An extraordinary Budget for extraordinary times: What analysts are expecting to see in Singapore's Budget 2020

Deputy Prime Minister Heng Swee Keat before delivering his Budget in Parliament in 2019. This year, analysts are expecting a strong relief package to help Singaporeans hit by the Covid-19 outbreak. — TODAY pic
Deputy Prime Minister Heng Swee Keat before delivering his Budget in Parliament in 2019. This year, analysts are expecting a strong relief package to help Singaporeans hit by the Covid-19 outbreak. — TODAY pic

SINGAPORE, Feb 17 — With businesses battling an unexpected downturn as a result of the Covid-19 outbreak, all eyes are on the Budget this year, specifically the “strong” relief package that the Government had promised.

Analysts are expecting the relief package to be at least S$500 million, more than double what the Government doled out back in 2003, when Singapore was going through an outbreak of the severe acute respiratory syndrome (Sars).

Deputy Prime Minister Heng Swee Keat will deliver his Budget speech on Tuesday (Feb 18).

Heng, who is also Finance Minister, said in a message to Singaporeans on Sunday that he will unveil a set of “broad-based” measures to support viable companies and help workers stay in their jobs, with more given to sectors that have been harder hit, such as food and beverage (F&B) as well as retail.

“We will also support firms and workers to make the best use of this period to restructure, train, and upgrade so that we emerge stronger when the eventual upturn comes,” said Heng.

There will also be a package for households to help with their cost of living.

Heng's assurance came days after National Development Minister Lawrence Wong said in an interview with Bloomberg that Singapore will roll out a "strong" economic package to mitigate the fallout from the Covid-19 outbreak.

With Singapore still reeling from the effects of a trade and tech war between the United States and China, in addition to being battered by the virus, Liang Eng Hwa, the chairperson for the Government Parliamentary Committee (GPC) for Finance, as well as Trade and Industry, said that Budget 2020 is “the most important Budget to have in recent times”.

“We are in extraordinary times. We need an extraordinary Budget to deal with both short-term and long-term challenges,” he told TODAY.

The Covid-19 disease originated in the Chinese city of Wuhan and has spread to 29 countries and territories, including Singapore.

The city-state has confirmed 75 cases of the Covid-19 virus, the highest number outside of China.

Prime Minister Lee Hsien Loong said on Friday that the economic impact from the Covid-19 virus is already greater than Sars and he does not rule out a possible recession to hit the city-state.

While the Covid-19 virus is deemed less deadly than Sars and more similar to the H1N1 swine flu outbreak in 2009, DBS economist Irvin Seah said: “But because of the weak economic fundamentals at present, the travel ban being imposed, as well as the heavy reliance on China, the impact of Covid-19 will be deeper than Sars”.

As the first H1N1 case was confirmed only in May 2009, months after the Budget was delivered, Budget 2009 was focused on countering the impact of the Global Financial Crisis then.

“By the second quarter of 2009, the economy had recovered strongly from the financial crisis. Hence, there was no need for a relief package for the H1N1 outbreak,” said Seah.

A S$500 million package, at least

In view of the challenges that the Singapore economy is undergoing, analysts say that the relief package this time should be bigger than Sars, since the city-state’s economy is now a lot more dependent on China than in 2003.

Besides Chinese travellers forming a bigger portion of Singapore’s tourist arrivals, many Singapore companies have production facilities in China.

China’s contribution to Singapore’s economy, as well as the South-east Asian region, has more than doubled compared with 2003, analysts say.

Seah told TODAY that the size of the Covid-19 relief package this time would likely be more than double the S$230 million Sars relief package, while Selina Ling, OCBC Bank’s head of treasury research and strategy, said it would be at least S$500 million.

In a research note published on Feb 7, Seah said: “We expect the upcoming epidemic relief package to pack more punch and certainly more comprehensive than the previous one. This will form a significant portion of the overall budget plan.”

The S$500 million estimate, some analysts say, is conservative.

It is assuming that the Government would be carving out roughly the same percentage out of its gross domestic product (GDP) for the relief package, just like it did in 2003.

The S$230 million Sars relief package accounted for about 0.13 per cent of Singapore’s S$170 billion economy back then.

The S$500 million estimate is about 0.1 per cent of Singapore’s economy in 2018, which stands at about S$491 billion.

However, CIMB economist Song Seng Wun said that a relief package worth more than 0.1 per cent of Singapore’s GDP could be a possibility, given that businesses today are far more entrenched with China.

“Something closer to 1 per cent of GDP may be needed,” said Song.

That would amount to about S$5 billion.

Any difference from the Sars relief package?

With the tourism and transport sectors the worst hit during this crisis, just like how it was during Sars, analysts expect the package this time to also target these same sectors and offer similar kind of reliefs.

