Singapore needs to intensify its economic restructuring and skills upgrading so as to achieve quality growth, says Deputy Prime Minister and Finance Minister, Tharman Shanmugaratnam, who delivered Singapore’s budget statement for the 2013/14 fiscal year on February 25.
"If we do not do better in raising productivity, we will be caught in a situation where businesses lose competitiveness, and wages eventually stagnate. Both workers and businesses will be worse off," says Shanmugaratnam.
Among the government's strategies to achieve quality growth, are measures to improve the tax system. The government is introducing refined tax incentives for companies in the maritime and financial sectors to ensure the continued growth of high-value activities in Singapore.
In addition, investment holding companies and property development firms incorporated after February 25, 2013 will be excluded from the startup tax exemption, as they are not considered to pursue the innovative objectives for which the exemption is provided.
Benefits-in-kind such as housing or hotel accommodation and furniture and fittings that are provided in the housing premises are taxable as part of employment income. "The current way of taxing housing and hotel accommodation has remained unchanged since the 1960s and under-values the actual benefits received by the employees," says Shanmugaratnam.
The changes will take effect from Year of Assessment 2015.
With rising costs also being a concern for businesses, there will be a corporate income tax rebate, amounting to 30% of the tax payable and capped at SG$30,000 per year in the same period, together with a 30% road tax rebate for commercial vehicles, with effect from July 1, 2013.
To boost worker productivity, the government is promoting flexible work practices to enable employees to structure their work so that they have time for their families or for personal development like part-time courses.
"We should also make it possible for more employees to have the option of telecommuting from home or working from 'smart work centres' near their homes, like what they have in Amsterdam and Seoul. The government will work closely with businesses in these efforts," says Shanmugaratnam.
The government is to promote the training and development of Singaporean employees, and further moderate the growth of the foreign workforce, by, for example, raising the levy rates for less skilled foreign work permit holders in a transitional period between July 2013 and July 2015.
Foreign workers now comprise 33.6% of Singapore's total workforce, according to Shanmugaratnam. "We cannot cut off the flow of foreign workers abruptly, but we have to slow its growth."
Shanmugaratnam said the government will encourage companies to pro-actively develop the talents and skills of the Singaporean workforce and reward them fairly.
To help companies to restructure and adjust during the period of transition, the government will incentivize employers in 2013-2015 by co-funding 40% of the wage increases given to Singaporean employees who earn up to SG$4,000 monthly; and, under the productivity and innovation credit (PIC), will provide a matching cash bonus to those businesses that invest a minimum of SG$5,000 to improve productivity. The bonus will be capped at SGD15,000 for the next three years, and will be paid over and above existing PIC benefits.
Support for SMEs
Shanmugaratnam also stresses the need to help the SME sector revitalise itself. "There are however wide divergences in efficiency amongst SMEs even in the same industries. Restructuring will unfortunately lead to some businesses being winnowed out, but the end result must be a vibrant and sustainable local SME sector."
Shanmugaratnam says that every support must be provided to help the businesses which bring in more efficient techniques and service models, so they can grow in a tight labour market, and where possible make their mark internationally.
"The government can and will actively support all SMEs that are willing to upgrade, so that they can retain their roots in Singapore and grow."
There are already many examples of SMEs transforming themselves in every sector, according to Shanmugaratnam. For example in furniture manufacturing, local firms are training multi-skilled employees, relocating manpower-intensive activities, developing unique brands and carving a niche for themselves in overseas markets.
Singapore’s gross domestic product (GDP) grew by 1.3% in 2012, down from the 5.2% seen in 2011. However, its overall 2012/13 budget surplus, which had been expected to be SG$1.3 billion (US$1 billion) or 0.4% of GDP, is now expected to reach US$3.9 billion, or 1.1% of GDP, largely due to higher revenues from stamp duties and vehicle-related taxes that cannot be relied upon in the longer-term.
For 2013, Singapore’s GDP growth is expected to remain lower, at between 1% and 3%, and the government is again budgeting a surplus, after its budgetary measures, of SG$2.4 billion (0.7% of GDP) for 2013/4.