Budget 2018: Tackling Concerns about the Future

By Abdul Shariff Aboo Kassim

The Good News

The Budget 2018 that Finance Minister Heng Swee Keat delivered on 19^th February 2018 started off on a positive note. At 3.6%, Gross Domestic Product (GDP) fared better than the 1% to 3% that the government forecasted.

Productivity received a boost with a solid performance – 4.5%, as measured by real value-added per actual hour worked; and 3.8% as measured by real value-added per worker – the highest since 2010. This would mean firms could afford to pay workers higher wages without compromising on competitiveness.

Overall, the real median income of Singaporeans rose by 5.3%, according to Minister Heng. The key concern, however, has often been on how households from the lower socioeconomic backgrounds are faring. Based on data from Key Household Income Trends 2017, the bottom three deciles chalked up a real income growth of 2.1% to 2.8% in 2017. Over the five-year period between 2012 and 2017, their growth was 23.3% and 25.2%, higher than that for the top 50% (11.5% to 23.1%).

Coping with a Tougher Future

Mr Heng’s speech can best be summed as a forward looking one as some potentially impactful phenomena looms over the horizon. The emergence of new technologies – in particular digital technologies and rapid rise of e-commerce – will affect the job market and businesses substantially.

The Minister reiterated that the notion that merely doing well in school will no longer be assurance of job security. On the contrary, lifelong learning – keeping one’s knowledge and skills relevant in what is projected to be a disruptive future economy – better guarantees employability and a decent wage.

An issue close to the Malay/Muslim community is social mobility. Growing inequality would make it harder for those in the lower strata to scale the socioeconomic ladder. The greater the inequality, the wider the rungs. Budget 2018, however, reinforced the government’s commitment to uplift all Singaporeans and deepen Singapore’s social compact. It pledged to strengthen social safety nets even as an ageing population bodes unprecedented strain on social spending.

In an uncertain future economy that is threatening to mar the employment market with redundancy and reemployment challenges, the government is moving to hedge against the prospects of long-term unemployment by beefing up initiatives under the Adapt and Grow scheme. The new Career Trial scheme is an improvement over the existing Work Trial scheme and will be introduced to provide funding support for lower- to middle-income workers to try out new careers.

Businesses

The focus on businesses stems from the economy’s increasing reliance on local SMEs to play a larger role in sustaining Singapore’s long term economic growth. Thus, making them more competitive and helping to regionalise or even globalise is of vital importance. Nearly all developed economies have at least a few home-grown firms that are household names in the global arena.

The path for most local businesses is expected to be a rocky one. The economy picking up last year has not done much in alleviating a perennial concern among businesses – operating costs. They face an uphill task in recruiting workers with the right skills and sustaining wage growth. Budget 2018 responded by extending wage increases through the Wage Credit Scheme (WCS), a scheme which co-funds wage increases for Singaporeans up to a gross monthly income of $4,000.

However, the impending challenges that businesses face go beyond costs. New technologies, the Finance Minister argued, will profoundly change the way companies create value for stakeholders. This would entail going digital and helping workers to remain relevant as the nature of jobs change.

To sustain competitiveness in the emerging business climate, it is imperative that businesses differentiate themselves and internationalise. A survey conducted by International Enterprise (IE) Singapore found that overseas revenue (OR) drives growth for Singapore companies. For SMEs, OR formed 53% of total revenue, a 3%-point increase from the previous year.

The Global Innovation Alliance (GIA), launched last year, is an initiative to build overseas networks and for young Singaporeans to gain exposure through overseas internships. Universities have now expanded their overseas programmes to eight new locations, including ASEAN countries, in addition to the government setting up BLOCK71 – an entrepreneurial ecosystem – in Suzhou and Jakarta.

The government aims to foster a culture of innovativeness so that businesses and workers are receptive and able to adapt to new technologies. This would require building deep capabilities in both the firms and workers. The government will nurture innovation by streamlining existing grants to a single one, the Productivity Solutions Grant (PSG), to help companies purchase and use new solutions.

Minister Heng also announced that the government will be piloting the Open Innovation Platform, which allows companies to list specific problems they face which can be addressed by digital solutions. This platform brings together prospective partners, local and overseas, to co-create solutions.

The merger between IE Singapore and SPRING marks a milestone in institutional support for local businesses in the quest to advance the capabilities of SMEs as the significance of their role in the long term viability of Singapore’s economy becomes more pronounced.

