Budget 2021: Singapore expects overall budget deficit of $11 billion for FY2021

SINGAPORE – Singapore's Deputy Prime Minister and Minister for Finance Heng Swee Keat on Tuesday (16 February) unveiled a Budget aimed at positioning the country to emerge stronger from the severe economic uncertainty brought about by the COVID-19 pandemic.

Speaking in Parliament, Heng said that Singapore's fiscal situation is expected to be tighter while reading his statement for the "Emerging Stronger Together" Budget, which runs from 1 April 2021 to 31 March 2022.

The pandemic has resulted in "economic uncertainties for citizens and workers, which calls for stronger social safety nets to protect those who are disadvantaged or more vulnerable. This means higher recurrent spending going forward," Heng said.

The government expects an overall budget deficit of $11 billion, or 2.2 per cent of gross domestic product (GDP) for financial year 2021, Heng said. The overall budget deficit for financial year 2020 is expected to reach $64.9 billion, or 13.9 per cent of GDP, the largest since the country's independence.

The Budget position remains expansionary as it continues to support Singaporeans and businesses over the pandemic.

Among the slew of Budget measures is an $11 billion COVID-19 Resilience Package to address the country's immediate public health needs, support its workers and businesses, as well as help hard-hit sectors. The government proposes to draw on past reserves to fund this Package, Heng said. It would be the second consecutive financial year that Singapore is drawing on its past reserves.

Together with the $42.7 billion expected to be drawn over FY2020 and the $11 billion for FY2021, the total expected draw on past reserves is up to $53.7 billion. This is a net increase of $1.7 billion from what was expected to be drawn from past reserves to respond to the crisis.

The FY2021 Budget comes after Singapore on Monday reported its economy contracted 5.4 per cent for the whole of 2020, the worst since independence amid the severe economic disruption due to the pandemic. Growth is expected to rebound to between 4 per cent and 6 per cent this year, but the outlook remains challenging for some key sectors including aviation, transport and hospitality.

"Our fiscal approach must strike a careful balance between addressing our immediate needs and meeting long-term structural needs in a responsible manner," Heng said. Beyond the crisis, the country needs to return to running balanced budgets, he added.

Soh Pui Ming, Singapore Head of Tax, Ernst & Young Solutions LLP, called the Budget "holistic and well-calibrated". The measures are aimed at moving Singapore "from containing the pandemic to restructuring and capturing growth opportunities; from delivering broad-based to more targeted support measures; and from protecting to creating new, better and more productive jobs," Soh said.

Immediate challenges

Of the $11 billion COVID-19 Resilience Package, $4.8 billion will be set aside for public health and safe re-opening measures.

A total of $700 million would go towards extending the Jobs Support Scheme (JSS), which provides wage support to employers from hard-hit sectors. The government has so far committed over $25 billion to the JSS and supported over 150,000 employers for up to 17 months, and this will cover wages up to March 2021 for most sectors.

With the extension, Tier 1 sectors – aviation, aerospace and tourism – will have their JSS support extended by six months. Firms in these sectors will get 30 per cent support for wages paid between April and June, and 10 per cent support for wages paid from July to September.

For firms in Tier 2 sectors, which includes retail, arts and culture, food services and built environment, the JSS will be extended at 10 per cent wage support for three months, up to June.

No additional JSS support will be given to firms in the Tier 3A sector past March as these sectors are "generally recovering", said Heng.

The SGUnited Jobs and Skills Package will get a second $5.4 billion tranche, of which $5.2 billion will go towards extending the Jobs Growth Incentive (JGI) by seven months. Support for SGUnited Skills, SGUnited Traineeships, SGUnited Mid-Career Pathways Programmes will be extended.

About $1.2 billion from the Resilience Package will go towards providing more targeted support for sectors hardest hit by the pandemic. The aviation sector will receive support and cost relief worth $870 million.

