By Ajay Kumar Sanganeria and Harvey Koenig
SINGAPORE— While Singapore’s ‘Emerging Stronger Together’ Budget 2021 carries few major surprises, it sets the tone for the country’s re-emergence from the pandemic as a global hub for technology, finance and enterprise.
As expected, Budget 2021 remained expansionary and tapped on past fiscal reserves for the second straight year. What was important in the blueprint of Budget 2021 was the clear message of urgently getting Singapore Inc back on the path of transformation, innovation and scaling up.
The approach outlined in Budget 2021 aligns with KPMG in Singapore’s proposed 3R framework to Re-imagine the economy, Re-plan strategies to thrive in a constantly evolving business landscape and Re-create Singapore as a transformation hub in a digitally borderless world. Singapore has done much better than most other countries in containing the COVID-19 pandemic, and this has put the country in a sweet spot to build upon this advantage to reinvigorate the economy through innovation and digital transformation.
Budget 2021 recognises that recovery will be more painful for some sectors compared to others. The COVID-19 Relief Package targets assistance to the worst-hit sectors of the economy – aviation, land transport, arts, culture and sports – with these sectors receiving targeted support as part of a S$11 billion COVID-19 Resilience Package, while S$24 billion was set aside to enable businesses and workers to emerge stronger over the next three years.
The Budget 2021 strategy blueprint is clear – first and foremost, to provide capital to catalyse growth of promising businesses, and secondly, to provide support to innovate and transform businesses and workers, while keeping the long-term focus of fiscal and environmental sustainability.
A significant catalyst in Budget 2021 is the wide range of capital made available to enable businesses at various stages of growth to innovate, transform and scale. To catalyse the flow of capital and bridge market gaps to smaller and promising businesses, the government is taking on more risk-sharing arrangements, such as the Venture Debt Scheme for High-Growth Enterprises.
To get more funding to larger local enterprises (LLEs), the S$1 billion Local Enterprises Funding Platform between Temasek and the government will create opportunities for continued expansion beyond Singapore. Through this programme, LLEs will be able to access the larger business networks to propel internationalisation, ushering in the next phase of growth for LLEs. Given this represents a non-controlling investment and the entrepreneurial decision making will remain in the hands of the business owners, firms will have the potential to leverage Temasek's experience to drive regional growth and emerge as national leaders.
As a further boost to the capital markets, the government will catalyse the bond market through a bold move to spur infrastructure development under the proposed Significant Infrastructure Government Loan Act (SINGA). SINGA presents a good model for spreading the costs of long-term infrastructure to future generation while not compromising investing in infrastructure projects.
Given the robust pipeline of projects in Singapore and excess liquidity with institutional investors, this measure will be welcomed by the market.
Innovation and transformation
The second prong of the Budget blueprint is to catalyse innovation and transformation of businesses.
It is well-acknowledged that innovation will be key to thriving in a post-pandemic world. Taking the cue from development of the COVID-19 vaccines, innovation will increasingly be more open and collaborative. In this regard, a commendable aspect of Budget 2021 is its focus on creating global platforms for nurturing creative and innovative ideas.
As the world shifts from physical to digital modes of transactions and from tangible to intangible assets in value creation, businesses will need to innovate and collaborate on a global scale. Budget 2021 invests in a trifecta of platforms – Corporate Venture Launchpad, Open Innovation Platform, and Global Innovation Alliance – to cultivate an entrepreneurial mindset and accelerate digitalisation through collaborations and networks across more than 25 cities.
The government has extended key programmes designed to help businesses transform and grow. Programmes such as the Scale-Up, Enterprise Development Grant and Market Readiness Assistance provide cash support of up to 80 per cent of qualifying costs, and local businesses will welcome the extension of these schemes to March 2022.
One of the biggest challenges in the digital transformation journeys of local enterprises is access to talent and skills. The Emerging Technology Programme, along with initiatives such as the CTO-as-a-Service and Digital Leaders Programme, will help to plug this gap while driving the adoption of digital solutions and frontier technologies.
As the new realities of the post-pandemic world re-define the employment landscape, there is an urgent need to reskill and upskill the workforce. The allocation of S$5.4 billion to the Jobs and Skills package, in addition to the S$3 billion allocated last year, will kickstart this process and improve employability by harnessing creativity for Singaporeans to acquire skills and knowledge to suit new growth industries.
Budget 2021 re-emphasises Singapore’s commitment towards building a Green Economy, addressing issues related to climate change and sustainability. The government plans to take the lead on the issuance of green bonds for select public infrastructure projects, and has identified public sector green projects worth S$19 billion as an impressive starting point! This will no doubt spur Singapore’s development as a green financing hub.
Although Singapore continues to invest towards a sustainable future, Budget 2021 also reiterates the need for fiscal prudence. Compared to last year’s mammoth deficit of S$64.9 billion, or 13.9 per cent of gross domestic product (GDP) in 2020, this year’s S$11 billion deficit, or 2.2 per cent of GDP, is still one of the largest deficits in Singapore’s history. It is, however, necessary to address the continuing pandemic situation.
As it would not be sustainable to continually draw down on reserves, Singapore will likely need to adjust its tax policies going forward to fund its recurring needs such as education and healthcare requirements. A Good and Services Tax (GST) rate hike can be expected between 2022 to 2025. The introduction of SINGA will also allow greater flexibility for government to spread the cost of infrastructure projects, thus freeing up government revenues for funding increasing expenditure needs.
Deputy Prime Minister and Finance Minister Heng Swee Keat, in his Budget 2021 speech, called on Singaporeans to summon their collective resolve to emerge stronger as an economically vibrant, socially cohesive force that has the fiscal and social reserves to enable continued stability and progress. With this inspiring message, Budget 2021 seeks to capitalise on opportunities within an unprecedented crisis to accelerate Singapore’s transformation journey to become a digital, innovation-led economy.
Ajay Kumar Sanganeria is Partner, Head of Tax, KPMG in Singapore and Harvey Koenig is Partner, Tax, KPMG in Singapore