitting the hot spots for emissions reduction, the public sector takes the lead to drive large scale environmental impact through financing selected infrastructure projects with green instruments, setting aside S$90 million to boost electric vehicle initiatives and local food production, as well as pushing ahead with the extremely popular eco-fund, amongst others.”

FISCAL POSITION

For FY2021, the Government expects an overall deficit of S$11 billion, or 2.2 per cent of annual economic output. This will require an equivalent S$11 billion drawdown of past reserves, Mr Heng said.

Mr Seah of DBS said that this was surprising as the Government technically did not need to make further drawdowns — the Singapore Constitution compels the Government only to keep a balanced budget across one term of government, and this is the first year of the new Government following the 2020 General Election.

This means that the Government could technically request a drawdown from past reserves to balance the books at the end of its term, like it did in 2020.

Mr Seah said: “By funding the S$11 billion Covid-19 Resilience Package from the reserves, the Government is ultimately keeping its fiscal gunpowder dry, considering the outlook that lies ahead. It also gives them more room in future to incur a deficit if required.”

In a Facebook post on Tuesday evening, Mr Heng described the unprecedented move to draw on the reserves for a second consecutive year as a "hard choice". 

"This was a difficult decision, but necessary given the exceptional circumstances," he said, adding that there must be an "even greater focus on running balanced budgets post-crisis".

One key announcement by Mr Heng is a new law to be tabled later this year — the Significant Infrastructure Government Loan Act (Singa) — to allow the Government to issue new bonds to fund major, long-term infrastructure so as to spread the cost of these lumpy purchases across generations.

Some analysts, however, were disappointed that there were no new details of the exact timing for the impending GST hike from the current 7 per cent to 9 per cent, which will happen between 2022 and 2025.

The increase is needed to account for an anticipated structural increase to recurrent expenses, such as in healthcare.

Mr Heng said on Tuesday that the GST increase should happen “sooner rather than later, subject to the economic outlook”.

Associate Professor Simon Poh from the National University of Singapore Business School noted that there was an absence of any wealth tax hikes, which came as a surprise given the poorer fiscal position this year.

He said: “We have always strived to have a competitive tax regime that is fair and sustainable. Without a resilient tax system, we will face difficulty in funding our recurrent increases in government expenditure such as health costs.

“Already, the pandemic has resulted in lower tax revenues. This contributed further to a projected deficit in our fiscal position, which will only worsen if we cannot find new tax revenues. Hiking the GST sooner than later then becomes a more urgent task.” 

Related topics

Budget 2021 Heng Swee Keat economy Covid-19

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