This was first published in The Business Times on 17 February 2021
Ong Pang Thye, Managing Partner, KPMG in Singapore
‘Emerging Stronger Together’, the theme for Deputy Prime Minister and Finance Minister Heng Swee Keat’s Budget 2021, highlights Singapore’s aspirations to continue to find opportunities within the crisis and accelerate its transformation journey to emerge as a digital, innovation-led economy in the post-crisis world.
While the Budget addresses the immediate and exceptional challenges that businesses and Singaporeans face, it takes a more targeted, calibrated and fiscally prudent approach, after the government injected S$100 billion into the economy last year to cushion the impact from COVID-19.
Although Budget 2021 remains expansionary, the overall deficit narrowed to S$11 billion, or 2.2 per cent of gross domestic product (GDP), mirroring the size of the COVID-19 Resilience Package. This signals, as expected, an intention to return to the path of fiscal prudence and sustainability that helped the trade dependent city-state build its reserves over the years. Running a deficit for the second consecutive year, it continues to focus on fostering long-term resilience to cement Singapore's position as a pivotal global Asia-node for technology, finance and enterprise.
The COVID-19 Resilience Package aims to safeguard public health, while extending continued support for workers and businesses and the worst-hit sectors, such as aviation, travel, and consumer-facing businesses. The government also allocated S$24 billion over the next three years, providing a much-needed fillip to pandemic-hit businesses and workers in the face of the global economic turbulence.
One of the most commendable aspects of the Budget is its focus on continuing to catalyse digital transformation while cultivating an entrepreneurial spirit. Digital connectivity drives higher visibility, reliability and resilience of value chains, as physical connections are disrupted in the aftermath of the pandemic.
The creation of the S$1 billion Local Enterprises Funding Platform between Temasek and the government will provide large local enterprises (LLEs) the capital and opportunities to continue expanding beyond Singapore in a volatile external economic environment. Access to the larger business network ecosystem through this programme will help propel LLEs to their next phase of growth through internationalisation.
Firms will also be able to leverage Temasek's experience to drive regional growth, in turn creating national champions. Although this funding platform is expected to be based on commercial market terms, it would be important to look at spinoffs in the form of employment creation, ancillary or supporting businesses, such as sub-contractors or service providers, developing around the LLEs holistically, rather than focusing only on commercial returns.
The Venture launchpad, Open Innovation Platform, and Global Innovation Alliance, a creditable trifecta of measures announced in the Budget, should stimulate investment in digital solutions to help both growing and mature companies refresh the workforce and boost productivity.
Access to talent and skills to drive transformation has been one of the biggest challenges for local enterprises in their digital transformation journey. The S$1 billion set aside for the Emerging Technology Programme, with initiatives such as the CTO-as-a-Service and Digital Leaders Programme, will help to address this gap and should drive the adoption of frontier technologies.
As the employment landscape continues to evolve, Singaporeans will need to remain agile, acquiring new skills and talents, and harnessing creativity to improve their employability. The allocation of an additional S$5.4 billion to the Jobs and Skills package, in addition to the S$3 billion allocated last year, will help in the process of upskilling and reskilling, which will result in a stronger Singapore economy.
Both targeted and general measures in this Budget to support lower-wage workers and small enterprises will help Singapore make further progress in reducing income and wealth inequalities and strengthening the social compact.
The Budget provides further impetus for leveraging private sector participation in a wider range of sectors through Alliances for Action (AfAs), by harnessing their entrepreneurial and innovation potential.
DPM Heng has reaffirmed Singapore’s strong commitment to climate change in Budget 2021 through a series of significant actionable steps.
Hitting the hot spots for emissions reduction, the public sector has taken the lead in driving large scale environmental impact through financing selected infrastructure projects with green instruments, setting aside S$90 million to boost electric vehicle (EV) initiatives and local food production, and pushing ahead with the extremely popular eco-fund, amongst others. The Budget also seeks to incentivise EV purchases, while discouraging the purchase of internal combustion engine vehicles.
Singapore is leading the way by issuing green bonds worth S$19 billion on selected infrastructure projects, paving the way for a green economy. These concrete steps form part of a well thought-out roadmap to enable Singapore’s continued competitiveness and social cohesion. Resting squarely on the principle of investing for the future, the plan is both outcome-focussed and inclusive, fostering extensive engagement and partnership with the community and private sector.
On the taxation front, a GST rate hike can be expected once our borders are fully re-opened in two to three years, or as soon as most countries have vaccinated their populations in the fight to contain COVID-19. The imposition of GST on importation of low value goods from 1 January 2023 was not unexpected, as more Singapore residents gravitate to online purchases, a behaviour that was accelerated by the COVID-19 pandemic. Singapore may have to undertake further tweaks to its tax policies in future depending on international developments around BEPS initiative by OECD and requirement to fund the infrastructure and healthcare needs.
The measures outlined in Budget 2021 not only provide impetus to Singapore’s recovery, but also lay the long-term groundwork for Singapore’s re-emergence and spur its transformation into a guiding light for the new reality of a digitally borderless world.