The government will also set aside $133 million for the COVID-19 Driver Relief Fund, which was announced previously, to help taxi and private car drivers who are adversely affected by the downturn.

The government will extend the Arts and Culture Resilience Package and Sports Resilience Package in FY2021 to support businesses and self-employed people in these sectors to the tune of $45 million.

Over the next three years, the government will allocate $24 billion to enable firms and workers to emerge stronger, building on the push that started five years ago to transform industries, Heng said.

GST timeline

On the previously proposed hike in the goods and services tax (GST) from 7 per cent to 9 per cent, Heng said it change must happen "sometime during 2022 to 2025, and sooner rather than later".

Without the proposed increase, first announced in Budget 2018, Singapore will not be able to meet its rising recurrent spending needs, particularly in healthcare, Heng added.

Heng reiterated a previously announced $6 billion Assurance Package will help to cushion the impact of the GST hike and delay its effect on the majority of Singaporean households by at least five years.

More will be set aside for the lower income Singaporeans, with those living in one- to three-room HDB flats receiving about 10 years' worth of additional GST expenses incurred, he added.

A new measure under the GST system will come into effect from 1 January 2023, when low-value goods bought online and imported by air or post as well as to business-to-consumer imported non-digital services will be subject to the tax. The measure is to help local businesses compete effectively with foreign competition, Heng said.

Larger Singapore enterprises

A total of $500 million will be set aside by the government to boost large local enterprises via the Local Enterprises Funding Platform, with Temasek Holdings matching the government's funds on a one-for-one basis. The platform will have $1 billion to help these enterprises to transform and expand overseas.

The government will extend support for, and enhance, the Enterprise Financing Scheme-Venture Debt programme for high-growth enterprises by increasing the cap on the loan quantum supported to $8 million, from $5 million. This sees the government sharing up to 70 per cent of the risk on eligible loans with participating financial institutions. The government expects about $45 million of venture debt to take effect over the next year, Heng said.

Help for older workers

Over $200 million will be set aside from the Budget to help more businesses move earlier to raise their retirement and re-employment age under the Senior Worker Early Adopter Grant and the Part-Time Re-employment Grant, Heng said.

The additional support in Budget 2021 also comes on top of the Senior Worker Support Package, which was announced in the Unity Budget last February.

Household Support Package

The government will provide $900 million under the Household Support Package to give additional support for families amid the economic uncertainty, said Heng.

The package includes vouchers that each household can use to defray expenses and support local businesses, as well as rebates for service and conservancy charges, and GST vouchers.

Electric Vehicles

About $30 million will be set aside over the next five years for electric vehicle-related initiatives, as the government aims to deploy 60,000 charging points at public car parks and private premises by 2030, up from an earlier target of 28,000.

To further encourage the early adoption of electric vehicles, there will be a lower cost differential between electric cars and internal combustion engine cars, Heng said. The minimum Additional Registration Fee floor for electric vehicles will be lowered to zero from January 2022 to December 2023.

The plan for electric vehicles comes after the government launched the Singapore Green Plan 2030 on 10 February, with a wide range of ambitious goals across five pillars to advance the national agenda on sustainable development.

Satya Ramamurthy, head of infrastructure, government and healthcare at KPMG, said he welcomed the changes in the tax and duty regimes for EV adoption. "However, the $30 million support for EV-related initiatives over the next 5 years needs to be significantly enhanced to enable orderly development of charging infrastructure to meet the ambitious 60K target by 2030," he added.

POLL: What do you most hope for in Singapore Budget 2021?

For more Budget updates, head to Yahoo Finance Singapore's Budget Topic Page.

Related stories

Budget 2021: $11 billion Resilience Package to help workers, employers, hard-hit sectors

$5.4b more for SGUnited Jobs and Skills package: Heng Swee Keat

Salaries of healthcare workers to be enhanced: Heng Swee Keat

Budget 2021: Petrol duty increases by up to 15 cents per litre