FACED with what looks like the worst recession in years, many Singaporeans hoped that Budget 2009 would deliver bold measures to revive an economy wrung dry by a liquidity crunch and gripped by fear.
Unlike in the Asian Economic Crisis of 1997-98, when economies in Europe and the US were stable, this time there is no oasis of calm. Economies worldwide are lacking liquidity and each day brings fresh challenges.
Budget 2009 is largely in line with what KPMG hoped for in its wish-list - and contains a few notable 'firsts'.
Chief among these is the move to tap the national reserves for the first time. A much debated option in previous years, it has now been deployed to help Singapore weather what is shaping up as the perfect economic storm.
Still, it is uncertain whether the Budget will go far enough, given the one to two-year time-frames allowed for certain initiatives to bear fruit. Perhaps the government is adopting a wait-and-see approach, as there are no quick fixes to the economic problems that Singapore faces. More off-budget measures can be expected in the coming months.
The underlying theme of this year's Budget is keeping viable businesses alive to preserve jobs.
The Bridging Loan Programme will go a long way towards helping businesses obtain the funds they need to stay afloat in these turbulent times.
It seeks to achieve this by tackling the key issue faced by many companies - access to liquidity. By helping businesses enhance cash flow, it should help more Singaporeans keep their jobs.
According to Spring Singapore, small and medium enterprises (SMEs) make up 95 per cent of Singapore's total number of enterprises and contribute to 45 per cent of gross domestic product. SMEs also employ 60 per cent of the work force.
The Bridging Loan Programme, therefore, makes a lot of sense. It will benefit many companies, especially local enterprises, and by extension, will help keep people employed.
The proposed corporate tax rate cut of one per cent is in line with what we expected. It is significant, but may not help cash-strapped companies in the short term because it will not take effect until Year of Assessment 2010.
Nevertheless, it is in line with the global trend of falling corporate tax rates and will help make Singapore a more attractive destination for foreign investment. In turn, it is hoped, this will create more jobs.
As seen from the table on this page, the one per cent cut in the corporate tax rate would appear to benefit bigger companies more, as they will enjoy a bigger percentage reduction in their tax rate.
However, it must be pointed out that SMEs enjoy a much lower effective tax rate than bigger companies, due to the effect of partial tax exemption on normal chargeable income of up to $300,000.
The Jobs Credit scheme seeks to keep employers afloat by helping to defray staff costs. This is an effective way to preserve jobs, rather than, say, offering a tax rebate or reducing the employer's CPF contribution.
A tax rebate might not have found its way directly to employees. And a reduction in the employer's CPF contribution could have had an adverse effect on the financial position of employees. Cutting the employer's CPF contribution directly, while beneficial to businesses, could have wreaked havoc on the many Singaporeans who service their monthly home loan repayments through CPF contributions.
At the same time, the effect of the Jobs Credit programme is similar to a corporate tax rebate or a cut in the employer's CPF contribution.
Clearly, saving jobs is a core theme in facing up to this recession. Moves to protect the viability of businesses and help them stay liquid will, in turn, keep Singaporeans employed and help the economy as a whole weather this recession.
The writer is head of tax services at KPMG in Singapore.
This article was first published in The Business Times on January 23, 2009.
