Budget 2021: $11 billion set aside to fight Covid-19, $24 billion to help Singapore emerge stronger from crisis

Deputy Prime Minister Heng Swee Keat arrives at Parliament House to deliver his Budget speech, on Feb 16, 2021. ST PHOTO: LIM YAOHUI

SINGAPORE - Against a backdrop of global uncertainty amplified by the pandemic, Deputy Prime Minister Heng Swee Keat on Tuesday (Feb 16) delivered a Budget finely balanced between providing immediate help to sectors under stress, and investing in Singapore's long-term future.

The $107 billion plan - the first full Budget in the Government's new term - includes an $11 billion Covid-19 Resilience Package. This will help safeguard public health and support the workers and businesses that need help, with extra money going towards the hardest-hit sectors.

Job seekers also got a helping hand, with another $5.4 billion set aside for a fresh injection into the SGUnited Jobs and Skills Package. This will support the hiring of 200,000 locals and provide up to 35,000 traineeship and training opportunities this year.

In addition, Mr Heng pledged to allocate $24 billion across the next three years to enable Singapore's firms and workers to emerge stronger from the crisis.

The country's investments to equip its people to seize opportunities and help its businesses innovate are what distinguish it from others, said Mr Heng, who is also Finance Minister.

"While last year's Budgets were tilted towards emergency support in a broad-based way, this year's Budget will focus on accelerating structural adaptations," he added in a relatively compact speech that lasted just over two hours.

"In the face of major changes, we must move from just counter-cyclical fiscal and monetary stabilisation policies, to structural economic policies to equip our businesses and workers with deep and future-ready capabilities."

On the topic of Singapore's reliance on foreign manpower, the minister said foreigners with the right expertise are a welcome complement to Singaporeans in areas where the country is short on skills. But foreign worker quotas will be tightened in the manufacturing sector, where the local workforce has to deepen its skills.

"The way forward is neither to have too few or no foreign workers, nor to have a big inflow," Mr Heng said. "We have to accept what this little island can accommodate."

Meanwhile, the salaries of nurses and other healthcare workers, who have been on the forefront of the fight against Covid-19, will be enhanced, he added.

He also announced a $900 million Household Support Package, aimed at lower- to middle-income households.

Under the package, eligible households will get goods and services tax (GST) vouchers, U-Save Special Payments, and service and conservancy charge rebates. All Singaporean households will also get $100 in Community Development Council vouchers, to be used at participating heartland shops and hawker centres.

And in line with Singapore's long-term goal to become a more sustainable society, measures will be introduced to encourage the adoption of electric vehicles, with green bonds to be issued on select public infrastructure projects.

All these measures mean that Singapore will see a Budget deficit of $11 billion, or 2.2 per cent of its gross domestic product. This marks the second consecutive year with a Budget deficit, following last year's deficit of $64.9 billion.

Running a fiscal deficit to support targeted relief is warranted in the immediate term, given the unprecedented impact of Covid-19, Mr Heng said.

But Singapore's recurrent spending needs in areas such as healthcare will continue to rise, and the country must meet these needs in a "disciplined and sustainable way".

"Hence, beyond this crisis, we must return to running balanced budgets," he said. "It was fiscal prudence and discipline that allowed us to accumulate our national reserves, which has enabled us to respond decisively to this crisis."

Singapore will tap its reserves to fund the $11 billion Covid-19 Resilience Package, Mr Heng said. But he pointed out that the nation expects to utilise only $42.7 billion of past reserves for last financial year, against the $52 billion that had been provided for.

This means the total expected draw over this financial year and the last is expected to amount to $53.7 billion - a net increase of $1.7 billion from what Singapore expected to draw from its reserves to respond to the crisis.

President Halimah Yacob has given her in-principle support for this draw, he added.

Singapore's spending needs mean that the impending GST hike, slated to take place sometime between next year and 2025, will happen "sooner rather than later".

The exact timing of the hike will depend on Singapore's economic outlook, Mr Heng said, adding that the country will not be able to meet its rising recurrent needs without the increase.

He reiterated that $6 billion has already been set aside under last year's Budget to defray the impact of this tax hike on the majority of Singaporean households by at least five years.

Petrol duties have also been raised for the first time in six years, and take place with immediate effect. These are intended to encourage Singaporeans to reduce their vehicle usage as part of Singapore's push towards a more sustainable future. However, road tax rebates of between 15 and 100 per cent - depending on the type of vehicle - have been put in place to cushion the impact of this increase.

