Govt will help SMEs, but only if they help themselves first

At first glance, this year's Budget does seem a lot more generous than the past few years', especially to small and medium-sized enterprises (SMEs).

There is the $5.3 billion three- year transition support package announced by Deputy Prime Minister Tharman Shanmugaratnam to help companies ride out the restructuring process.

The biggest piece of the package is the $3.6 billion Wage Credit Scheme in which the Government will co-pay 40 per cent of the pay raises of Singaporeans earning gross monthly wages of up to $4,000 for the next three years.

All companies will benefit from this, but the bulk of the measures will aid SMEs most, a critical sector of the economy that has been calling out for help since the restructuring drive began in 2010.

But Monday's session during the Ministry of Trade and Industry's (MTI's) Committee of Supply debate showed that the Government's offer of help is not as simple as it seems.

Gone are the days when the Government would dish out rental rebates or tax concessions that help all companies, regardless of whether they are productive, inefficient, loss-making or profitable.

These days, every dollar that is offered comes with a condition attached. With the exception of the corporate income tax rebate of 30 per cent capped at $30,000 for three years, most of the other policies rolled out by the Government had a specific objective in mind: moving SMEs up the value ladder and getting them to grow their businesses out of the resource- limited country.

Nominated MP Teo Siong Seng and Mr Inderjit Singh (Ang Mo Kio GRC) Monday repeated calls, as they have in the past, for more measures to help companies cope with rising costs, particularly industrial rents.

Trade and Industry Minister Lim Hng Kiang's response to their concerns was polite - and firm.

He said he recognised SMEs will face more difficulties ahead, but reiterated that there was no turning away from restructuring.

Mr Lim cited the Productivity Innovation Credit (PIC), as well as the Wage Credit Scheme (WCS), as ways for companies to defray rising costs.

Both measures also happen to be geared towards getting companies to raise their productivity.

The WCS may not have a direct link with productivity, but many analysts note that companies using the scheme to bump up wages without also raising productivity will feel a lot of pain when the scheme ends in three years.

Likewise, the PIC bonus helps - but only for those companies that invest in productivity measures like machines or software systems first. Under the PIC bonus, businesses that spend at least $5,000 a year on those efforts will receive a dollar-for-dollar matching cash bonus of up to $15,000 over the next three years.

This is on top of existing PIC benefits, which include a generous 400 per cent tax deduction on productivity investments.

The MTI is also going all out to help link SMEs with research institutes to raise their technological profiles and level of innovation.

As Minister of State for Trade and Industry Teo Ser Luck said on Monday: "However, they have to take that first step. If they're going to take that first step, the schemes will always be there to help them."

In other words, the message behind all these schemes is this: We will pour in a lot of resources to help SMEs, but only if they help themselves first.

Or as DPM Tharman put it when he wrapped up the Budget: Rather than handouts, companies will be given a leg-up if they seek ways to boost their own operations and productivity.

For the rest of the SMEs that either choose to not adapt or just cannot move to the new high-cost economy, driven by productivity and innovation, the writing is on the wall.

The signal is clear: The Government will not protect weak companies from the harsh realities of global competition and finite land resources that Singapore is facing.

Some call it economic Darwinism, but I prefer to think of it as being pragmatic, given that the state does not have infinite resources to support all local firms.

In fact, over time, the state will have to progressively wean companies off the expectation that it will always be there to support them during difficult periods. After all, if companies cannot survive without handouts today, it is unlikely they will thrive in the new competitive landscape of tomorrow.

aaronl@sph.com.sg