Extracts from the speech

Thriving in an uncertain world

As Singapore companies innovate and digitalise, Singaporeans will get help to acquire and use deep skills to adapt, taking the SkillsFuture movement further.
As Singapore companies innovate and digitalise, Singaporeans will get help to acquire and use deep skills to adapt, taking the SkillsFuture movement further.ST PHOTO: KUA CHEE SIONG

This is an extract from the 2017 Budget speech by Finance Minister Heng Swee Keat

When I presented the last Budget, Brexit seemed remote and the United States had just started the process of electing their new president. Events since then are a stark reminder of how quick and unpredictable change can be.

There is an inward-looking mood in several of the most advanced economies. Should this translate into protectionist actions, it will slow global trade and investments.

Meanwhile, advances in technology are picking up pace, disrupting traditional businesses and jobs. But they also present opportunities for countries and people who can learn and adapt quickly.

These deep shifts around the world will create new challenges but also open up new opportunities for many years to come. We must understand these shifts and do our best to adapt and thrive.

Singapore is also undergoing a key transition as our economy matures.

  • $10-$20

  • per tonne of greenhouse gas emissions: carbon tax rate

With falling birth rates and a rapidly ageing population, labour force growth will eventually fall to zero.

Many developed economies going through this same experience have seen their annual gross domestic product (GDP) growth decelerate to 1 per cent or lower. We can aim for quality growth of 2 per cent to 3 per cent, if we press on in our drive for higher productivity and work hard to help everyone who wishes to work find a place in the labour force.

BUILDING CAPABILITIES AND PARTNERSHIPS

Singapore should develop strong capabilities in our firms and workers, so they can adapt to the changes in economic structures and technology. Digitalisation, innovation and highly skilled workers will enable cities and regions to prosper while staying open and connected to the world.

In addition, we must forge deep partnerships in our economy.

The Government's role is not to plan every move, but to forge a common understanding of the changes, and foster partnerships with businesses, unions, firms and workers, with each playing a key role. We need to pool our resources and ideas, and solve problems together. Such networks of trust will allow us to seize opportunities and respond to unexpected challenges.

Similarly, we need to foster partnerships in the wider society so we can maintain a good balance between state action and community initiative. Government can do good in many instances, but so can individual citizens. When friends, neighbours and fellow citizens come together in support of a cause, or one another, we forge deep bonds and grow our social capital.

Budget 2017 will outline measures for our economy and our society, together with our fiscal policies. We will take a learning and adaptive approach, try new methods, continue with them when they work well, cut losses when they do not, and draw on feedback and experience to adjust and refine our plans. That is the Singapore way.

ECONOMY AND LABOUR MARKET - PERFORMANCE AND OUTLOOK

Last year, we achieved GDP growth of 2 per cent. This is similar to the 1.9 per cent achieved in 2015. This is within range, but at the lower end of our potential growth over the medium term.

But this aggregate growth figure belies the uneven performance across sectors. Sectors such as electronics, information and communications, and education, health and social services did well. Some sectors have been harder hit by cyclical weaknesses, including marine and offshore, and to some extent, construction. Other sectors like retail are facing structural shifts.

The picture of the labour market is similarly mixed. Overall, unemployment rate remained low at 2.1 per cent in 2016, but redundancies have been increasing and more workers are taking longer to find jobs. Sectors such as healthcare and education offered more jobs, while others shed them. In 2016, resident employment increased while foreign employment contracted.

MANAGING THE TRANSITION

Given the uneven performance across different sectors, we need to go beyond general stimulus, and target the specific issues faced by different sectors.

For firms and sectors that are doing well, we must focus on the long term and build on the momentum to seize new opportunities. For example, firms in the manufacturing sector should adopt advanced manufacturing technologies to build competitive advantage.

 

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For sectors facing cyclical weaknesses, we have introduced specific support measures like the bridging loan for marine and offshore engineering companies, which provides access to working capital to help them bridge short-term cash flow gaps. I will introduce specific measures to address continued cyclical weaknesses in the marine and process sectors, and the construction sector.

Last year, we deferred foreign worker levy increases in the marine and process sectors. In view of continued weakness, we will defer the earlier-announced levy increases in these two sectors by one more year.

