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Ernst & Young tags Singapore Budget 2013 as 'Darwinian' for firms


And key beneficiaries are SMEs and low-middle income earners.

Ernst & Young released its reactions to the recently delivered Singapore Budget 2013. 

Adrian Ball, Head of Tax Services, Ernst & Young Solutions LLP said, "The Government is sending a clear message that it is focusing on those industries where Singapore is, and can be, competitive. It is not offering sweeteners to defray costs. This is a Darwinian budget for businesses in Singapore."

Here's more from Ernst & Young:

For business, the last few Budgets have all been about productivity. Incentives to promote productivity have been key policy tools, as has been the weaning off of foreign low-cost labour.

The transition to become a globally competitive company has hardly been smooth-sailing for most businesses concerned, or Singapore overall.

With Singapore undergoing an economic and social change, there have been challenges, which are only to be expected.

Yet Budget 2013 forged ahead with what was deemed necessary to restructure Singapore’s economy for a sustainable future. Notwithstanding high business costs, the Government did not offer many immediate sweeteners to cushion the impact. 

Instead, it is more of the same, with increasing productivity and innovation seen as long-term solutions to high costs. SMEs that were hoping for some respite from restrictions on low-cost foreign labour are likely to be disappointed – at least for now.  

The Minister has said that “we need to intensify this economic restructuring and skills upgrading so as to achieve quality growth …restructuring will unfortunately lead to some businesses being winnowed out, but the end result must be a vibrant and sustainable local SME sector.”

Within this statement are some hard truths. Not all companies will survive the transition. The Government will not prop up businesses and industries that are uncompetitive, but it will be generous to those with the desire and ambition for productive growth. A plethora of enhanced productivity incentives and other assistance schemes are there for the taking.

Companies can capitalise on the newly introduced Wage Credit Scheme (WCS) to share productivity gains with their workers through higher wages.

For employees earning up to a gross monthly wage of S$4,000, the WCS will co-fund 40% of wage increases for Singaporean employees over the next three years.

The ease of the scheme is worth mentioning: no application is required and money will automatically be paid to qualifying companies. SMEs that have found the rules and process around incentives a barrier will have much to rejoice. 

However, the WCS does not provide immediate relief to wage costs; it co-funds wage increases. Also, the focus is on ensuring that Singaporeans will continue to be the key beneficiaryof productivity gains.Considering the current debates around population policies, this is hardly surprising.

Budget 2013 also saw the Government taking a more targeted and sectoral approach towards productivity. The Government plans to fund Collaborative Industry Projects in seven new priority industries to develop industry-wide productivity solutions. This clearly is looking totransformanentire industryona level that will far outweigh the benefits of productivity gains in any one company.

An innocuous but significant announcement in the Budget is the introduction of the Land Productivity Grant, which will support companies that intensify their use of land locally, as well as those that relocate some operations offshore while retaining core functions in Singapore. A familiar concept to many MNC’s, “exporting low-cost jobs” is not so frequently supported by governments.

Granted that there have been other tax incentives that encourage productivity in a similar vein, such as the Integrated Investment Allowance scheme that was introduced in Budget 2012,tomy knowledge it is the first time that the Government has publicly announced its intent to use cash grants for such purposes. Whether the cash grants are enough to help SMEs make this leap remains to be seen. 

To read Ernst & Young's Singapore Budget 2013 Synopsis, click here.

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