(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
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
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
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
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.
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
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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
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With its extensive network of operations in Asia and emphasis on
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For more information, please visit www.dbs.com <http://www.dbs.com/> .
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