To support the construction sector, we will also bring forward $700 million worth of public sector infrastructure projects to start in FY2017 and FY2018. Our construction firms will be able to bid for and participate in these projects, which include the upgrading of community clubs and sports facilities. To sustain the momentum for productivity improvement, we will proceed with the foreign worker levy increases for construction announced in 2015.

Firms in sectors that are facing structural shifts will need to dig deep to change their business models to stay viable.

ENHANCE 'ADAPT AND GROW'

The Government will help workers adapt to structural shifts in the economy, especially those who seek to move to a different sector or industry. Last year, the Ministry of Manpower launched the "Adapt and Grow" initiative to help workers looking to take on new jobs. We will strengthen the support this year.

We will increase wage and training support provided under the Career Support Programme, the Professional Conversion Programme, and the Work Trial Programme.

We will introduce an "Attach and Train" initiative for sectors that have good growth prospects, but where companies may not be ready to hire yet. Instead, industry partners can send participants for training and work attachments. This will increase the chances of these workers to find a job in the sector later.

CONTINUATION OF MEASURES TO SUPPORT BUSINESSES

Over the next two to three years, the different sectors of our economy will be in transition, re-positioning ourselves for the future economy. Some firms may need help to manage cost or cash flow. They will continue to receive support from schemes announced previously. Let me mention three.

The Wage Credit Scheme will continue to help firms cope with rising wages. We expect to pay out over $600 million to businesses this March. Roughly 70 per cent of this amount will be to small and medium-sized enterprises (SMEs).

The Special Employment Credit will continue to provide employers with support for the wages of older workers till 2019. Over $300 million, which will benefit 370,000 workers, will be paid out in FY2017.

The SME Working Capital Loan will continue to be available for the next two years. This is where the Government co-shares 50 per cent of the default risk for loans of up to $300,000 per SME. There has been good take-up for this scheme. Since its launch in June 2016, the scheme has catalysed more than $700 million of loans.

I will introduce two more measures to support firms.

First, I will enhance the Corporate Income Tax (CIT) Rebate. Last year, I enhanced the CIT rebate from 30 per cent to 50 per cent of tax payable, capped at $20,000 each year for Year of Assessment (YA) 2016 and YA2017.

This year, I will further enhance the CIT rebate by raising the cap from $20,000 to $25,000 for YA2017. The rebate will remain at 50 per cent of tax payable.

I will also extend the CIT rebate for another year to YA2018, at a reduced rate of 20 per cent of tax payable, capped at $10,000.

Second, we will provide more support for firms hiring older workers. The Ministry of Manpower will raise the re-employment age from 65 to 67 years, with effect from July 1, 2017. This will apply to workers younger than 65 on that day.

To encourage employers to continue hiring workers who are not covered, we will extend the Additional Special Employment Credit till end-2019. Under this scheme, employers will receive wage offsets of up to 3 per cent for workers who earn under $4,000 per month, and who are not covered by the new re-employment age of 67 years old. Taken together with the Special Employment Credit, employers will receive support of up to 11 per cent for the wages of their eligible older workers.

The extension of the Additional Special Employment Credit will benefit about 120,000 workers and 55,000 employers, and will cost about $160 million. This helps to extend the employability of older Singaporeans.

These additional near-term support measures, along with the existing Wage Credit Scheme and Special Employment Credit, will give businesses support of over $1.4 billion over the next year.

THE FUTURE ECONOMY - BUILDING AGILITY THROUGH CAPABILITIES AND PARTNERSHIPS

The measures I have described will help our firms and workers, especially in sectors that are facing cyclical or structural weaknesses. Even more important is how we increase our growth in the medium to long term, so as to sustain our potential growth of 2 per cent to 3 per cent. Let me now speak about measures to build our capacity for the future economy. These measures largely respond to the ideas put forth by the Committee on the Future Economy, or CFE.

The CFE has laid out seven mutually reinforcing strategies to tackle the challenges ahead. The strategies are not prescriptive blueprints but focus on developing adaptability and resilience. These qualities will keep Singapore relevant even as the world changes.

