Singapore’s Finance Minister Lawrence Wong recently delivered his Budget speech in Parliament to the tune of S$102.4 billion (56.91 billion pounds) for the coming fiscal year.
This bumper Budget comes despite the city-state’s economy being thwarted by the pandemic in the last two years. With more than 86 percent of the population vaccinated against COVID-19 and the country gradually opening up to travel and tourism, Singapore is set to rebound from the global economic slump. The Finance Minister projected steady growth of about 3 percent to 5 percent for Singapore’s economy this year.
Against this backdrop of rebound, the Singapore government took the opportunity to use the Budget to pursue some societal rebalancing as well as nudge businesses, particularly local SMEs, in gearing up for the future.
Digitilisation and Productivity Push
A large part of this thrust was to help businesses be ready for the future economy. Mr Wong announced S$200 million will be set aside over the next few years to enhance schemes that build digital capabilities in businesses and workers, while encouraging and helping local firms to deepen their R&D and innovation footprints.
The scheme will also support the productivity drive of local enterprises to grow and expand into overseas markets. Schemes will include enhancements to broadband infrastructure and to invest in future technologies like 6G.
The focus on nudging Singapore’s economy to embrace the digitalization wave was clear in this year’s Budget. A further S$600 million will be set aside to provide greater support to companies implementing digital and automation solutions, Mr Wong, a potential candidate to be Singapore’s next prime minister, said in his speech.
This theme of being ready and prepared to leverage the upturn also extended to the workforce. For one, the Government has committed to transform Singapore’s universities from institutes of higher learning to institutes of continuous learning. By refining criteria for the SkillsFuture Enterprise Credit (SFEC), which covers 90 percent of qualifying expenses, more SMEs will qualify to send their staff for training programmes.
Balancing the Foreign Talent Equation
Complementing the digitalisation and productivity thrust for companies, the Government also announced adjustment to Singapore’s foreign worker policies – an area that has come under the spotlight in recent years as the authorities had tightened foreign worker quotas and criteria.
Although Singapore’s 5.3 million population needs a steady inflow of foreign talent to help it realise its growth and economic ambitions, locals have in recent years expressed concern at the seemingly high number of foreign workers in Singapore, a sentiment fuelled by the perception that locals are losing out to foreigners in the competition for jobs.
This issue gained much media attention in the last two years as unemployed and under-employed locals got more resentful of foreign talent during the pandemic-induced tight job market. Some foreigners on the other hand, already uncomfortable with some of the COVID-19 measures here compared to their home countries, appeared more disillusioned with Singapore amid this seemingly “less-welcoming” environment.
On the other hand, local companies and business leaders perennially complain that they do not have adequate access to talent at multiple levels – a dilemma heightened against the backdrop of the increasing global competition for talent and as Singapore seeks more highly-skilled tech skills than is available.
The Government is acutely aware of this tension and therefore a rebalancing of the workforce to reduce the dependency on foreign manpower will always be met with cheers by one segment of the society but raise eyebrows from the business community.
It is thus unsurprising that any tightening of foreign manpower from the Government has to come hand in hand with productivity and digitalisation gains. Therefore, as Mr Wong announced his plans to make companies more productive, innovative and digital, he also increased the minimum qualifying salaries for Employment Pass Holders while tightening foreign labour dependency ratios within the construction and process sectors.
While this move is sure to increase business costs for these sectors, which is likely to be passed on as higher prices, the Singapore Government has sent a strong signal in Budget 2022 that any future growth will more selectively focus on the quality of growth, jobs and lives for Singaporeans rather than the runaway growth it had seen in the past.
The gains of future growth must be distributed more evenly to Singaporeans than in the past. This is also perhaps why another resounding theme of Budget 2022 was to narrow the gap within society. On one end Mr Wong committed to enhance the support for children and students from low-income families as well as increasing the wages of a greater number of lower-income local workers than before. Retirees were another vulnerable group that received a boost as the Government will increase the total Central Provident Fund (CPF) contribution rates for seniors aged 55-70 by another 1.5 percent to 2 percent in 2023.
On the other end, Mr Wong revealed that with effect from financial year 2024, the top marginal personal income tax rate will be increased to as much as 24 percent from 22 percent currently. In addition, those who own more valuable properties or properties for investment will face higher property tax rates while luxury cars will also be liable to higher taxation. In the absence of explicit wealth taxes, these changes will clearly aid in the rebalancing of some uneven creases in society.
Leveraging on a Strong Fiscal Position
One of the most anticipated features of Budget 2022 was the hike of the Goods and Services Tax (GST) from 7 percent at present to 9 percent, which many saw as being in effect immediately. While plans for the GST hike remained, Mr Wong confirmed that its implementation will be delayed until 2023 and increased gradually until 2024.
To allow even greater adjustment to this GST hike, the Government also committed S$560 million Household Support Package to aid in the immediate cost of living focusing on helping Singaporeans with the cost of utilities, children’s education, and bills while a S$500 million Jobs & Business support package is aimed at reducing the impact of higher business costs on employment levels. To help Singaporeans cope with the impending GST rise, Mr Wong pledged the S$6.6 Billion Enhanced Assurance Package, which will come in the form of cash payouts, cash bonus for seniors, utilities rebates and other vouchers.
While much attention has focused on the GST hike, it is worth pointing out that it has come with plenty cushioning, perhaps surprisingly given the high government spending announced for this fiscal year, which comes on top of the bumper government spending in the last two years to rescue jobs and the economy amid the downturn.
This is reflective of the Singapore Government’s deep pockets – a phenomenon that is the result of judicious and carefully planned fiscal planning throughout Singapore’s modern history. With the luxury of a sizable kitty to fall back on, Singapore can plan long-term as it emerges from a downturn, instead of scampering to save livelihoods – a fact that is the envy of many administrations around the world.