Petrol duties have been raised for the first time in six years, and take place with immediate effect. ST PHOTO: KEVIN LIM

From January 2023, GST will also be extended to low-value goods under $400 bought online and imported by air or post in order to ensure a level playing field for local businesses to compete effectively.

In order to finance long-term infrastructure that will benefit both current and future generations, the Government will also issue new bonds totalling up to $90 billion under a law to be tabled in Parliament later this year.

Mr Heng said Singapore expects that its revenues will be able to support projected expenditure from all proposed measures as the economy recovers.

But this assumes the global Covid-19 situation comes under control by next year, he said. If things do not go according to plan, the Government will seek the President's consideration to tap past reserves to support Singapore's economic investments.

"We have carefully thought through the different scenarios. While we expect recovery in Singapore and globally, there is a wide cone of uncertainty," he added.

"Even if the economic and fiscal situation turns out to be worse than expected, we must still press on to invest in new areas, so as to ride on the structural changes, transform and emerge stronger as an economy, and as a people."​

6 ways to emerge stronger

In his Budget statement on Tuesday, Deputy Prime Minister and Finance Minister Heng Swee Keat outlined six ways in which Singapore can emerge stronger from the crisis. Rei Kurohi and Prisca Ang capture his key points.

1. Boosting Covid-19 defences

Tackling the pandemic remains a key area of focus, and an $11 billion Covid-19 Resilience Package will focus on immediate and ongoing recovery efforts.

Of this sum, $4.8 billion goes towards public health and safe reopening measures, including testing, clinical management and contact tracing, and vaccination for everyone living in Singapore.

Another $700 million goes to extending the Jobs Support Scheme to help firms retain workers, but with support gradually tapering off.

The hardest-hit sectors, like aviation and tourism that now get 50 per cent wage support, will see this lowered to 30 per cent for April to June, and 10 per cent for July to September. Sectors like food services and retail, currently getting 30 per cent support, will see this reduced to 10 per cent for April to June.

The worst-hit sectors will continue to get more targeted support to preserve their capabilities, with an extra $870 million for the aviation sector.

Taxi and private-hire car drivers will be supported by the $133 million set aside for the Covid-19 Driver Relief Fund, and $45 million will be set aside for the extension of the Arts and Culture Resilience Package and the Sports Resilience Package.

2. Ramping up business innovation

Economic transformation is key to creating jobs and opportunities for Singaporeans, and $24 billion will be allocated over the next three years to help businesses and workers recover.

A key focus is restoring physical connectivity, and investments will be made in on-arrival testing and biosafety systems, such as the Notarise and Verify systems being developed by GovTech with the private sector to verify Covid-19 test results and vaccination records.

Businesses will also get support with innovating and collaborating beyond Singapore's shores through government investments in three platforms.

A pilot Corporate Venture Launchpad will co-fund corporates building new ventures, and an Open Innovation Platform will match companies and public agencies with solution providers and co-fund the prototyping of new systems, such as for monitoring workers' health. The Global Innovation Alliance will be enhanced to catalyse partnerships with major global innovation hubs, with the network of 15 cities currently growing to more than 25 over the next five years.

A Singapore Intellectual Property Strategy 2030 is also being developed to support businesses in commercialising their innovations.

The Government will also step up risk-sharing arrangements with providers of capital and give grants to support businesses to innovate, transform and scale up. Start-ups can tap enhanced support; mature enterprises, including SMEs, will get help co-funding the adoption of digital solutions and new technologies; and large local firms will be able to tap a new funding platform - that the Government and Temasek will each invest $500million in - to transform and expand.

3. Helping workers hone skills

An additional $5.4 billion will be allocated for the second tranche of the SGUnited Jobs and Skills Package to support the hiring of 200,000 locals this year and provide up to 35,000 training opportunities.

Of this, $5.2 billion goes to extending the Jobs Growth Incentive hiring window to end-September, to support companies in growth sectors, with more for those hiring mature workers, persons with disabilities and former offenders.

The SGUnited Skills, Traineeships and Mid-Career Pathways programmes will also be extended till March 31, 2022.

A new Innovation and Enterprise Fellowship Programme will support about 500 fellowships in areas like cyber security, artificial intelligence and health technology over the next five years.

Salaries will also be enhanced for nurses and other healthcare workers, and government support for wage increments for locals will be supported with the extension of the Wage Credit Scheme for a year.