STRENGTHENING CAPABILITIES IN OUR ENTERPRISES

Enterprises are the heart of vibrant economies. For our enterprises to stay competitive and grow, they will need to develop deep capabilities. Which capabilities matter - this depends on the industry that the firm is in, and the firm's own stage of growth. But there are three capabilities that many firms will need in common - being able to use digital technology, embrace innovation and scale up.

DIGITALISATION

Digital technology has unique potential to transform businesses, large and small, across the economy. The first way to strengthen our enterprises, especially SMEs, is to help them adopt digital solutions.

We will introduce the SMEs Go Digital Programme to help SMEs build digital capabilities. The Info- communications Media Development Authority will work with Spring and other sector lead agencies in this effort.

We will also strengthen our capabilities in data and cyber security. With increased digitalisation, data will become an important asset for firms, and strong cyber security is needed for our networks to function smoothly. The Cyber Security Agency of Singapore will work with professional bodies to train cyber security professionals.

INNOVATION

The second way to strengthen our enterprises is to support firms in their broader efforts to tap innovation and technology. With our consistent investment in R&D, we have built up excellent research institutes. We want to help companies better tap these resources.

The third way to strengthen our enterprises is to help them scale up globally. Many Singapore-based firms already have a presence in other markets, often with support from IE Singapore. In 2016, IE Singapore supported companies in over 37,000 cases, a 9 per cent increase from 2015.

To further support our firms to grow, we will continue to develop a smart financing ecosystem. We will commit up to $600 million in government capital for a new International Partnership Fund. The fund will co-invest with Singapore- based firms to help them scale up and internationalise.

We will enhance IE Singapore's Internationalisation Finance Scheme to support further growth in this sector. We will catalyse private cross-border project financing to smaller Singapore-based infrastructure developers, by co-sharing the default risk of lower quantum non-recourse loans. We will also catalyse financing for projects undertaken by larger firms in higher-risk developing markets, by providing a share of the needed sovereign risk insurance coverage.

DEEPENING OUR PEOPLE'S CAPABILITIES

Our people are valued for their skills and adaptability, and have enjoyed high employment rates and rising wages. We must build on these strengths. As the pace of change quickens, we will do more to help them stay ahead. I spoke earlier about how we will support those affected by economic restructuring to reskill to find new jobs. I will now touch on two areas: new skills to operate overseas; and deepening skillsets to remain relevant in jobs.

BUILDING CAPABILITIES TO OPERATE OVERSEAS

We will set up a Global Innovation Alliance for Singaporeans to gain overseas experience, build networks and collaborate with their counterparts in other innovative cities. The Global Innovation Alliance will have three programmes.

First, the Innovators Academy will enable our tertiary students to build connections and capabilities overseas. We will build on the NUS Overseas College programme, which connects students to start-ups overseas. Many of these students have gone on to start companies or pursue interesting careers. The Innovators Academy will go further by making these opportunities available to students from other Singapore universities. We aim to grow the annual intake of students from 300 to 500 over the next five years.

Second, we will establish Innovation Launchpads in selected overseas markets. These create opportunities for our entrepreneurs and business owners to connect with mentors, investors and service providers.

Third, through Welcome Centres, innovative foreign companies can also link up with Singapore partners to co-innovate, test new products in Singapore, and expand in the region.

The Global Innovation Alliance is a novel collaboration among our educational institutions, economic agencies and businesses. In the initial phase, we will launch the Alliance in Beijing, San Francisco and various Asean cities.

Firms that want to expand overseas need capable leaders who have spent time in these markets, with insights and connections that can help their businesses scale up globally. The SkillsFuture Leadership Development Initiative will support companies to groom Singaporean leaders by expanding leadership development programmes. This includes sending promising individuals on specialised courses and overseas postings.

ACQUIRING AND USING DEEP SKILLS IN JOBS

As our companies innovate and digitalise, we will also help our people acquire and use deep skills to adapt, taking the SkillsFuture movement further.

To enhance training and make it more accessible, we will offer more short, modular courses, and expand the use of e-learning. Our universities, polytechnics and Institute of Technical Education have started offering such modular courses.

