A buffer from the virus and a long-term booster for the economy

He was heard in a recording admonishing fellow citizens who rushed to the neighborhood supermarket to hoard rice, instant noodles and toilet paper, leaving behind empty shelves.

Pleading for common sense to prevail, Chan says what is more critical is for Singapore to think two steps ahead and position itself for growth once the virus outbreak subsides. “Don’t just look at the here and now. Take this chance to ask ourselves, when the recovery comes — whether it is six months or nine months — how do we position your business and our economy to go out faster than the rest of the people?” says Chan, in delightfully colourful Singlish.

He urged his audience, believed to be business owners and members of the chamber, not to retrench their workers but “take the government’s help, train the workers, help the workers stay around for a while so that you prepare for the next phase.”

The leaked audio started making its rounds on social media on Monday — just a day before Deputy Prime Minister Heng Swee Keat delivered his eagerly awaited Budget 2020, in a prim and proper speech that stood in contrast to Chan’s.

Yet, Heng and Chan, Prime Minister and Deputy Prime Minister in waiting respectively, are gunning for the same objectives. While Chan exhorts Singaporeans not to lose their heads, Heng reassures them the city state has the fiscal firepower to help Singapore achieve its long-term economic growth, albeit at the expense of a $10.9-billion deficit, or 2.1% of 2020’s GDP, but without having to touch the reserves.

According to CEO of the Global CIO Office Gary Dugan, for the government to be able to deliver such an expansionary budget at this critical juncture, credit must be given to them for exercising fiscal prudence over the years.

“Singapore is a global stand-out of fiscal prudence. It is a model country for building up surpluses when times are good to provide funds when the economy faces difficulties,” Dugan says in an interview with The Edge Singapore. “Previous accumulated surpluses now allow the government to address the challenges without compromising the long-term wellbeing of the economy,” he adds.

The generous Budget had surpassed the expectations of many. “The Budget is indeed the best it could have been. Everyone emerges a winner in some way. There are really no losers this time around,” Lawrence Loh, an associate professor at the NUS Business School, tells The Edge Singapore.

A necessary deficit

In his speech, DPM Heng notes that the Singapore economy grew by a modest 0.7% in 2019, or the weakest growth rate since the GFC. Just as the US-China trade tensions had somewhat eased with the signing of a Phase One trade deal, the Covid-19 outbreak slammed the brakes on China’s economy, sending Singapore’s economy to a juddering halt.

“The tourism and aviation industries are most directly affected. Visitor arrivals to Singapore and air traffic through Changi have declined, and with it, hotel occupancy rates,” says Heng. “The virus outbreak has also disrupted supply chains and created ripple effects on other sectors, especially now that our economy is so much more integrated with China’s,” he adds.

While Heng agreed that the duration and severity of the virus outbreak and the impact on the global economy remain unclear, Singapore should brace itself for a worse-than-expected economic impact. “The Covid-19 outbreak is a stark reminder of the continued importance of maintaining a sound fiscal footing to deal with surprises and unexpected scenarios,” says Heng.

Beyond the virus, Singapore needs to deal with global structural shifts, economic uncertainties, and strategic tensions and the Budget is a way to meet these challenges. “A combination of near-term measures to address cost-of-living and economic challenges, combined with the ongoing restructuring and transformation measures, means that this budget addresses both the challenges of today and tomorrow,” says Deloitte Singapore and Southeast Asia's tax services leader Low Hwee Chua.

The Singapore Business Federation (SBF) notes that the Budget strikes a balance between helping companies overcome temporary setbacks in their businesses and position them for the fast lane in the recovery ahead.

“As expected, adversely affected industries such as tourism, food services, aviation, retail, and point-to-point transport services received greater support with redeployment programmes, rental waivers and property tax rebates to assist businesses on operating costs and liquidity. This direct and timely assistance will adequately help companies ride out the Covid-19 storm,” says SBF.

As it is, even if there is no thunderstorm, there certainly are dark clouds. Although Singapore managed a listless 0.9% growth in 2019, the republic might still fall into a recession this year. On Feb 17, the government downgraded its economic growth forecast to between –0.5% and 1.5%, from an earlier forecast of 0.5% to 2.5%.

Selena Ling, OCBC Bank's head of treasury research and strategy, tells The Edge Singapore that hopes of a V-shaped recession, which denotes a quick downturn and a quick recovery, is quickly subsiding, no thanks to the disruption that is happening in China, which drives, either directly or indirectly, a good chunk of global economic activity.

“While China is trying to get factory production back up, the reality is because of all the travel restrictions and the quarantines, the workers are not able to come back. So I think it’s going to take a bit of time,” she explains.

