Support measures set to taper, but Budget 2021 to remain expansionary: Analysts

SINGAPORE: The upcoming Budget on Feb 16 is expected to be expansionary, but more calibrated than the extraordinary fiscal resuscitation applied to the economy in 2020, analysts said.

This means that Budget 2021, which will be delivered on Feb 16, may post a deficit despite it being the first budget of the Government's new term following a General Election last July, an unusual circumstance in fiscally conservative Singapore.

The Government typically starts the first year of its new term with a sizeable budget surplus, said a pre-Budget report by Maybank Kim Eng’s senior economist, Dr Chua Hak Bin and economist Lee Ju Ye.

However, a more infectious virus wave has prompted renewed lockdowns in major markets, which will impact Singapore’s growth. Malaysia’s second lockdown may also disrupt manufacturing and food supply chains, and aggravate foreign worker shortages, the report said.

With the economy still climbing up from the steepest recession in Singapore’s history, the current term of government will likely start with a deficit in FY2021, analysts predicted.

READ: Singapore economy shrinks a record 5.8% in a pandemic-hit 2020

OCBC Bank’s chief economist Selena Ling said that a modestly expansionary fiscal stance will help industries, firms and workers until there is "greater conviction and clarity that the recovery is sustainable".

“One key concern shared by global policymakers is that any premature withdrawal of policy support could be potentially destabilising,” she said.

The Government pushed out four Budgets in rapid succession last year as the devastating impact of the COVID-19 pandemic became clear. Including two supplementary budgets, close to S$100 billion was spent on support measures for businesses and individuals, and to deal with the pandemic.  

After drawing more than S$50 billion from past reserves, the Government still set aside an additional S$13 billion in the Contingencies Funds for any urgent, unforeseen needs.

A large part of the fiscal stimulus went to the Jobs Support Scheme, which paid out about S$30 billion to subsidise the wages of Singaporean workers.

UNEVEN RECOVERY

While the economy is now on the mend, with growth of between 4 and 6 per cent expected this year, economists said recovery to pre-crisis levels would come only in the second half of the year.

The recovery will be gradual and more U-shaped than V, as vaccine rollout globally will be slow and border controls will remain tight, said Maybank Kim Eng economists. It will also be uneven, with some industries like aviation and tourism still stuck in the doldrums.

READ: Singapore economy 'turning the corner', but recovery still a long way to go: Chan Chun Sing

“We are still not seeing broad-based recovery … which is why from a fiscal policy standpoint, the Budget measures will be targeted at those who still lag in the recovery,” said Mr Song Seng Wun, economist for CIMB Private Banking.

Said Mr Irvin Seah, senior economist at DBS Bank: “Resources will be directed only at the vulnerable segment of the society to ensure inclusivity, at sectors that are worst hit by the pandemic to prevent structural dislocation, and at initiatives that will bring about the most bang for the buck in the longer term.”

MayBank Kim Eng expects that the Jobs Support Scheme (JSS) payout will likely be maintained at 50 per cent for aviation, aerospace and tourism-related sectors, but be cut to about 20 per cent, from 30 per cent, for sectors like food services, retail and marine & offshore. JSS support for other less-affected industries will likely cease, the economists said. 

There could be greater focus on the Jobs Growth Initiative (JGI), particularly for older workers, said OCBC’s Ms Ling.

JGI supports firms that create new jobs by co-paying a portion of the salaries of new local hires for one year. The subsidy is up to 25 per cent of salaries and is raised to 50 per cent for older workers from age 40, as well as for those with disabilities or ex-offenders.

READ: Disabled jobseekers turn to urban farming as COVID-19 affects employment opportunities

READ: Singapore’s labour market shows signs of recovery as unemployment rates fall for second straight month

The labour market cycle has bottomed, but employment prospects are expected to remain soft in the immediate term, said Mr Seah.

There should also be more help for lower-income groups that bore the brunt of the COVID-19 crisis, he said. A DBS report from last August showed that about half of the 320K customers that experienced income decline in May earned less than S$3,000 per month. 

“This provides added impetus for more fiscal support to prevent any widening of the income gap,” he said, adding that more efforts could be channeled towards helping Singaporeans transit to new industries and picking up new skills.

Ms Ling said that the foreign worker policy is unlikely to be loosened, thus training and upskilling the local workforce would remain the mainstay.

Besides calibrated help for those that need it, the focus for Budget 2021 is likely to be about rebuilding and repositioning for growth in the post-COVID environment, she added.

Minister in the Prime Minister's Office and Second Minister for Finance and National Development Indranee Rajah said at an interview on Feb 6 that Budget 2021 will be about targeted assistance, as well as preparing for the future.

"One of the things about COVID 19 is that it has forced us to rethink how we've been
doing things. It has also provided an opportunity to reshape the future and this Budget will be looking exactly at that. Not just tackling existing problems, (but) how to position for the future and how to grow," she said.

"On the social side, some people don't need as much support as others. The strategy here is to look to see who are the ones who really need help and make sure that the resources that we have are channeled to those in need."

PREPARING FOR A POST-COVID WORLD

For measures targeted at businesses, the focus will shift from mitigating the economic fallout to helping companies take advantage of the opportunities that may arise from the recovery, said Mr Seah.

There will be continued emphasis on capability development, digitalisation, investing into new technologies such as artificial intelligence, helping companies to scale up, and internationalisation. 

CIMB’s Mr Song said that the pandemic has in fact hastened business transformation, as companies adapted to operating in a new environment and many were forced to digitalise.

"When you're forced to survive, you must adapt. So in the last eight months, many have done so but there’s still more to be done,” he said.

“If we continue to see the current restriction in place that keeps businesses from easily getting cheap foreign labour, we will see more businesses move up the efficiency ladder by incorporating technology.”

READ: Singapore to launch multi-ministry Green Plan to tackle climate change challenges

DBS’ Mr Seah foresees that fostering entrepreneurship could be a key thrust in the upcoming Budget, as despite the deep recession last year, there was a sharp increase in net business formations after the lifting of the “circuit breaker” in June. 

Beyond the medium term, long-term measures to mitigate the effects of climate change and redoubled efforts to ensure food security for the country will definitely feature in the Budget, analysts said.

Minister for Sustainability and the Environment Grace Fu said in Parliament on Feb 1 that Singapore will soon launch a Green Plan 2030, and that Deputy Prime Minister Heng Swee keat will speak about Singapore’s sustainability agenda during the Budget debates.

NOT DIPPING INTO RESERVES

Given the tapering of broad-based support measures, economists CNA spoke to said they do not expect the Government to dip into the reserves this year.

“Budget FY2021 need not be too expansionary because the fiscal multiplier and impact from Budget FY2020 will still be felt in 2021,” said MayBank Kim Eng economists adding that the JSS payouts extend into the second quarter and several schemes have been extended well into 2021.

Given that the government does not borrow for current spending, it has the option to use leftover funds carried over from FY2020 and/or to tap on the S$13 billion in its Contingencies Fund. Net investment returns contribution could also jump – given the strong global stock market performance, they said.

They expect a smaller fiscal deficit of about 4 per cent of GDP for Budget FY2021, down from a projected 15.4 per cent in FY2020. Mr Seah has projected a smaller overall deficit of about S$10 to 12 billion, which is slightly more than 2 per cent of nominal GDP.

Ms Ling said that the Government will still aim for a surplus or at least a balanced budget over the entire term of government. 

"While it will try to return at least part if not all the past reserves that were drawn, it would really depend on the pace of economic recovery and its impact on the fiscal health in coming years, and if there are still large fiscal expenditure items needed to sustain the economic resilience for Singapore," she said.