This means that businesses in these sectors could be provided with property tax rebates and have their licence fees waived, while small- and medium-sized companies could be offered a bridging loan to tide through cash flow problems.

To tie in with Singapore’s long-term goals of getting companies to digitise and transform, analysts expect the retraining of workers to still take centre stage in this year’s Budget, much like in previous ones.

Liang, who is also Member of Parliament for Holland-Bukit Timah Group Representation Constituency (GRC), said that direct assistance is needed to incentivise companies to hold on to their staff.

Some examples of direct assistance he cited are wage subsidies, support for enterprise financing and training support.

“It’s a way to incentivise employers to keep employees and send them for training rather than ask them to take no-pay leave,” he said.

Tax rebates and offset packages do not provide immediate relief, which is what companies are in need of now.

“All in, it’s a grim picture. It’s really bad because of how the virus came suddenly,” said Liang.

While the Sars relief package was targeted at the tourism and transport sector, some analysts say some differences this time would be that help could be provided to a greater number of sectors.

The gaming sector, for one, may be receiving some support, said Ling, as the two integrated resorts did not exist back in 2003.

Seah said the relief package may also lend a hand to the wholesale trade, financial services and construction sector, due to their heavier reliance on China’s economy.

In 2003, wholesale trade and financial services were two sectors that did not suffer during the Sars outbreak, he noted.

How about those who are self-employed?

Another difference would be how assistance is calibrated to support full-time workers and self-employed staff differently.

The Manpower Ministry told the Straits Times that workers who are on leave of absence but can continue working through telecommuting arrangements should not apply for the daily S$100 allowance.

“There is that kind of segregation, so it’s such that not everybody can have a free ride,” said Ling.

The difference can already be seen in the S$77 million support package for transport workers, where most taxi drivers would automatically receive S$20 in their hiring account every day, while only private hire drivers who have completed at least 200 trips a month from October to December last year are eligible for this relief.

The rest can tap a S$2.7 million fund set up by the Government and the labour movement National Trades Union Congress (NTUC).

Transport economist Walter Theseira, who is an associate professor at Singapore University of Social Sciences, said that policymakers back in 2003 did not have to deal with designing relief for such self-employed workers.

“How do you differentiate who is doing it for a living and should qualify as taxi drivers, and who isn’t The problem when it comes to providing relief is how do you take care of the drivers? Should it be pro-rated? It’s not clear what is the correct solution,” asked Theseira.

While platform operators such as Grab and Gojek would have the data on how much time their drivers are spending on the roads, they do not have visibility on what these drivers are doing for the rest of the time.

For example, a driver may be driving four hours a day for Grab, but also spending another four hours driving for Gojek. But the platform operators would only know how much that driver is driving on their own platform and may not classify him as someone who drives for a living.

Possible to dip into the reserves?

Most analysts and also Liang agree that it is not necessary for the Government to dip into the past reserves to finance the virus relief package.

Based on the Ministry of Finance budgeting for the financial year of 2019 and 2020, it is estimated that the current term of Government would have a surplus of about S$15 billion by the end of this financial year.

“The last time when they used the reserves, that was during the Global Financial Crisis. We were in an outright recession. This time, there are downside risks but no recession yet. They have S$15 billion plus to spend first,” said Ling.

However, Song from CIMB said that it is a possibility for the Government to tap the reserves, depending on the size of the package they are providing.

“The Government always said that the reserves are for rainy days. It’s about as rainy as it gets for many businesses right now,” said Song.

Support for health workers

As Singapore grapples with the escalating Covid-19 outbreak, much attention has been on the healthcare workers, who are on the frontlines caring for patients infected with this virus.

Dr Chia Shi-lu, chairperson for the GPC for health, said that he hopes there will be some financial support for the nurses and doctors who have had to work longer hours, and may be getting a smaller bonus this year as public hospitals have had to shelve revenue-generating cases to deal with this outbreak.

“At least, so that their work is not shortchanged they are not worse off,” he told TODAY.

While healthcare workers are expected to cast aside whatever prior-made plans in times of an emergency, he hopes at least that their basic salary will not be affected.

“Especially those in the lower earning categories, like nurses, I hope they also get bonuses and so on, depending on how the hospital does,” said Dr Chia, who is also MP for Tanjong Pagar GRC.

It was announced on Thursday that healthcare workers working in public institutions will get help defraying the cost of their cancelled travel plans, if they cannot get a refund from their travel agent or insurance companies.

But Dr Chia hopes that healthcare workers who have had to cancel holiday plans will also be able to get some form of compensation.

“Now a lot of travel companies are hurting, unlikely they can refund. But for healthcare workers, they don’t have a choice, they have to do it,” he said. — TODAY

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