Funding support for Singaporeans to take approved courses will continue to be available through SkillsFuture. In addition, union members can get subsidies for selected courses through the NTUC-Education and Training Fund. We have set aside $150 million to match donations to the fund.

Besides learning new skills, our people must also apply and use these skills on their jobs. This requires employers, Trade Associations and Chambers (TACs), unions and the Government to work together.

Beyond developing individual capabilities, we must also come together in partnerships - share expertise, tackle common challenges and reinforce our mutual efforts.

To systematically facilitate such partnerships, I announced in last year's Budget a major initiative, the Industry Transformation Maps, or ITMs. The ITMs are integrative platforms, bringing together various stakeholders - TACs, unions and Government - so as to align our efforts around a common plan to transform each sector. We will develop ITMs for 23 sectors, covering about 80 per cent of our economy. Six have already been launched. We will keep this going at a good pace, and launch the remaining 17 within FY2017.

QUALITY LIVING ENVIRONMENT DEVELOPING A VIBRANT AND CONNECTED CITY

Even as the voices against globalisation rise, we must strive to remain a vibrant and well-connected city that is highly liveable for our people and businesses. In this way, our people will be constantly in touch with and be energised by new ideas, concepts, people, services and products from all over the world. We will continue to make significant investments in critical economic infrastructure such as the new Changi Airport Terminal 5, the Kuala Lumpur-Singapore High Speed Rail and the Tuas Terminal to deepen Singapore's connectivity to global markets.

We will also invest in shared infrastructure for economic clusters, so that industry players can network, pool resources and share knowledge. Last year, I spoke about how the Jurong Innovation District would be an exciting development to live, work and innovate in. The upcoming growth cluster in Punggol will co-locate cyber security and digital industries, with industry collaborating closely with the nearby Singapore Institute of Technology.

SUSTAINING A QUALITY ENVIRONMENT FOR THE FUTURE

Around the world, the effects of climate change, and air and water pollution are worsening public health and quality of life. These harmful effects transcend national boundaries. As an island, Singapore is vulnerable to rises in sea level due to climate change. Together with the international community, we have to play our part to protect our living environment. In doing so, we secure a better future not only for ourselves, but also for generations to come.

CARBON TAX

Last year, Singapore joined more than 120 countries, including China, Japan and South Korea, to ratify the Paris Agreement, re-affirming our commitment to address climate change and reduce emissions. It is in our own interest to support the international coordination required to deal with an issue that affects all countries and, in particular, small island states like ours.

We intend to implement a carbon tax on the emission of greenhouse gases. We will consult widely with stakeholders, and aim to implement the carbon tax from 2019. We are looking at a tax rate of between $10 and $20 per tonne of greenhouse gas emissions.

The Government has started industry consultations and will continue to reach out. Public consultations will begin in March. The final carbon tax and exact implementation schedule will be decided after our consultations and further studies.

RESTRUCTURING DIESEL TAX

Apart from carbon emissions, diesel emits highly pollutive particulate matter and nitrogen oxides which are associated with an increased risk of lung cancer and respiratory infection. The overuse of diesel cars has resulted in cities like London, Paris and Rome being enveloped in smog in recent years. Many of these cities have started taking action to reduce these harmful emissions. Athens, Madrid, Mexico City and Paris have announced plans to ban diesel vehicles from their city centres by 2025. Singapore must learn from these hard lessons.

I will introduce a volume-based duty at 10 cents per litre on automotive diesel, industrial diesel and the diesel component in biodiesel. Taxing diesel according to usage incentivises users to reduce diesel consumption. At the same time, I will permanently reduce the annual Special Tax on diesel cars and taxis by $100 and $850 respectively. In this way, we shift from an annual amount of tax to one which is related to usage.

The Special Tax reduction will offset the impact of diesel duty for the majority of drivers. I strongly urge taxi companies to pass on the Special Tax reduction to taxi drivers.

To help businesses adjust, I will provide 100 per cent road tax rebate for one year, and partial road tax rebate for another two years, for commercial diesel vehicles. There will be additional cash rebates for diesel buses ferrying school children. For the large majority of vehicles, the first year's rebates will more than offset the diesel duty incurred in the same period.

