Will there be 'hongbao'? 5 things to expect from Budget 2016

Will there be 'hongbao'? 5 things to expect from Budget 2016

SINGAPORE - On March 24, Finance Minister Heng Swee Keat will deliver his maiden Budget, also the first in the new Government's term in office.

The Budget, which accounts for the Government's revenues and expenditures, is arguably one of the most important events in the political calendar every year.

Besides setting out the Government's priorities for the year ahead, the Finance Minister also takes stock of the economy and rolls out policies which will shape the economy for the long-term.

What can Singaporeans expect from Budget 2016?

1. Chinese New Year over, no more hongbao

Let's get this out of the way: Don't hold out hopes for "hongbao" in the Budget this year.

This is not just because Chinese New Year is over but really because this Budget is the first in the term of the Government.

This means that it begins its term on a fresh slate (read: no excess funds). All the surpluses generated from the previous term of Government has to be locked up in the country's past reserves, which cannot be drawn down without assent from the President.

This also explains why the hongbao usually appear only near the end of the term of Government, after the Government has accumulated sufficient current surpluses to share them with the population.

Just last week, Mr Heng made it plainly clear that the Government is unlikely to have much ammunition. And even if it did, it would prefer to store it for a much heavier thunderstorm.

"We have to be particularly prudent, so that we have resources when we need to act later," said Mr Heng.

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2. It's the economy, duh

In the past few Budgets, the main focus has been overwhelmingly focused on individuals and households, with attention paid most to supporting the lower-income.

Last year, Mr Tharman Shanmugaratnam pushed ahead with the ambitious SkillsFuture programme, a long-term plan to help Singaporeans gear up for the fast-changing economic landscape.

The year before, it was the generous Pioneer Generation Package, which cost the Government $8 billion for subsidies and other benefits to our pioneer generation.

This year, the focus has clearly shifted to the economy, and not just because growth is slowing.

The Singapore economy is expected to grow by between 1 per cent and 3 per cent.

More worryingly, there are risks that could even derail this weak pace of growth.

The Trade and Industry Ministry said in its outlook for the year that risks to growth are rising while the global outlook has dimmed.

But beyond slow growth in the immediate term, helping local firms make that gigantic leap from local to global is the next big challenge.

As Mr Heng said last week: "It's a very important way forward and as the competition intensifies, as we face new challenges, we have to find new ways - new ways of doing things, new ways of looking for markets, and even though we are in a period of slower growth globally, we continue to encourage our companies to find growth opportunities even as we take measures to meet immediate challenges."

3. Nudge by taxes

What form is help for firms likely to take?

There could be the one-off cash grants that the Government tends to give companies from time to time.

In 2012, the Government gave out the SME Cash Grant, aimed at helping companies alleviate rising costs.

But it was a small amount pegged at 5 per cent of a company's revenue and capped at $5,000.

There was also the Transition Support Package which was rolled out in 2013 and many of the companies continue to benefit from that policy, which include corporate tax rebates and the Wage Credit Scheme which supports worker's pay raises here.

This year, it is likely that there could be changes to taxes that encourage companies to move out of their comfort zone and explore markets overseas.

Big Four tax and accountancy firm PwC, for instance, is suggesting that the Government makes it easier for companies to claim reliefs when their employees move overseas to make new deals or break new ground.

There could also be some form of tax rebates on companies suffering and losing money this year.

Bank of America Merrill Lynch economist Chua Hak Bin believes there could be some lifting or delaying the upcoming foreign worker levies.

These are not big bazooka moves but instead are small nudges to help companies move in the direction they ought to be heading towards.

4. Gain experience, level up

For workers, the main policy to help them adapt has already been introduced.

SkillsFuture, a long-term plan to get people to get new skills and adapt to the new and changing economy, was put in place last year and remains central to the long-term plan of enhancing Singapore's human capital.

What exactly is SkillsFuture?

If you are a computer gamer, think of SkillsFuture as that part of the game where you have to grind and get experience to level up.

After that arduous process, you get access to new skills or special items, for instance the enchanted long sword you've been holding in your inventory.

That's SkillsFuture - giving workers new skills and experience to get to the next level or even change careers altogether.

It intends to help workers, say assembly line workers, to move into artisanal baking for better prospects, for instance. Or it could help workers get even better at what they do and deepen their skills so they become immensely valuable to their employers.

If the implementation is successful - and it requires employers and workers to fully embrace the national training programmes - workers here will be able to adapt to challenges ahead, making the workforce a very nimble and mobile one.

Companies too will benefit from a labour force that can easily absorb new skills and driving up productivity gains.

But there is no doubt it will be a very difficult task to pull off. Adult workers are difficult to train because may of us have been trained in a specific skill or craft. Many have families they need to take care of and training takes them away from earning an income.

But if we don't try to adapt, there is a real danger that the entire economy will stagnate.

Besides, who wants to stay at Level 1 - also called a noob in game-speak - the entire game?

5. First Budget for new Finance Minister

This year's Budget is being delivered about a month later than it usually is, largely because it is Mr Heng's first Budget.

Observers will be keen to watch him and the tone he will set as the Finance Minister.

For the most part, Budgets here reflect a long-term view of the Cabinet and the Government in charge.

But the Finance Minister does have influence over direction of the policies. For instance, Mr Tharman - Mr Heng's predecessor - was focused on productivity and tilting social policies to the left.

What will Mr Heng's priorities be? What are his plans and how will he shape the Budget for years to come?


This article was first published on March 6, 2016.
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