(The following is a post-budget statement issued by DBS Bank received by e-mail. It was not confirmed by the sender.) DBS economist Irvin Seah's comments on the Singapore Budget 2013 Singapore Budget 2013: Ultimately, success will depend on Singapore's economic agility to cope with the challenges of the new paradigm SINGAPORE, 25 February 2013 -- Budget 2013 was unveiled by Deputy Prime Minister Tharman Shanmugaratnam earlier today. Much in line with expectation, it continues to focus on reinforcing the productivity drive and strengthening the social safety net so as to ensure that growth is inclusive and sustainable. Productivity growth continues to be a key focus and the restructuring effort remains a work in progress. The final outcome for businesses is mixed. The heavy reliance on foreign workers continues to be viewed as a hindrance towards achieving longer term productivity growth. The further reductions in the DRCs coupled with more hikes in the Foreign Worker Levies will create significant strains on companies, especially the SMEs. Margin erosion will remain a challenge and profitability will be threatened. Moreover, the focus in the curbs on foreign workers has also shifted towards the mid-skilled foreign worker segment, in line with our view put forth in our recent article "Singapore budget: Focusing on the longer-term". The qualifying criteria will be tightened to create a level playing field for Singaporean professionals. While the pain has intensified, the support measures have also increased. A three year transition support package was announced to upgrade the SMEs' productivity, create better paying jobs and raise wages. In fact the government went to the extent of introducing the Wage Credit Scheme, which is essentially a wage subsidization programme. This will enable SMEs to raise wages of their workers and help attract talents. Moreover, the Workfare Income Supplement scheme has also been enhanced. The coverage has been increased and the amount of the subsidies has also been raised to provide more support. This is in line with our expectation and it will essentially help achieve the combined benefits of sharing the SMEs' cost burden of hiring low waged Singapore workers as well as enhancing the employability of the low skilled Singapore workers. In addition, a 30% corporate tax rebate lasting three years has also been announced to help companies cope with the higher business cost. However, by restoring the employer CPF contribution rates for low-waged older Singapore workers in this budget, overall labour cost burden for companies will also rise. This will add more pressure on companies and margins could be eroded further. Nonetheless, this is a necessary trade-off to ensure that these workers will have enough CPF savings for their retirement. The coming years will be defining for Singapore. There could be hollowing out in some segments of the local business community while foreign companies may find Singapore a less attractive destination. While the slew of productivity enhancement initiatives and cost-offsetting measures may help, companies would ultimately have to redefine their business models or restructure their production processes to achieve productivity gains. Failure to do so will result in further loss in Singapore's overall competitiveness. Jobs may be lost in the process while structural unemployment may climb. Ultimately, these are part and parcel of the restructuring effort. Companies that are more competitive and able to adjust quickly will continue to do well while those that have been struggling to keep pace may eventually fade away. This will be the reality facing the local enterprises in the coming years. The government has also intensified its efforts to foster inclusive growth in the budget. Top-ups were made to a wide range of public assistance schemes while improvements on the WIS and WTS have been introduced. Additional GST vouchers will be given and tax rebates were also announced in a bid to help the low and middle income residents cope with the rising cost of living. Ensuring social mobility, enhancing employability as well as strengthening the social safety net continued to be in the spotlight. These key thrusts will continue to remain in focus for policymakers given the aging population. Separately, the government has taken further steps to make the fiscal system more progressive. While it fell short of an outright increase in personal income tax rates for top earners, property tax rates for high-end residential and investment property have been raised. Tax rates for the high end cars have also been raised. While we do not foresee the tax changes affecting property prices, some moderation in vehicle sales can be expected given that the COE premiums for high-end cars are already high at present. Importantly, the moves have reinforced the deliberate shift towards a more progressive fiscal stance and there could be more of such hikes going forward if the property market and car sales remain buoyant. Overall, this budget aims at creating a better Singapore. But the economy will continue to face the twin challenges of slow growth and high inflation in the medium term as it continues to embark on the restructuring. There will be more pain in the process before longer-term gain can be achieved. The measures rolled out thus far will help mitigate against some of the downside risks. But ultimately, the success of this deliberate structural shift will depend on the ability of businesses to adjust to this new paradigm, as well as the willingness of Singaporeans to build an inclusive society. The economic agility that has helped Singapore achieved its economic success in previous years will once again be called upon in this restructuring process. About DBS DBS - Living, Breathing Asia DBS is a leading financial services group in Asia, with over 200 branches across 15 markets. Headquartered and listed in Singapore, DBS has a growing presence in the three key Asian axes of growth: Greater China, Southeast Asia and South Asia. The bank's capital position, as well as "AA-" and "Aa1" credit ratings, is among the highest in Asia-Pacific. In 2012, DBS was named "Asia's Best Bank" by The Banker, a member of the Financial Times group, and Derivatives House of the Year, Asia ex-Japan, by Asia Risk. The bank has also been named "Safest Bank in Asia" by Global Finance for four consecutive years from 2009 to 2012. DBS provides a full range of services in consumer, SME and corporate banking activities across Asia. As a bank born and bred in Asia, DBS also understands the intricacies of doing business in the region's most dynamic markets. These market insights and regional connectivity have helped to drive the bank's growth as it sets out to be the Asian bank of choice. DBS believes that building lasting relationships with its customers is an integral part of banking the Asian way. With its extensive network of operations in Asia and emphasis on engaging and empowering its staff, DBS presents exciting career opportunities. The bank acknowledges the passion, commitment and can-do spirit in all of our 18,000 staff, representing over 30 nationalities. For more information, please visit www.dbs.com <http://www.dbs.com/> .
SINGAPORE TO FACE GROWTH CHALLENGES AMID RESTRUCTURING: DBS
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