The Capability Transfer Programme that supports the transfer of skills from foreign to local workers will also be extended till end-September 2024.

And to help the manufacturing sector skill up, the sub-dependency ratio ceiling for S Passes in the sector will be reduced from 20 to 18 per cent from January 2022 and to 15 per cent from January 2023.

4. Strengthening social cohesion

A $900 million Household Support Package will continue short-term relief for eligible households, including a one-off GST Voucher - Cash Special Payment of $200 in June, and a GST Voucher - U-Save Special Payment of $120 to $200 in April and July, or an additional 50 per cent, for eligible HDB households.

Service and conservancy charges rebates will also be extended for another year.

In addition, every Singaporean child below 21 will get a one-off $200 top-up to their Child Development Account, Edusave Account or Post-Secondary Education Account.

All Singaporean households will also get $100 in Community Development Council (CDC) vouchers to be used at heartland shops and hawker centres.

Looking further ahead, over $200 million more will go to supporting companies that raise their retirement and re-employment ages above the prevailing statutory ages, and that offer part-time employment to older workers who request it.

ComLink - which helps low-income families in rental housing - will be expanded significantly over the next two years to cover 14,000 families, up from 1,000 now. An Inclusive Support Programme will provide early intervention support for children with special needs.

To encourage charitable giving, the 250 per cent tax deduction for donations will be extended by two years, and $20 million will be set aside for a new Change for Charity Grant to match donations raised by businesses that encourage customers to donate while making purchases.

Another $50 million will be set aside for a matching grant for the CDC Care and Innovation Fund, to support bottom-up initiatives that address community needs.

5. Building a sustainable home

Following the launch of the Singapore Green Plan 2030 last week, $60 million will be set aside for a new Agri-Food Cluster Transformation Fund to lift productivity and food resilience.

Another $30 million will be set aside over the next five years to incentivise the switch to electric vehicles, including the installation of 60,000 charging points at public carparks and private premises by 2030. Electric cars will be made more affordable with the lowering of the additional registration fee floor from $5,000 to $0 from January 2022 to December 2023. Road tax bands will also be adjusted.

Petrol duties will also be raised by 15 cents per litre for premium grade petrol to 79 cents a litre, and by 10 cents a litre to 66 cents a litre for intermediate grade petrol.

The Government will take the lead on sustainability, by committing public agencies to more ambitious goals under the GreenGov.SG initiative, and issuing green bonds on select public infrastructure projects. Up to $19 billion worth of public sector green projects have been identified, including Tuas Nexus which will integrate waste and water treatment facilities.

A new Enterprise Sustainability Programme will also be launched to help enterprises use resources more efficiently and develop new green products and solutions.

Singaporeans with ideas for sustainable development are also encouraged to step forward and the Government will support ground-up projects.

6. Managing our finances

While this Budget will see an $11 billion draw on past reserves for FY2021 to fund the Covid-19 Resilience Package, the Government does not expect to use $9.3 billion of the $52 billion draw previously approved for FY2020.

Therefore, the total expected draw on the reserves over the two financial years totals $53.7 billion - or an additional $1.7 billion over what it expected to draw to respond to the crisis.

But Singapore's fiscal situation is expected to be tighter in the years ahead, and a few measures will be needed.

The hike in goods and services tax (GST) rate from 7 per cent to 9 per cent will be needed between 2022 and 2025, and sooner rather than later, subject to the economic outlook, if Singapore is to meet rising recurrent spending needs, especially in healthcare. Its impact will, however, be cushioned by the $6 billion Assurance Package announced in last year's main Budget.

At the same time, GST will have to be paid on lower-value goods bought online and imported by air or post from Jan 1, 2023, to ensure a level playing field for local businesses.

The Government also intends to issue new bonds under a proposed Significant Infrastructure Government Loan Act (Singa) to finance major, long-term infrastructure investments that benefit current and future generations, such as MRT lines and infrastructure to protect against rising sea levels like tidal walls. The borrowing limit will be set at $90 billion as a safeguard.

And if the need arises, should the economic and fiscal situation turn out worse than expected, the Government will seek the President's consideration to use past reserves to support economic investments in new areas, as this will enable Singapore to ride on structural changes, transform and emerge stronger.

Read next: Highlights from Budget 2021 - From household vouchers to GST on​ imported goods bought online​, here's what you need to know.

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