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Singapore Budget 2020

A potent antidote amid virus concerns

19 February 2020

Trying times call for expansionary budget

Budget 2020 came at the most opportune time amid a nation reeling from the impact of the Covid-19 outbreak. The sluggish growth environment coupled with the negative GDP shock from the Covid-19 outbreak just as US-China trade war concerns abate (at least for the time being) argued for significant fiscal support. Affordability is certainly not an issue considering the substantial accumulated fiscal surpluses over the years. Indeed, the Singapore government did not disappoint expectations, announcing a widely expansionary budget.

For FY2020, the Singapore government has pencilled in an overall budget deficit of S$10.9 billion, which amounts to about 2.1% of Singapore’s GDP. This exceeds OCBC Treasury Research’s expectation for an S$8 billion deficit, or 1.5% of GDP. This is the largest deficit on record, stretching back to 1997 and even exceeded 2001’s expansionary budget, which was about 1.7% of GDP. The government’s expansionary fiscal stance should offer a significant demand boost to the economy amid near-term pressures.

Covid-19 relief package

All eyes were on the size of the highly anticipated economic relief package. Back in 2003, the government passed a S$230 million package to provide relief for sectors most affected by the SARS epidemic, including the tourism and transport-related sectors. The relief package for Covid-19 is far larger. Altogether, S$6.4 billion is set aside to cushion the demand shock from the virus outbreak. Of this, S$800 million is allocated to the Ministry of Health to aid frontline heath care workers in their fight to contain the virus. The remaining S$5.6 billion is allocated for economic relief for both households and businesses amid such trying times.

The S$5.6 billion relief effort is split into two separate packages, namely the “Stabilisation and Support” package, a S$4 billion budget focused on supporting the most vulnerable sectors in the economy, and the “Care and Support” package, a $$1.6 billion budget designed to grease household consumption.

Support for businesses is largely focussed on defraying labour costs to keep Singaporeans employed and ease cash flows for businesses impacted by the economic fallout from the virus outbreak. Cuts in property and corporate taxes alongside rental waivers for tenants operating in government-managed properties are among the measures put in place to mitigate the adverse impact of the outbreak on companies’ bottom lines. In addition, the minister introduced targeted schemes for companies operating in sectors more directly affected by the outbreak. These include tourism, aviation, retail, food services and point-to-point transport services.

For households, one-time cash and voucher handouts should go some way to ease the burden on personal budgets and possibly spur current consumption, hence supporting aggregate demand.

As expected, the finance minister also delayed the GST hike from 7% to 9% on the back of extenuating economic circumstances this year. However, he noted that the hike will be necessary to meet the challenges of increasing medical costs and higher spending on social programmes and provided a time frame between 2022 and 2025 for the hike. This might lead to some front-loading of consumption spending as households seek to avoid paying higher GST in later purchases.

As was the case for past GST hikes, the government introduced a rather generous GST offset package to cushion the transition to a higher tax regime. Valued at S$6 billion, the package includes at least 5 years’ worth of offsets on additional GST expenses incurred for most Singaporean households, with lower income households receiving close to 10 years’ worth of offsets. This will help mitigate the impact of higher taxes on private consumption as spending behaviour acclimatise to a higher tax regime.

Always looking forward

The budget would not be complete without a long list of investments for the future. Enhancements to existing schemes to improve labour productivity via training and retraining as well as investments to build up infrastructure to aid in the creation of a modern, sustainable economy and improve digitalisation were central themes in a long list of strategic spending to prepare the economy to meet the challenges of the future.

The government envisions Singapore to be a Global-Asia node of technology, innovation and enterprise. In service to this goal, S$8.3 billion has been set aside over the next three years to drive Singapore’s transformation and growth strategy.

Immediate challenges still the focus

While the budget was chockful of strategic initiatives to aid Singapore in meeting future challenges, it was the measures designed to tackle current pressures that received considerable attention. After all, it’s difficult to think about the future when present circumstances are particularly challenging. That was certainly not lost to the government.

The measures introduced to alleviate the pressures of current economic headwinds are certainly well-timed and substantial. The signal of this move is just as important as the measures themselves. By responding decisively with an expansionary budget, the government has signalled strongly to businesses that support is still available. This should go some way to stabilise business sentiment amid an uncertain operating environment.

Goodies galore - "Stabilisation and Support" and GST Offset Package

Goodies galore - "Care and Support" and Retirement Policies

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