COMMENT: S'pore’s hopes and challenges reflected in Budget 2021

By Freda Yeo Pei Chern

SINGAPORE — For financial year 2021, the Singapore government expects to run a deficit of S$11 billion or 2.2 per cent of gross domestic product (GDP), which is expected to be offset by another drawdown from past reserves of an equal amount.

Coincidentally, the cost of the Resilience Package, which is expected to address the health of Singaporeans, workers and business and the worst hit sectors, is estimated to cost S$11 billion. The magnituge of FY2021’s budget deficit is smaller than the deficit estimate for FY2020 which is seen at S$64.9 billion. The other good news comes in the form of a smaller than expected drawdown from past reserves in 2020 which is now expected at S$42.7 billion versus the S$52 billion initially earmarked.

The budget is undoubtedly expansionary, with the government set to disburse cash to eligible Singaporeans and extend support for the hardest-hit sectors like aerospace and tourism, including lengthening the Job Support Scheme (JSS) by up to 6 months and preserving the ‘core capabilities’ of the aviation sector. Occupations that fall outside of the JSS including taxi and private hire car drivers will benefit from a range of measures that include subsidies and fuel rebates, while heartland shops and hawkers stand to benefit from $100 vouchers that will be distributed to each Singapore household. The government is also targeting the innovation and redesign of jobs and businesses with S$24 billion spread over 3 years including the restoration of Changi Airport’s connectivity.

Throughout his speech which lasted over two hours, Deputy Prime Minister and Finance Minister Heng Swee Keat struck a positive tone but remained constantly conscious of the uneven recovery and the ‘wide cone of uncertainty’ that lies ahead. As such, the budget is chockful of measures that are intended to provide support to those who bear the brunt of the pandemic including an ‘Assurance Package’ which would offset the effects of the inevitable goods and services tax (GST) increase, set to happen sooner rather than later, for up to 10 years for lower income households.

Some measures highlighted the expectation for those who are better positioned in the current environment to shoulder their part, including a progressive increase in petrol duty which would see the cost of 98-Octane petrol used by more powerful cars rise by 15 cents per litre compared to 10 cent for lower octanes. Heng also made it a point to highlight that resident foreigners, tourists and the top 20 per cent of resident households account for over 60 per cent of the nett GST borne by households and individuals while consuming only 11per cent of the benefits. Tweaks to GST would also subject all imported goods to the tax from 2023 in order to level the playing field for local businesses.

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A major revelation during the budget speech was that Singapore intends to issue up to S$90 billion of bonds, under the new Significant Infrastructure Government Loan Act (SINGA) to be tabled at Parliament later in the year, to fund major infrastructure including new MRT lines as well as protection against rising sea levels.

This is a significant departure from the current paradigm where bonds are only issued to meet banks’ needs for a risk-fee asset and for informing a robust yield curve. This and the intention to issue green bonds to finance other major public infrastructure projects could affect the way Singapore government and statutory board bonds are currently perceived by investors even if their justifications of fairness and efficiency are robust.

There is no question that the pandemic has wrought huge change and a rethink of norms from education and work to the environment and society as a whole. The 2021 Budget focused on not only making lemonade from 2020’s lemons but also planting its seeds in the hope for trees and fruit in the future.

The Budget's bets on the future include doubling down on attributes that have made Singapore a success — from its adaptable workforce, efficient government, to travel hub status — while making new ones on transformative and sustainability technologies with the long-term goal being a "caring and sustainable home for all". Overall, it is a Budget that inspires optimism and seems to have its heart in the correct place while promising to give a good bang for the buck.

Freda Yeo Pei Chern is Strategist, Treasury & Markets Research, CIMB Bank Singapore.