WATER PRICE CHANGES

Water sufficiency is a matter of national survival. Imported water and local catchment water currently meet more than half of our water demand, but both sources depend heavily on weather conditions. To meet increasing water demand and strengthen the resilience of our water supply, we have invested in desalination and Newater plants. These are costly but necessary investments which we must continue to make.

We have priced water to reflect the higher costs of desalination and Newater production because every additional drop of water has to come from these two sources. The cost of water production and transmission has increased as we build more desalination and Newater plants, and lay deeper pipes through an urbanised environment. Water prices were last revised in 2000, almost 20 years ago. We need to update our water prices to reflect the latest costs of water supply.

We will increase water prices by 30 per cent in two phases, starting from July 1, 2017. As part of the exercise, we will be restructuring the Sanitary Appliance Fee and the Waterborne Fee into a single, volume-based fee. This is more reflective of the volume of used water discharged.

For three-quarters of our businesses, the increase will be less than $25 per month, once the increase is fully phased in on July 1, 2018. For 75 per cent of households, the increase in monthly water bills will be less than $18. We will have measures to help lower- and middle-income households manage this increase.

Today, we impose a Water Conservation Tax on potable water, to promote conservation. To encourage the conservation of Newater among industrial users, we will also impose a Water Conservation Tax on Newater, which will be 10 per cent of the Newater tariff, starting from July 1, 2017.

INCREASE IN CPF HOUSING GRANT

With immediate effect, we will increase the Central Provident Fund (CPF) Housing Grant from $30,000 to $50,000 for couples who purchase four-room or smaller resale flats, and from $30,000 to $40,000 for couples who purchase five-room or bigger resale flats. Together with the Additional CPF Housing Grant and Proximity Housing Grant, a couple can now receive a total of up to $110,000 in housing grants when buying a resale flat, depending on the flat location, flat type and their income. Other eligible first-timers will also benefit from some grant enhancement.

ENHANCEMENTS TO THE PRE-SCHOOL SECTOR

Over the last five years, we increased childcare places by over 40 per cent, to about 140,000. Now, there are enough places for more than half of all children between 18 months and six years of age. All receive government subsidies.

We will provide more support for those with infants, that is, children under 18 months of age. At present, about 4,000, or 8 per cent of all infants are enrolled in centre-based infant care. To meet growing demand, we will increase the capacity of centre-based infant care to over 8,000 places by 2020.

HOUSEHOLD SUPPORT MEASURES

Earlier, I said that we would help households offset some of the increase in water prices. We will increase the GST Voucher - U­ Save Rebate for eligible HDB households, by an amount ranging from $40 to $120, depending on flat type. This increase will be permanent.

About 880,000 HDB households will benefit.

To help lower-income households with expenses, we will provide a one-off GST Voucher - Cash Special Payment of up to $200 for eligible GST Voucher - Cash recipients. This is in addition to the regular GST Voucher - Cash. In total, eligible Singaporeans can receive up to $500 in cash for 2017.

The one-off Special Payment will cost about $280 million and benefit more than 1.3 million Singaporeans.

We will also extend the Service and Conservancy Charges rebate, and raise it by 0.5 month for FY2017.

PERSONAL INCOME TAX REBATE

Finally, I will give a personal income tax rebate of 20 per cent of tax payable, capped at $500, for tax residents for YA2017 (that is, for income earned in 2016). This will give households a reduction in their tax bills for this year.

In total, we will provide additional support of over $850 million this year to help households with their expenses.

BUILDING AN INCLUSIVE SOCIETY

It takes all of us to build an inclusive society. We will launch the Third Enabling Masterplan, which was put together by a committee of private and public sector representatives. The masterplan calls for the Government and the community to better integrate persons with disabilities into the workforce, and to give more support to their caregivers.

One way we bring our society together is through sports - be it playing sports with friends and neighbours, or cheering on our sportsmen and women. Last year, we cheered our Olympic and Paralympic athletes who gave their very best, and did us proud. It was Team Singapore at its finest!

