Budgeting for the Future

The annual Budget is akin to the Government’s game plan for at least the financial year ahead. But as much as it essentially catalogues the Government’s goals and how it plans to achieve them, it also highlights the challenges that the country is facing.

Some of these challenges have to do with social issues. For example, there is the low birth rate of Singaporeans, as well as rising cost of living. Social activist and former Nominated Member of Parliament, Kanwaljit Soin, also points out that despite being the third richest country in the world in terms of GDP per capita, Singapore has high income inequality.

To address these issues, Budget 2016 “builds on the schemes introduced in the previous budget and provides more support to youths, families, vulnerable groups, low wage workers and seniors”, says Member of Parliament and Government Parliamentary Committee Member for Finance and Trade and Industry, Saktiandi Supaat. The measures announced include a3,000 SGD grant for children’s healthcare and childcare needs, a one-off GST voucher of up to 500 SGD for Singaporeans whose annual incomes are less than 26,000 SGD, and larger pay-outs to low wage workers through Workfare.

There also appears to be a growing recognition of the need to build the “heartware” of Singapore, as exemplified by the announcement of a new Our Singapore Fund. The 25 million SGD fund, which will be rolled out by the second half of this year, aims to promote ground-up initiatives and active citizenry by supporting projects that promote care, resilience, unity, and a sense of “being Singaporean”.

Unsurprisingly however, the main focus of Budget 2016 was on giving local Small and Medium Enterprises (SMEs) a boost amid slow domestic growth and an uncertain global economic climate. In his Budget speech on 24 March, Finance Minister Heng Swee Keat dwelled at length on the Government’s plans for businesses and the labour force – areas where Singapore faces some of its toughest challenges in the longer term.

Apart from the lacklustre short-term economic outlook – larger economies in the region are growing increasingly more developed and sophisticated, including in the start-up scene – Singapore is trying to redefine its economy in the face of competition. To put it simply, we cannot be content to stay on the same trajectory. Our workers are no longer as cheap as they used to be, and the skill gap with cheaper workers in the region is narrowing. There is no choice but to grow productivity significantly and innovate in order to continue adding enough value through​​ our goods and services to remain competitive.

Mr Heng admitted quite early on in his speech that productivity gains have not been as high as desired, hovering at the lower end of the Government’s 2010 target of 2-3% growth yearly. This year’s slew of financial measures targeted at local SMEs represent the Government’s latest attempt at trying to get them to restructure more rapidly, as they have been lagging behind. As economist Walter Theseira puts it:

“The dramatic tightening of foreign manpower in recent years has not yet resulted in meaningful productivity growth. Indeed, SMEs continue to hold out hope that the Government will reverse policy in the areas of foreign manpower restrictions and levies.”

It would seem that Singapore SMEs have not yet managed to restructure and innovate out of their dependence on low-cost (and less productive) labour.

To combat this problem, Mr Heng unveiled the Industry Transformation Programme (ITP) to develop enterprises and industries, support restructuring and internationalisation, boost productivity, build capabilities and promote innovation as the main drivers for growth for the economy. To improve workers’ skills and productivity, the Budget also provides for a TechSkills Accelerator, which would facilitate training opportunities for ICT skills that are in demand and develop industry-recognised skills standards.

Will such measures finally work the needed magic on local businesses? We will have to wait at least a few years to find out. But a common thread in the socio-economic issues highlighted by the Budget seems to be that Singapore needs to move away from old models for its society and economy. And at 7.3% larger than the previous year, Budget 2016 at least signals that the Government is trying.

Top photo: The Future of Us exhibition, Urban Architecture Now

IQ is hosting a debateIQ on Budget 2016 on Tuesday, 29 March from 7.30 pm to 9 pm, featuring panellists Saktiandi Supaat, Walter Theseira, Kanwaljit Soin, as well as National Volunteer and Philanthropy Council Chief Executive Officer, Melissa Kwee. Join us for the conversation on the live stream here!