“I think Apple’s warning about not meeting revenue forecast kind of shows that this will take a bit of time. So the disruptions to sectors like manufacturing and construction is something we cannot under-read now,” says Ling, referring to a recent alert by Apple that sales will falter because of disruption to its suppliers based in China.

Packages of supports

In a bid to ease worries of Singaporeans and enterprises, Heng unveiled several packages, each worth billions, to address different sectors of the economy and the respective challenges.

To help workers and enterprises weather the near-term economic uncertainties, Heng introduced a Stabilisation and Support Package amounting to $4 billion, consisting of a Jobs Support Scheme to help enterprises retain their local workers as well as enhancements to the existing Wage Credit Scheme.

Under the Jobs Support Scheme, the government will offset 8% of the wages of every local worker in employment up to a monthly wage cap of $3,600, for three months. This move is expected to set the government back by some $1.3 billion.

Meanwhile, the Wage Credit Scheme will co-fund wage increases for Singaporean employees earning a gross monthly wage of up to $5,000, up from the current monthly ceiling of $4,000. Heng said that the government’s co-funding levels for 2019 and 2020 qualifying wage increases will be raised by five percentage points, to 20% and 15% respectively. The government is slated to spend some $1.1 billion on 90,000 enterprises through the enhanced scheme, and this is in turn expected to benefit more than 700,000 Singaporean employees.

To the delight of many, the planned increase of goods and services tax (GST) to 9% from 7% now, will be delayed and not be implemented starting from 2021. Back in 2018, Heng had insisted that the hike is necessary to help cover longterm structural growth in government spending, and will take place sometime from 2021 to 2025.

“After reviewing our revenue and expenditure projections, and considering the current state of the economy, I have decided that the GST rate increase will not take effect in 2021. In other words, the GST rate will remain at 7% in 2021,” says Heng.

However, Heng says the GST increase will still be needed by 2025, for, the increase can-not be put off indefinitely. “In fact, this outbreak has reinforced the importance of continued investment in our healthcare system, including the capability to deal with outbreaks. And we will still require recurrent sources of revenue to fund our recurrent spending needs in the medium term,” he says.

When the GST is raised, Heng says that the government will roll out an Assurance Package worth $6 billion to cushion the increase. Under the Assurance Package for GST, every adult Singaporean will receive a cash payout of $700 to $1,600 over the course of five years.

The majority of Singaporean households stand to receive offsets to cover at least five years’ worth of additional GST expenses incurred, while lower income households, or those living in 1- to 3-room HDB flats, will receive offsets equivalent to about 10 years’ worth of additional GST expenses incurred.

Beyond the cushioning, Heng took the opportunity to reiterate the need for Singapore to keep going and keep growing as a global-Asia node of technology, innovation, and enterprise. To this end, the government will be allocating $8.3 billion over the next three years to enable transformation and growth among enterprises through three main thrusts: enabling stronger partnerships within and out of Singapore, deepening enterprise capabilities, as well as developing Singaporeans to their fullest potential.

Two-in-one budget

As the next Singapore elections have to be held by April 2021, there was talk of this being an “election budget”. With the goodies doled out, and the absence of the infamous GST hike, could this be a signal that this Budget is gearing towards the upcoming election?

NUS’s Loh says that while the primary focus of the Budget is obviously protecting the Singapore economy against the virus, it could be a “two-in-one” package. But, he is quick to caution that the proposed changes are not “set in stone”, and that changes can be expected especially if the virus worsens. “It’s definitely not something that’s static, and I believe more augmentations and fine-tuning might be needed,” says Loh. One possible change he sees coming is healthcare expenditure, as the sector might need further relief measures going forward.

“We still don’t know what percentage of our population is going to be affected by the virus,” says Loh. “If the situation turns even nastier on a global scale, more help will be needed across the board, even for sectors beyond the directly affected ones.” he adds.

Reshmi Khurana from risk consulting firm Kroll says that the Budget had exceeded expectations as it was successful in one crucial area – putting money directly into the hands of consumers and businesses.

“The various payouts to individuals and concessions to enterprises is exactly what you need in a difficult time like this. This will certainly give a short term boost to the economy in terms of consumption spend. The key challenge is to see if the steps announced yesterday are successful in stemming a slow down in investments in the medium term,” says Khurana in an interview with The Edge Singapore.

OCBC’s Ling says that the Budget gave the Singapore government an opportunity to spend more of their accumulated fiscal surpluses, which would otherwise have been stashed away as reserves.

“You had a global, domestic and regional environment that were all weak, and on top of that this Covid-19 which everyone was worried about. The government also had a lot of fiscal ammunition that they had accumulated over the past four years,” says Ling.

“If the election really does happen before the next Budget in 2021, then it makes perfect sense to pull out the big guns,” she adds.