By Selena Ling and Howie Lee
SINGAPORE — In light of the ongoing fight against the pandemic, an expansionary budget this year was highly expected. The $64.9 billion budget deficit last year, 13.9 per cent of gross domestic product (GDP), was clearly unlikely to repeat again this year given the impending rollout of the COVID-19 vaccine both globally and domestically.
Still, the many external uncertainties still present from the global virus resurgence meant that a premature withdrawal of fiscal support was unlikely. At $11 billion deficit, Budget 2021 is still largely expansionary and shows the government is still ready to extend near-term financial support, albeit in a targeted and reduced manner.
The $11 billion COVID-19 Resilience package was one such example of targeted support.
Of that sum, $4.8 billion will go towards safeguarding public health, while $5.0 billion will be utilised to support workers and businesses, including the extension of the Jobs Support Scheme (JSS). The JSS, in particular, has been further tiered to provide aid to industries that need it the most.
Tier 1 industries– aviation, aerospace and tourism – will see a 6-month extension of the GSS. while the retail, arts and culture, food services and built environment will see a 3-month extension. The recent improvements in the health of the domestic labour market, which saw a surprising decline in the unemployment rate from 3.6 per cent to 3.2 per cent in Q3 and Q4 2020 respectively, probably instilled the confidence in the government to continue extending the JSS for only the most affected industries.
Another key topic of interest in Budget 2021 is the impending Goods and Services Tax (GST) hike from 7 per cent to 9 per cent.
The 2 per cent point goods GST hike is out of the question now, but may come sooner rather than later if the economic recovery accelerates into 2022. The hike in GST from 7 per cent to 9 per cent was supposed to come between 2021- 2025 in the original timeframe. However, the unforeseen Covid pandemic threw a spanner into any early implementation, pushing the timeline out to 2022 to 2025.
However, Deputy Prime Minister and Finance Minister Heng Swee Keat signalled his preference to raise the GST “sooner rather than later” given an ageing population meant the growing need to fund rising recurrent needs, particularly in healthcare for the ageing population. Hence, our baseline scenario is that if the Singapore economy regain its pre-Covid footing sometime in 2022, then Budget 2022 could pre-announce the GST hike for 2023-2024.
The Budget wouldn’t have been complete without touching on climate sustainability, which has been gaining increasing prominence globally. Singapore, as a socially responsible member of the international community, will continue to support international and regional climate action efforts. In addition, Singapore has also identified climate change as a key threat. As such, sustainable development is a major priority and efforts will be accelerated to secure a green, liveable and sustainable home for generations.
Budget 2021 saw several measures to further drive Singapore into adopting more green practices, which includes accelerating the expansion of the public EV charging infrastructure and enhancing the Electric Vehicle Early Adoption Incentive. The government will also take the lead on green bond financing on select public infrastructure projects to catalyse sustainable development in Asia and anchor Singapore as a green finance hub.
Budget 2021 resembled a partial return to normalcy after a tumultuous 2020.
The focus has slowly but surely started to shift from merely providing urgent fiscal aid to repositioning the economy for its next bout of growth post Covid-19. Uncertainties are still aplenty in the current environment, but with a deficit of $11 billion, this year’s fiscal budget still remains one of the most expansionary on record.
Overall, Budget 2021 is a far-sighted but firmly grounded fiscal strategy to help the Singapore economy, firms and workers emerge stronger together.
Selena Ling is chief economist and Head of Treasury Research & Strategy, OCBC and Howie Lee is an economist, both at OCBC Bank.