SINGAPORE - Budget 2024 is a fine balancing act, addressing the immediate challenges of businesses, such as rising costs, while keeping the focus on longer-term issues like managing the impact of climate change, an ageing population and the artificial intelligence (AI) transformation.

However, experts at a roundtable organised by The Straits Times and UOB on Feb 19 said building the capabilities of businesses and their workers and managing costs related to the transition to a net-zero economy amid a greying population will remain an ongoing effort.

“This Budget is not going to do everything. It is more like, I think, a down payment on many of these plans, which will be realised in the future,” said economist and associate professor at the Singapore University of Social Sciences Walter Theseira.

Mr Kok Ping Soon, chief executive officer of Singapore Business Federation (SBF), noted that the new $1.3 billion Enterprise Support Package (ESP) will tackle clear and present challenges by helping to manage the rising costs of doing business.

The operating cost of running a business remains elevated because central banks worldwide have kept their benchmark interest rates high to pull inflation down. But this means working capital loans – needed to finance a company’s everyday operations – are getting increasingly expensive.

Companies are also paying higher utility bills and rentals, while employees continue to demand higher pay as compensation for the rising cost of living. 

Mr Kok said the ESP has something for everyone, including a corporate income tax (CIT) rebate of 50 per cent, capped at $40,000.

Recognising that not all companies may be profitable, and hence are paying CIT, non-tax-paying firms which employed at least one local employee in 2023 will receive a cash payout of at least $2,000, which will be automatically credited to them by the third quarter of 2024. 

A majority of firms that will receive the $2,000 cash payout will be small and medium-sized enterprises (SMEs) which are suffering the most from rising costs, Mr Kok noted. 

The ESP will also have enhancements to the Enterprise Financing Scheme (EFS), where the maximum loan under the EFS-SME Working Capital Loan will be permanently raised from $300,000 to $500,000, providing greater support to SMEs to manage their financing needs. 

The enhanced maximum trade loan quantum under the EFS-Trade Loan of $10 million will be extended until March 31, 2025, to support businesses’ internationalisation efforts. Meanwhile, financing for domestic construction projects under the EFS-Project Loan Scheme will be extended until March 31, 2025, with a maximum loan quantum of $15 million. 

Again, Mr Kok said, the lending schemes will allow Singapore’s SMEs to have better access to credit. 

To further encourage companies – especially SMEs – to restructure and transform, the SkillsFuture Enterprise Credit (SFEC) will be extended to June 30, 2025, which gives employers an additional year to claim any unused credit on supported schemes. 

While the ESP is a comprehensive response to immediate needs, the amount earmarked for longer-term capability building – to boost productivity, research and innovation, and the green energy and AI transformation – is about 10 times bigger, or almost $13 billion, Mr Kok said. 

The measures include a $2 billion top-up each for the National Productivity Fund and the Financial Sector Development Fund. 

The Research, Innovation and Enterprise 2025 (RIE2025) plan, launched in 2020 with a commitment of $25 billion, will also receive a further $3 billion. More than $1 billion over the next five years will be invested in line with the National AI Strategy 2.0 into AI computing, talent and industry development.

A $5 billion Future Energy Fund will help to build the critical infrastructure needed for clean energy development.

The broadband speed will be increased up to 10Gbps in the second half of this decade – 10 times faster than the speed in most homes now. This will ensure that Singapore’s connectivity infrastructure will be able to support technologies like AI and immersive media, as they become more pervasive in the future.

The Partnerships for Capability Transformation (Pact) scheme – that supports collaborations between larger companies and SMEs in the areas of supplier development and co-innovation – will be enhanced to support partnerships in more areas, including capability training, internationalisation and corporate venturing.

The Budget also proposes to extend the enhanced support for green loans under the EFS and expand its scope to help more SMEs adopt green solutions. In addition, the Energy Efficiency Grant, introduced in 2022 for companies in the food services, food manufacturing and retail sectors, will be enhanced and extended to more sectors including manufacturing, construction, maritime, and data centres and their users. 

“The measures would help to restore our competitiveness. I think it would help us build capabilities and foster collaboration among the industry ecosystem,” Mr Kok said.

Productivity growth

While measures such as the ESP for businesses and Assurance Package (AP) for households will provide short-term relief from rising costs, the roundtable participants agreed that the best way to deal with higher costs is to ensure that companies are competitive and real incomes of their workers are rising sustainably. 

Mr Alvin Liew, senior economist and senior vice-president for global economics and markets research at UOB, said relief measures like ESP are not going to turn the clock back on prices. “Singapore will remain a very costly place to operate for a lot of businesses. So, our way out of this is we really must look at productivity,” he said.

Productivity refers to a firm’s ability to boost output with the same or less amount of labour and capital inputs. For a country, increasing productivity over a sustained period leads to higher standards of living. For a company, productivity can determine whether it can afford to increase wages for its employees and generate profits without raising the price of its goods or services. 

