Budget 2016 may help workers, firms through 'winter chill'

The Government will likely use Budget 2016 to help companies and workers hit by the economic slowdown although it is unlikely there will be any blockbuster goodies.
The Government will likely use Budget 2016 to help companies and workers hit by the economic slowdown although it is unlikely there will be any blockbuster goodies.PHOTO: ST FILE

Economists expect measures to tackle immediate cost concerns as well as any fallout in the labour market

The Government will likely use the Budget to help companies and workers hit by the economic slowdown although it is unlikely there will be any blockbuster goodies, said economists from DBS Group Research and OCBC Bank yesterday.

DBS economist Irvin Seah said in a report yesterday that the Budget on March 24 will probably focus on helping companies through the "winter chill" by tackling immediate cost concerns and the difficult business climate.

"Specifically, wage cost and government fees and charges have been the two key drivers of business costs. Some form of moderation in these aspects will be helpful to companies," he noted.

One possible move, he added, is not to go ahead with the impending hikes in foreign workers' levies, which were deferred in last year's Budget. Beyond near-term concerns, there will also be emphasis on assisting companies to enhance revenue growth to improve productivity, he said.

"That essentially entails helping local companies improve their revenues. Expect more policy measures to facilitate value creation and the internationalisation of local enterprises."

PRUDENT APPROACH

The chance is high that policymakers will aim for a modest surplus and keep its powder dry, particularly against the backdrop of the challenging economic environment.

DBS ECONOMIST IRVIN SEAH, on the upcoming Budget

These could include tax rebates to help small and medium-sized enterprises (SMEs) relocate some of their lower value-added operations overseas and tax rebates on income derived from abroad, he said.

Another key Budget consideration is the potential impact of an economic slowdown on the labour market, Mr Seah added.

Although the unemployment rate remains low at 1.9 per cent, employment growth has fallen sharply, he noted, with only 31,800 jobs added last year, the lowest since the Sars period in 2003.

The Budget will likely include measures to "guard against a fallout in the labour market", Mr Seah said.

These could include a temporary deferment of income tax payments for retrenched workers, subsidies for employers' contributions to the Central Provident Fund and enhancements to the Workfare Training Scheme to upgrade the skills of low-wage resident workers.

But overall, this will be a prudent Budget, Mr Seah noted.

"The chance is high that policymakers will aim for a modest surplus and keep its powder dry, particularly against the backdrop of the challenging economic environment."

OCBC economist Selena Ling agreed, noting in a report yesterday: "It would be safe to say that better to keep the powder dry for now so as to have extra ammunition if things go downhill from here."

After all, she added, Finance Minister Heng Swee Keat has said that as the Budget is the Government's first in its new term, it will have to be "particularly prudent".

Nevertheless, she added, companies have made it clear any short-term relief and government aid from the fiscal front may be timely, if not necessary.

"One plausible scenario in our view then is that the Budget could be 'prudent' in that it does not run an outright deficit position, but allow room for off-Budget measures at a later stage should the economy require it."

She believes there is "a less than 50 per cent probability" that the hikes in foreign worker levies will be deferred again this year, but added there may be "some tweaks to allow for more breathing space for selected industries".

Instead, she expects the Budget to include plans to boost innovation and facilitate SMEs to create value through industry collaboration, internationalisation and capability building, especially through investing in technology and research and development.

"Given the tapering off of bank credit growth and slightly elevated interest rate volatility, one pressing area of need could be some form of SME financing," Ms Ling added.

A version of this article appeared in the print edition of The Straits Times on March 15, 2016, with the headline 'Budget may help workers, firms through 'winter chill''. Print Edition | Subscribe