Singapore - It is not time yet for Finance Minister Heng Swee Keat to show his hand.
Ahead of Budget 2016, expectations are running very high within the business community that the government - which won a stunning victory at the last General Election on the back of generous social policies - will now focus on businesses with a Budget full of economic goodies. That it will be Mr Heng's first Budget as Finance Minister also adds to this perception.
But such expectations should be tempered, economists told The Business Times. "Maybe there's a little bit of misreading - that because (the People's Action Party government) got a strong mandate in the recent election, it means the Budget will be more economics-focused with more financial goodies for businesses. I'm not quite sure it works that way," said OCBC economist Selena Ling.
There are three key factors limiting the government's ability (or even desire) to dole out heavy support for corporates at this time:
- 2016 marks the first year of a new term of government, where big surpluses for spending have not yet been amassed;
- The economic situation is not so dire as to prompt major stimulus measures as yet; and,
- The Committee on the Future Economy (CFE) will wrap up its work only at the end of the year, making any significant restructuring announcements unlikely.
Instead, observers expect Budget 2016 to be "softer" and more about the big picture - where the government lays out its agenda for this new term - and less about "big-bang" announcements that will dramatically alter the status quo.
For one thing, it is important to remember that 2016 marks a clean fiscal slate, because surpluses accumulated in the previous term of government are now protected as past reserves. "At least on paper, it doesn't have as much resources as the previous government," CIMB Private Banking economist Song Seng Wun told BT.
Because the Singapore government has to run a balanced budget over its term, it can spend up to the revenues that it is expected to earn. So while the government can still choose to run a large deficit position in Budget 2016 (with a view to recover the shortfall in later years), both Mr Song and Ms Ling think that this is highly unlikely.
Said Ms Ling: "It's the first year of a new regime - the prudent thing would be to not overstretch yourself because you don't know how the next couple of years are going to pan out . . . To play it safe, they can afford to run a token deficit position as a signal that they recognise the economy isn't doing that well . . . But it won't be a big blockbuster one."
Economists were also keen to stress that the Singapore economy, while in a period of slow growth, is not mired in a recession, making a re-run of measures such as the Jobs Credit scheme - introduced in the 2009 global financial crisis to save jobs by subsidising wage bills - unlikely in this Budget.
"I think the government is wondering how much they should help businesses . . . What shape or form (this help) takes is harder to pin down, because not all businesses are in a recession," said Mr Song.
He and other economists agree that the government will intervene in a big way only when growth falls dramatically out of the official 1-3 per cent forecast range - something not seen at the moment.
"They can always do a supplementary Budget later if things get really bad, by getting the President's permission to dip into the reserves. But (for the upcoming March 24 Budget speech), that seems unlikely," said Mr Song.
Still, he and economists from Mizuho and DBS think that the business community is not wrong in expecting a slight shifting of gears - towards a more growth and economics-focused Budget. But they agree that most measures are likely to be rather targeted, with help for specific industries such as the battered oil & gas sector.
With Mr Heng taking the Budget reins for the first time, there has also been chatter about what he may announce vis-à-vis the CFE. After all, he chairs the 30-member panel tasked with looking into Singapore's next stage of economic development.
But as the CFE will only conclude its work at the end of this year, economists do not think that many restructuring details will be released in Budget 2016, beyond a broad emphasis on the need to look long-term to keep the economy competitive.
"I don't think there will be any big-bang policies this time - for that, we'll have to wait until after the CFE's recommendations are announced," noted DBS economist Irvin Seah, who believed that Mr Heng would prefer to save some ammunition for the CFE's proposals.
Mizuho's Vishnu Varathan agreed, adding that "nothing groundbreaking or tectonic is going to come out" this year. He said that a more strategic approach would be for Mr Heng to save the major announcements for Budget 2017.
The timing of the CFE report aside, however, economists also highlighted how Budget 2016 follows two exceptionally generous Budgets - those that introduced the Pioneer Generation Package, MediShield Life, SkillsFuture initiative and the Silver Support Scheme - making it a tough act to follow.
Said Mr Varathan: "A new term of government cannot come in with the same kind of spending plans that the last term ended on. I don't think they want to come off as having a high-roller approach.
"It's like someone who has worked somewhere for 20 years. They go and get their 20 years' service award, have a nice lunch, and the next day they're back at work. You do it once - that's what the SG50 Budget was about.
"The golden bash is over, we've stuffed our faces with birthday cake. We all need to go back to our battle stations now and lock in, to make sure there's no unnecessary collateral damage from global volatility and a prolonged demand deficit."
This article was first published on February 22, 2016.
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