Mr Liew said the longer-term measures are all working towards improving productivity. 

“Because if you’re trying to go back to where we were 10, 20 years ago, where the costs were lower, I’m afraid that’s not going to happen. So, we will have to proceed as a high-cost but high-value production and service-oriented kind of economy going forward,” he said. 

Keeping the high cost base in mind, the Budget measures are targeted at sectors that will not just boost growth and jobs but also help bring the economy into the future, Mr Liew noted. The technology and financial sectors were specifically mentioned, while the transition to net-zero remains an area of priority, he said. 

He added: “Those are areas we can see the Government’s focus is quite clear; the sectors they want to grow or to put bets on for Singapore to grow and take the next leap.”

Mr Kok said more support will be needed to help SMEs cope with some of the measures that are necessary but raise the cost of doing business.

Labour cost

The cost-incurring measures include a 14 per cent increase of the local qualifying salary from $1,400 to $1,600, and the increase in the Central Provident Fund contribution rate for workers aged 55 to 65.

Mr Kok said: “These are necessary moves. We need to continue to look after the vulnerable segments of our population – the lower-wage workers as well as the seniors. The question is where is the fair share of that burden of increasing costs? 

Still, the Budget has some measures to help employers defray some of these costs, including an increase of the Progressive Wage Credit Scheme’s (PWCS) wage ceiling to $3,000, and an increase of the co-funding from 30 per cent to 50 per cent. And to provide for these enhancements, the PWCS Fund will receive a $1 billion top-up.

“I think longer term, the sort of help that we should give companies is not just in terms of supporting their wage costs, but looking at real changes for both employers and employees to improve productivity because the only way for sustained wage increase is through productivity gains,” Mr Kok said. 

However, he stressed that the estimate of 2 per cent to 3 per cent annual growth over the next decade announced by Deputy Prime Minister Lawrence Wong in his Budget speech cannot be achieved solely by productivity and innovation. Economic growth will also need labour growth, which will be particularly challenging with an ageing population, he said.  

“So, then the question is that if we cannot increase labour growth, through immigration and through more Dragon Year babies, then what else but allow foreign workers to come in,” he said. 

Prof Theseira said initiatives such as the special economic zone in southern Malaysia are key as it will provide access to an expanded hinterland for setting up industries with a lot more labour availability.

Malaysia and Singapore signed an agreement on Jan 11 to work on a Johor-Singapore Special Economic Zone (JS-SEZ) to work towards enhancing cross-border flows of goods and people as well as strengthen the business ecosystem within the zone to support investments.

Prof Theseira said: “This would be good for both us and the Malaysians, that’s why we should pursue it very seriously. If it comes to fruition, it can help serve as a bit of a relief for this manpower issue.”

Green transition 

One of the other issues linked to productivity discussed by the participants was sustainability. 

Energy, utilities and resources tax leader at PwC Singapore Irene Tai said to this end, the Energy Efficiency Grant, for instance, helps SMEs to take their first step towards using less energy, by investing in energy-efficient equipment. 

“Hopefully, everyone understands, you use less energy, it costs less to run your business, and that hopefully gives you a structural change in your energy cost,” said Ms Tai, who is also PwC Singapore’s partner for corporate tax. 

However, beyond the fact that sustainable energy initiatives will provide longer-term growth to any company that adopts them into their business strategy, Singapore is also trying to develop itself into a sustainability hub which can become a source of new jobs. 

Said Ms Tai: “So beyond just making sure everyone is on board, there’s also this opportunity for Singapore to attract foreign capabilities, helping to grow the local capabilities in the whole sustainability ecosystem.

“It gives Singaporeans a new set of diverse opportunities for new career paths. Those are the new jobs that are really being created from the sustainability drive.” 

However, Prof Theseira said that green economy initiatives are also adding to the cost base.

He said the carbon tax increase would inflate household electricity bills in 2024, although the intent is to use the revenue to support decarbonisation efforts and cushion the impact on businesses and households. “The big challenge with sustainability is the politics of it because a lot of sustainability policies impose short-term costs on the economy and the society, even though they’re good for us in the long run,” he said. 

However, Mr Kok said there is broad-based support for the green energy transition.

A survey by SBF in 2023 found that seven in 10 businesses are aligned with the Green Plan 2030. Still, the same survey showed four in 10 firms do not know where to start and that cost was an issue for them. 

“When it comes to installing some of this energy-efficiency equipment, it requires complex changes in your business processes, in your production processes. And therein lies the challenge,” Mr Kok said. 

In conclusion, the roundtable participants agreed that while Budget 2024 is comprehensive, forward-looking, and pro-business, more initiatives and help will be needed by businesses in general and SMEs in particular to achieve longer-term economic goals. 

“A lot of the measures, a lot of things that we just talked about, are not going to be fully addressed in one single Budget, but you can see that from this Budget itself, it builds that foundation for the next step, and the next one, and the one after that,” said Mr Liew.