Trade Associations and Chambers (TACs), according to Mr Heng, play an important leadership role in forging partnerships and driving industry-level advancements. The Singapore Malay Chamber of Commerce and Industry (SMCCI) could step up efforts to harness the potential of Malay/Muslim entrepreneurship by reviewing its current goals and initiatives.

Employability

The government is also moving to institutionalise the development of human capital – in the form of deep skills for workers of all ages, from the young to mid-career professionals to older workers. Mr Heng stressed that a company’s overall growth strategy involves not only developing enterprise capabilities but also human capital, citing the case of an elderly worker with Infineon, a semiconductor company, who went from working in an assembly line to using new machines. Such stories may bring a measure of confidence to workers who, apart from having to bear with the anxiety-triggering outlook of the employment situation in the future economy, are sceptical about whether skills upgrade will actually result in better employment outcomes for them.

Caring and Cohesive Society: What Next?

Minister Heng upped financial support for education, increasing the annual Edusave contributions made by the government. In addition, the government will update the income eligibility criteria for Edusave Merit Bursary and Independent School Bursary, a measure aimed at benefiting the lower- to middle-income families.

Students from low-income families can look forward to increased support with the announcement that annual bursary quantum for the Ministry of Education (MOE) Financial Assistance Scheme (MOE FAS) for pre-university students will be raised. The eligibility criteria will also be revised. The School Meals Programme will likewise be expanded to cover more meals.

Amid the announcements of increased financial support, the government will also be giving youths a good foundation in financial literacy.  A new financial education curriculum will be piloted at polytechnics and ITE to realise this objective. It is unclear from the Budget Statement what led to this initiative but a survey commissioned by NTUC Income in 2014 — which polled more than 1,000 final-year polytechnic students, university undergraduates and young workers aged between 18 and 29 — found that, while the majority of young Singaporeans had prudent attitudes towards financial planning, despite knowing the importance of financial planning, only 18 % of respondents had created a financial plan for themselves, while only 7% had reviewed their financial situation.

On the social service front, Mr Heng said that the government aims to better coordinate the efforts of government agencies, VWOs and community partners in providing a more holistic and citizen-centred support for the needy. This includes, among other things, sharing of information between organisations for better coordination. The goal is to expedite assistance to citizens so as to accelerate the process of self-sufficiency and self-reliance and to eventually take them off the assistance schemes when certain Key Performance Indicators (KPIs) are met.

The Budget also sought to promote the spirit of giving back and volunteerism, extending tax deduction to Institutions of Public Character (IPCs) until 2021.

The effectiveness of matching donors and volunteers with charities will be boosted with the announcement of enhancements to the one-stop platform, Giving.sg.

GST: A Thorny Issue in a Budget of Hope

Budget 2018 spells hope for many quarters: the seniors, the workers, the low- to middle-income and businesses. Arguably, of the list of measures announced by the Finance Minister, the one that hogged ensuing debates on the Budget is the plan to raise the Goods and Services Tax (GST) from 7% to 9% during the period between 2021 and 2025. No specific time was given. Mr Heng said it will depend on the state of the economy during the period – how government’s expenditure will grow during this period and how much revenue is generated from taxes. However, Mr Heng hinted that it is likely to be during the earlier part of the five years.

Mr Heng argued that, various options have been explored to manage future government expenditures through “prudent spending, saving and borrowing” but “a gap” still remained. He did not detail what the “various options” he alluded to were. One major contention with raising GST is the 50% cap on the Net Investment Returns Contribution (NIRC). Economists have argued against the limit, citing current needs, such as spending on problem-ridden transport infrastructure. Others have also expressed doubts over whether such prudence in the name of meeting the needs of the future generations is too excessive, citing International Monetary Fund (IMF)’s view that a good enough amount of reserves would be 27% of our GDP or S$113 billion.

The disquiet notwithstanding, the GST will be raised progressively, said Mr Heng, and will continue to adopt measures such as absorbing GST on publicly subsidised education and cushioning of its impact with permanent GST voucher (GSTV) scheme. Moreover, the scheme will be enhanced when the GST is increased to provide more help to lower-income households. The government will also implement an offset package for a period to help Singaporeans adjust to the GST increase. Lower- and middle-income households can expect to receive more support.

The Future

Budget 2018 and, for that matter, subsequent government budgets are not a panacea for addressing the complexities that sustaining the growth of an advanced economy will bring about. However, Singaporeans can take some measure of comfort in Budget 2018 in that there are initiatives to tackle the more foreseeable challenges in the realms of employment, education, business and social safety nets. It also reveals that the government’s resolve to build an inclusive society remains steadfast with the announcements of goodies for low- to middle- income despite the strain on social spending contributed by an ageing population.