We will do more to make it easier for all Singaporeans to participate in sports. Over $50 million has been set aside to support community sports. We will expand the Sports-In-Precinct Programme, so that more Singaporeans can play sports near their homes. We will also expand the SportCares Programme, which encourages disadvantaged youth to discover their strengths through sports.

To help aspiring athletes reach their full potential, we will commit an additional $50 million in grants over five years. On top of that, we will provide up to $50 million to match sports donations dollar for dollar. This will build a wider base of support for Team Singapore.

A SUSTAINABLE FISCAL SYSTEM STARTING FROM A STRONG BASE

In the coming years, we expect expenditure needs to rise rapidly, particularly in healthcare and infrastructure.

Over the last five years, our annual healthcare spending has more than doubled to around $10 billion in FY2016 as we enhanced subsidies, and expanded healthcare services. Healthcare spending will continue to rise as our population ages.

With our spending needs increasing, the Government must continue to spend judiciously, emphasise value for money and drive innovation in delivery. We can do better - and more - with less.

We will apply a permanent 2 per cent downward adjustment to the budget caps of all ministries and organs of state from FY2017 onwards, to emphasise the need to stay prudent and effective. For four ministries that are serving security needs, or significantly expanding their services - namely Home Affairs, Defence, Health and Transport - the 2 per cent adjustment will be phased in over FY2017 and FY2018.

MAINTAINING A PRO-GROWTH AND PROGRESSIVE REVENUE BASE

Madam Speaker, apart from managing our resources prudently, we must grow our revenues to finance our growing expenditures.

Growing our economy is the first and most important step to increasing our revenues sustainably. We need to achieve this growth by implementing the strategies set out in the CFE.

With increasing digital transactions and cross-border trade, some countries have taken steps to adjust their GST system, to ensure a level playing field between their local businesses which are GST-registered, and foreign-based ones which are not. We are studying how we can do likewise.

Domestically, we will also face rising expenditures over the longer term, as we invest more in healthcare and infrastructure. We will have to raise revenues through new taxes or raise tax rates. We are studying the options carefully. We must make these decisions in good time, to ensure that our future generations remain on a sustainable fiscal footing.

BUDGET POSITION

For FY2016, we expect a Budget surplus of $5.2 billion, or 1.3 per cent of GDP. This is higher than the surplus of $3.4 billion, or 0.8 per cent of GDP, budgeted a year ago.

Nevertheless, when we exclude the Government's top-ups to funds and Net Investment Returns Contribution from past reserves, we expect a basic deficit of $5.6 billion, or 1.4 per cent of GDP. FY2016 was hence an expansionary Budget.

In FY2017, the Government's Budget remains expansionary. Ministries' expenditures are expected to be $3.7 billion, or 5.2 per cent, higher than in FY2016.

Overall, a smaller Budget surplus of $1.9 billion, or 0.4 per cent of GDP, is expected in FY2017. As we expect expenditures to continue rising in the long term, this Budget position is prudent, while supporting firms and households in the midst of continued economic restructuring.

Madam Speaker, let me conclude. Budget 2017 outlines how we can thrive in an uncertain and rapidly changing world. It is a call for us to pull together - the Government, firms, unions, community organisations and individuals, with everyone doing his part. Our bonds will help us develop greater resilience in the face of unexpected shifts and improve our ability to adapt.

Only through concerted partnership between Government and people can we realise our vision of a caring and inclusive society.

We will do all this while maintaining fiscal discipline. This will lay a sustainable foundation for future generations to thrive.

Our future is full of promise. Singaporeans are chasing their dreams in various fields and are excelling on the international stage.

•Mathew Tham topped the Young Chef Olympiad.

•Ding Eu-Wen won an international design award for his smart bicycle helmet.

•Nathan Hartono did us proud at the Sing! China competition.

•Nur Syahidah Alim won double gold medals in archery at the Asean Para Games.

•Yip Pin Xiu won multiple medals at the Paralympics, and

•Joseph Schooling was our first Olympic gold medallist.

This strong, can-do spirit will serve us well in the years ahead.

Let us go forward together.

A version of this article appeared in the print edition of The Straits Times on February 21, 2017, with the headline 'Thriving in an uncertain world'. Print Edition | Subscribe