DBS Focus Singapore's budget for recovery and sustainability - DBS Bank
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Economics & Strategy
DBS Focus
Singapore’s budget for recovery and sustainability
Economics/growth/fiscal
Group Research February 17, 2021
Irvin Seah 30
Senior Economist • Budget 2021 projects a fiscal deficit of SGD11bn (2.2% of
nominal GDP) in a calibrated effort to balance near and long-
term economic objectives
• The fiscal stance has shifted from broad-based countercyclical to
becoming more targeted and transformational in nature
• Emphasis has been placed to help enterprises emerge stronger
from the crisis
Please direct distribution
queries to • Tremendous efforts were made to strengthen the social safety
Violet Lee +65 68785281 net and to upskill the local workforce
violetleeyh@dbs.com
• The sustainability agenda was given a keen focus, and borrowing
to fund infrastructure projects could be the way forward
Budget 2021 was announced as the Singapore economy is gradually
recovering from the COVID-19 crisis. To support the recovery process,
particularly when the pandemic continues to rage on in many parts of
the world, and that uncertainties remain in the external environment,
the government has decided to go for another fiscal push.
A fiscal deficit of SGD11bn (2.2% of GDP) has been put forth, in line with
our expectations (DBSf: SGD10-12bn) [1]. Although just a shade of the
of the fiscal response in 2020 (deficit of SGD65bn), Budget 2021 is still
a significant fiscal outlay considering that it is about 3.5 times the size
of the 10-year average fiscal surplus prior to 2020. Beyond near-term
targeted measures to help companies and individuals that are most
affected by this crisis, significant focus has been placed to drive longer
term economic transformation, and to ensure that the Singapore
economy emerges stronger from this crisis.
Calibrated fiscal planning at work
An SGD11bn COVID-19 Resilience Package (CRP) has been introduced.
Note the funding approach on this budget is unlike any of the past
budgets. Out of the SGD52bn drawn from the past reserves last year to
fight the pandemic, the Government has utilised SGD42.7bn, with
SGD9.3bn unused. To fund this budget, policymakers have tapped on
Refer to important disclosures at the end of this report.Singapore’s budget for recovery and sustainability February 17, 2021
the unutilized reserves from the previous year and drawn down an
additional SGD1.7bn from the reserves. This is the first time that the
government has drawn down on the reserves over two fiscal years.
The “unorthodox” funding approach reflects the following: 1)
policymakers are keeping their fiscal powder dry given the still
uncertain economic climate; 2) there could be an intention to replenish
the reserves in subsequent fiscal years if conditions allow, particularly
given the slew of future tax changes announced in a bid to raise
revenue; 3) the government has continued to maintain its prudent fiscal
stance of funding recurring expenditure with recurring income, and
borrowing is only for funding major infrastructure projects.
Singapore's overall fiscal position
Actual Revised Estimated Change over
FY2019 FY2020 FY2021 Revised FY2020
SGD bn SGD bn SGD bn % change
Operating revenue 74.3 64.6 76.6 12.0 18.6
Less:
Total expenditure 75.3 94.1 102.3 8.3 8.8
Operating expenditure 58.7 77.6 82.5 4.8 6.2
Developmental expenditure 16.7 16.4 19.9 3.5 21.1
Primary surplus/deficit -1.1 -29.4 -25.7
Less:
Special transfers 15.1 53.6 4.9 -48.7 -90.9
Special transfers excluding top-ups to
endownment and trust funds 1.6 36.3 4.9
Basic surplus/deficit -2.6 -65.7 -30.6
Top-ups to endownment & trust funds 13.6 17.3 -
Add:
Net investment returns contribution 17.0 18.1 19.6 1.4 7.8
Overall budget surplus/deficit 0.8 -64.9 -11.0
Overall balance as % of GDP 0.3 13.9 2.2
Source: MOF
The fiscal plan assumes an increase of 18.6% in operating revenue. This
is premised on the recovery being on track to meet the official target of
a 4-6% expansion in 2021. In our opinion, this is achievable. The COVID-
19 situation in Singapore has stabilized and the economy is on the
mend. Final GDP figures for 4Q20 came in better than expected. Based
on the latest set of GDP figures, the economy contracted by 2.4% YoY in
4Q20, up from the 5.8% contraction in the preceding quarter (see chart
next page). On the margin, the economy expanded by 3.8% QoQ sa,
following a robust expansion of 9.0% in 3Q20. Overall, the economy
shrunk by 5.4% in 2020, better than the official forecast range of -6 to -
6.5%. The low base effect lifting the 2Q21 GDP growth notwithstanding,
we are maintaining our full year GDP growth forecast for 2021 at 5.5%,
with stronger sequential growth momentum expected in 2H21.
Page 2Singapore’s budget for recovery and sustainability February 17, 2021
Economy is turning around
% YoY, % QoQ saar
11.0
6.0
% YoY
1.0 +3.8% QoQ
% QoQ sa
-4.0
-2.4% YoY
-9.0
-14.0
Sep-19 Mar-20 Sep-20
Sources: CEIC, DOS, DBS
Separately, policymakers are catering for an 8.8% upswing in
expenditure, coupled with a sharp decline in the special transfers. This
broadly reflects a shift in policy stance from broad-based
countercyclical to more targeted measures and with greater emphasis
on the medium term. Indeed, besides channeling resources to those
industries or segments of the society that are in need, there has been
calibrated focus on enhancing enterprise capabilities and upskilling of
workers to spur economic transformations.
