Commentary: Did Budget 2022 adequately address restructuring anxieties in Singapore felt by workers and firms?

SINGAPORE: Albert Einstein once said that “the measure of intelligence is the ability to change”.

However, it is also intrinsically part of human nature to resist and reject change while trying our best to stick to status quo.

Over the last two years, the pandemic has wrought dramatic and sweeping changes to the way we work, live and play. Simple daily gestures like offering a handshake to introduce yourself, offering a smile to a stranger and gathering with a group of your closest family members and friends are no longer the same as before.

Business, both big and small, had to pivot to e-commerce, rapidly restructure business models and grapple with higher operating costs at the same time.

Singaporeans had to contend with the challenges of reskilling and upskilling, foreign competition, as well as inflation eroding wage growth.

In recognition of the challenges posed in the road to recovery, Singapore announced an expansionary Budget for 2022, pencilling in a fourth straight year of deficit at S$3 billion or 0.5 per cent of GDP. There will also be a S$6 billion draw from past reserves to fund efforts to fight the ongoing pandemic.

A NEW WAY FORWARD – TO BOOST CONFIDENCE IN AN UNCERTAIN FUTURE

The S$109 billion Budget unveiled yesterday by Finance Minister Lawrence Wong is focused on charting a new way forward together as a nation - to give Singaporeans the confidence to embrace the changes and challenges that lie before us.

One of the surest ways to achieve this is through retooling and sharpening capabilities for the future, as well as reforming the tax system to be more inclusive and sustainable.

To strengthen the competitiveness of SMEs, there is a wide range of support through a S$500 million Jobs and Business Support package to help firms still struggling amid the pandemic, including a one-off cash grant of S$1,000 per local worker employed by SMEs in the most affected sectors like F&B, retail, tourism and hospitality capped at S$10,000 per firm.

The Jobs Growth Incentive will also be extended by another six months to September this year, albeit with stepped-down support rates.

In addition, the Temporary Bridging Loan Programme and the enhanced Trade Loan Scheme will similarly be extended by another six months to September this year as well.

Beyond the extension of short-term assistance, there is also more support for SMEs to upskill, innovate and adopt digital and automation initiatives. There are two new programmes – the Singapore Global Enterprises initiative and Singapore Global Executive Programme.

The Singapore Global Enterprises initiative provides bespoke help for large local enterprises with internationalisation for instance, and the Singapore Global Executive Programme is meant to nurture talent. There will also be S$100 million to scale up company training committees to develop firm-level transformation plans.

PAIN POINTS: FOREIGN LABOUR CRUNCH AND CARBON TAXES

However, one possible pain point could be the raised minimum salary for Employment Pass and S Pass holders, coupled with the tightening of the Dependency Ratio Ceiling for the construction and process sectors, which is targeted at nudging local firms to double up on efforts to be manpower lean and harness technology to reduce reliance on human labour wherever possible.

In the short term, these factors could exacerbate the manpower crunch keenly felt by construction firms and this will continue to cause more delays to some project timelines.

The other likely pain point could be the very ambitious ramp-up in carbon taxes from the current S$5 per tonne of emissions to S$50 to S$80 per tonne by 2030, which will help Singapore achieve the much talked about net-zero emissions goal around mid-century.

This move may come as a shock to companies. High carbon emitters would definitely start to feel the pinch from the revamped carbon tax in the near future. That said, it is still definitely a move in the right direction from a sustainability perspective.

Moreover, the additional revenue collected from the carbon tax is already earmarked to be used to support Singapore’s decarbonisation efforts and allow us to better transit to a greener economy. This will also allow us to seek out more opportunities to position Singapore as a regional and global role model for other countries.

On top of that, the government also plans to issue S$35 billion of green bonds by 2030 to fund public infrastructure projects, which is nearly double the initial target of S$19 billion by 2025 announced at Budget 2021.

A STRONGER SOCIAL COMPACT

Budget 2022 also prioritises the need to strengthen the social compact. Rather than a blind adoption of the western model of a welfare state, Budget 2022 recognised the need for a S$560 million Household Support Package to help Singaporeans with living expenses including utilities, education bills and daily essentials.

This comes on top of the S$900 million package in Budget 2021 to similarly support Singaporeans and their families. The government will spend S$9 billion to help low-income workers over the next five years, and extend the Progressive Wage Model to additional sectors.

Low-income workers and low-income households will also be well looked after, through the extension of the Workfare Income Supplement scheme to younger workers aged 30 to 34 and its higher qualifying income cap from S$2,300 to S$2,500, as well as enhancements to the Fresh Start Housing Scheme, the KidSTART programme and the UPLIFT Community Pilot.

To top it off, the Government also made a commitment not to increase its fees and charges for one year in 2023.

BIG TAX CHANGES NEEDED

All this will need significant changes to the existing tax system to raise revenues.

First, the Goods and Services Tax will be raised in two steps from 7 per cent to 9 per cent from January 2023 and January 2024 respectively. Second, wealth taxes were deliberately tweaked through changes in existing property and luxury cars, as well as the top personal income tax brackets to mitigate social inequalities and bolster the sense of solidarity.

In the longer term, the Government also committed to studying the experiences of other countries and exploring more options to tax wealth and the wealthy more effectively.

Fingers-crossed, these calculated moves should have a very limited impact on Singapore’s economic competitiveness.

While Budget 2022 is certainly breathtaking in its scope to help restructure and transform the Singapore economy and firms without leaving anyone behind, there are still some lingering headwinds and concerns that even a well-thought-out Budget cannot provide an immediate solution to.

Apart from current global supply chain disruptions, the other defining challenges of our times are climate change, geopolitical tensions and Singapore’s very own ageing population issues.

One doesn’t have to look further than recent worrying news headlines about the ongoing Russian-Ukrainian tensions and the evergreen US-China strategic rivalry to know that no amount of money can resolve some of these geopolitical hotspots.

However, that should not constrain Singapore’s ability and drive to revamp, restructure and reposition for new growth opportunities in the new endemic pandemic world.

Compared to the previous two Budgets, the overall posture of Budget 2022 should be a clear signal for firms and Singaporeans to begin our transition away from a crisis mentality to regaining the confidence to reorient and chart a new and daring path forward.  

Selena Ling is Chief Economist and Head, Treasury Research and Strategy, at OCBC Bank.