Targeted support and driving economic transformation
While economic recovery is gaining momentum, COVID-19 has hit
various sectors differently. Due to the measures imposed throughout
the course of the pandemic, growth performance differs widely across
industries. Sectors such as construction, transport services (especially
aviation), and the hospitality sectors have been the worst hit while
industries such as manufacturing, financial services and ICT have
Resources channeled to remained resilient.
sectors that need help
Henceforth, some of the fiscal efforts have been allocated to help
sectors that are still struggling. Specifically, the Job Support Scheme
(JSS) for the tier 1 sectors (Aviation, Aerospace and Tourism) will be
extended for 6 months, at 30% form Apr-Jun21 and 10% from Jul-Sep21.
For tier 2 sectors (Retail, Arts and Culture, Food services and Built
Environment), there will be JSS support of 10% from Apr-Jun21, while
JSS for all other industries will lapse in Mar21.
Page 3Singapore’s budget for recovery and sustainability February 17, 2021
The Aviation sector, which is facing a grim outlook given that global
travel is unlikely to resume in the near future, will be given SGD870mn
grant. The COVID-19 Driver Relief Fund has also been introduced to help
taxi and private hire car drivers at $600/mth from Jan-Mar21 and
$450/mth from Apr-Jun21. Additional SGD4.8bn will also be dedicated
to public health and safe re-opening measures.
Beyond these short-term measures, significant focus has been placed
on enhancing the capabilities of enterprises, and to ensure that
Driving economic companies have the abilities to capitalize on opportunities and emerge
transformation stronger after the crisis. A total of SGD24bn over the next three years
has been allocated for this purpose [2]. Some the policy initiatives
announced include:
• More investment into innovation via schemes such as the Corporate
Venture Launchpad, Open Innovation Platform and Global
Innovation Alliance;
• Extension and enhancement to the Enterprise Financial Scheme –
Venture Debt programme;
• To spark digital solutions and new technologies, and enhancement
to existing enterprise capability development related schemes such
as the Scale-up SG, Productivity Solutions Grant (PSG), Market
Readiness Assistance (MRA) and the Enterprise Development Grant
(EDG)
• Co-invest SGD500mn with Temasek in a SGD1bn Local Enterprises
Funding Platform to help large local enterprises move to their next
stage of growth;
• Introduction of the Growth and Transformation Scheme for the Built
Environment to enhance collaboration and improve productivity in
the sector.
Perhaps the only pain-point for companies is that there has been further
tightening in manpower policies. The manufacturing sub-DRC will be
cut, to 18% from Jan22, and to 15% in Jan23. However, we reckon that
the impact for the manufacturing sector will be marginal considering
that this sector has invested significantly in automation over the years
and that this sector is also the outperformer last year. Moreover, this is
in line with the broader policy thrust of reducing the reliance on foreign
manpower, fostering a Singaporean core workforce and to encourage
investment into technology.
Page 4Singapore’s budget for recovery and sustainability February 17, 2021
Overall, the focus has shifted from mitigating the economic fallout to
enabling companies to leverage on the opportunities that may arise
Helping enterprises to from the recovery. There has been renewed emphasis on capability
emerge stronger development, digitalization, investing into new technologies, and
helping companies to scale up. Efforts in this regard will enable
companies to better adapt to the post-COVID business environment
and will be fundamental to the broader transformation of the Singapore
economy.
Job creation, upskilling and supporting those in need
Jobs and skills remain a fundamental focus of this Budget. Significant
emphasis has been placed on creating new jobs to absorb the current
slack in the labour market, as well as to upgrade the skill sets of the local
workforce. As it is, the labour market remains weak and the job vacancy
to unemployed person ratio remains below parity. Though there has
been some improvement, near term employment prospects remain
challenging given that companies are still cautious in adding new
manpower costs.
Labour market has bottomed but remains soft
'000 pax %, sa
40 2.8
20 3.0
3.2
0
3.4
-20 3.6
-40 3.8
-60 Net chg in employment (LHS) 4.0
-80 4.2
Resident unemployment rate 4.4
-100
4.6
-120 4.8
Latest: 4Q20
-140 5.0
Mar-19 Sep-19 Mar-20 Sep-20
Source: MOM, CEIC
Hence, measures such as the COVID-19 Recovery Grant will provide
temporary relief to unemployed workers of between $500-700 for up
to 3 months. The extension of the Wage Credit Scheme (WCS) will also
bring some much-needed help to the vulnerable segment of the local
workforce. In addition, the extension and enhancement to the policy
measures within the SGUnited Jobs and Skills Package will go a long way
in addressing the concerns for displaced workers, as well as the
Page 5Singapore’s budget for recovery and sustainability February 17, 2021
upcoming cohort of fresh graduates. Specifically, the extended Job
Growth Incentive (JGI), which will cost an additional SGD5.2bn, along
with the SGUnited Skills, Traineeship and Mid-Career Pathways
Programme is expected to support the hiring of 200K locals and provide
35K traineeship opportunities. This will go a long way in helping
displaced workers regain employment and provide a leg up for fresh
graduates.
Beyond the measures pertaining to employment and skills, there has
been significant focus on strengthening the social compact and
Continued support for
rendering support to households. Some of the measures include:
the vulnerable group
• A one-off GST Voucher Cash Special Payment for all eligible
Singaporeans;
• U-save Special Payment for all eligible HDB households;
• Extension of the rebate for Services & Conservancy Charges (S&CC);
• Additional $200 top-ups to the Edusave per child;
• $100 CDC Vouchers for each Singaporean household;
• Increase budget for the Senior Worker Early Adopter Grant ad the
Part-Time Re-employment Grant (SGD200mn) to encourage the
employment of older workers
• Additional support for low income families (Comlink) ad children
with special needs;
• Extension of the 250% tax deduction for donations to IPCs and more
funding for charity organisations.
Embarking on the sustainability drive and long-term fiscal strategies
Budget 2021 has added further impetus to Singapore’s sustainability
agenda. As part and parcel of the Singapore Green Plan 2030, a
SGD60mn Agri-food Cluster Transformation Fund will be set up to
support tech adoption in the agri-food sector. To encourage the shift
towards green mobility, SGD30mn will be set aside over the next five
years to support electric vehicle (EV) related initiatives. Registration fee
and road tax for EVs will also be calibrated lower. The petrol duty will
be raised, and the carbon tax rate will also be reviewed, with a new
threshold expected in 2023.
Infrastructure investment will be an important enabler to Singapore’s
sustainability efforts. The government has announced the intention to
Page 6Singapore’s budget for recovery and sustainability February 17, 2021
issue green bonds of up to SGD19bn to support “green projects”. Note
the practice of borrowing to fund infrastructure projects is not new in
Singapore. The Singapore Government borrowed to build the first MRT
lines. It also took up loans to fund the development of Changi Airport
back in the 1980s. Statutory boards such as the Housing and
Development Board, the Land Transport Authority and national water
agency PUB also issued bonds periodically in the 1990s to fund housing,
rail and water infrastructures.
The argument of funding “lumpy” infrastructure projects amid the
current low interest rate environment is appealing. Moreover, such
Borrowing ensures
projects have long shelf-lives and borrowing will be a more equitable
intergenerational
way of distributing the liabilities and benefits across different
equity
generations rather than front-loading the costs. Besides
intergenerational equity, there might be fewer recurring revenue
sources that the Government can tap on, as a greater amount of
recurring expenditure is being funnelled towards social welfare
programmes such as healthcare and education.
On funding recurring expenditure, the Finance Minister has continued
to emphasize the importance of having sustainable revenue flows, and
GST is one such option. While the government has postponed the
impending GST in last year’s budget, DPM Heng has iterated his
inclination to have the GST hike “sooner rather than later” to ensure
fiscal sustainability. In our opinion, timing of the next GST hike will
depend on the pace of recovery. Should growth performance pan out
in line with expectation, the GST rate could be raised as early as the
second half of 2022. Any downside surprise in growth would imply
further delay of the hike till 2023.
Notes:
[1] See DBS report “Singapore budget 2021: Supporting the recovery”
dated 19 Jan20.
[2] Refer to Budget Speech 2021 - Ministry of Finance, for more details
(https://www.mof.gov.sg/singaporebudget/budget-speech)
Page 7Singapore’s budget for recovery and sustainability February 17, 2021
Group Research
Economics & Macro Strategy
Taimur Baig, Ph.D.
Chief Economist - G3 & Asia
+65 6878-9548 taimurbaig@dbs.com
Chang Wei Liang Radhika Rao
Strategist Economist – Eurozone, India, Indonesia & Thailand
+65 6878-2072 weiliangchang@dbs.com +65 6878-5282 radhikarao@dbs.com
Nathan Chow Irvin Seah
Strategist - China & Hong Kong Economist - Singapore, Malaysia, & Vietnam
+852 3668-5693 nathanchow@dbs.com +65 6878-6727 irvinseah@dbs.com
Eugene Leow Samuel Tse
Rates Strategist - G3 & Asia Economist - China & Hong Kong
+65 6878-2842 eugeneleow@dbs.com +852 3668-5694 samueltse@dbs.com
Chris Leung Duncan Tan
Economist - China & Hong Kong FX and Rates Strategist - Asean
+852 3668-5694 chrisleung@dbs.com +65 6878-2140 duncantan@dbs.com
Ma Tieying, CFA Philip Wee
Economist - Japan, South Korea, & Taiwan FX Strategist - G3 & Asia
+65 6878-2408 matieying@dbs.com +65 6878-4033 philipwee@dbs.com
Sources: Data for all charts and tables are from CEIC, Bloomberg and DBS Group Research (forecasts and transformations).
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Sources for all charts & tables are CEIC & Bloomberg unless otherwise specified.
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