Budget 2020: Helping SMEs Weather the Covid-19 Storm
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March 9, 2020
Singapore Economics
Budget 2020: Helping SMEs
Weather the Covid-19 Storm
A $6.4bn (1.2% of GDP) Fiscal Support Package Analysts
Government sets aside S$800mn to fight the Covid-19 virus outbreak and provides Chua Hak Bin
S$5.6bn to a (1) S$4bn Stabilisation & Support package for workers and (65) 6231 5830
enterprises, and (2) S$1.6bn Care & Support package for consumers (see Table 1). chuahb@maybank-ke.com.sg
The $4bn package includes a corporate income tax rebate; property tax rebates of
Lee Ju Ye
30% for hotels and MICE space, 15% for qualifying commercial properties including
(65) 6231 5844
retail, F&B and airports, and 10% for the two integrated resorts; and various
ECONOMICS
leejuye@maybank-ke.com.sg
tax incentives for investments (see Table 2). Tenants and lessees of government-
managed properties will enjoy flexible rental payments such as instalment plans,
and the government will also provide a full month rental waiver for NEA-managed
hawker centres/markets and a half a month rental waiver to HDB’s commercial
tenants.
What can SMEs Tap On?
The main feature of the $4bn Stabilisation & Support Package is the Jobs Support
Scheme, which will help all active employers retain local employees during this
Singapore
period of uncertainty. An 8% cash grant on the gross monthly wages, subject to a
monthly wage cap of $3,600, of each local employee (Singapore citizens and
Permanent Residents) will be granted on their Central Provident Fund payroll for the
months of Oct to Dec 2019. Another feature of the package is the enhancement of
the Wage Credit Scheme to co-fund wage increases, with the monthly wage ceiling
raised to $5k (from $4k) and co-funding levels for 2019 and 2020 raised by 5%pt to
20% and 15% respectively (see Table 3).
To help businesses with cash flow given the negative impact of the Covid-19, Budget
2020 enhances the Enterprise Financing Scheme - SME Working Capital Loan
component for a period of one year, starting March 2020. The maximum loan
quantum will be raised from $300k to $600k, which increases the government’s risk-
share to 80% (from current 50%-70%). A Corporate Income Tax rebate for YA2020, at
a rate of 25% of tax payable (capped at $15k) will also be provided.
Is the Package Sufficient?
The relief package may be sufficient to help firms cope with a short-lived one
quarter contraction, but may not be enough if the virus outbreak and
contraction lasts for two quarters. The government also did not provide
waivers/rebates for foreign worker levies for impacted sectors (which it did for
hotels under SARS), perhaps to send a signal about the shift away from depending
on foreign workers. Budget 2020 did not grant any broader personal income tax
rebates, opting for more targeted support.
DPM Heng reassured that if needed, the government is prepared to do more and has
the resources. The accumulated fiscal surplus in the current government term
(FY2016 to FY2020) amounts to a comfortable $7.7bn that can be deployed if the
outbreak worsens. Considering the current state of the economy, the government
also committed not to raise GST (from 7% to 9%) in 2021. However, higher future GST
(which will kick in by 2025) and tighter foreign worker quotas for construction,
marine and processing (starting Jan 2021) may negate some of the fiscal support.
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THIS REPORT HAS BEEN PREPARED BY MAYBANK KIM ENG RESEARCH Co. Reg No: 198700034E MICA (P) : 099/03/2012
SEE PAGE 7 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONSEconomics Research Expanding SkillsFuture to Employers Budget 2020 introduces a new SkillsFuture Enterprise Credit, providing $10k per enterprise to cover 90% of out-of-pocket costs of business transformation, job redesign and skills training. This is expected to benefit over 35k enterprises, mostly SMEs. Employers who hire from reskilling programs can receive 20% salary support for 6 months, capped at $6k. These measures will likely help SMEs overcome some barriers to technology adoption – based on the latest survey by the Singapore Business Federation (SBF), cost of technology adoption (69% of respondents) is the biggest challenge, followed by upskilling of staff to keep up with new technologies (49%). Pushing Ahead with the SME Digitalization Drive The SMEs Go Digital Programme, first announced in Budget 2017 to help SMEs build digital capabilities, was expanded in Budget 2020 to include Industry Digital Plans; Start Digital to help newly-established SMEs adopt digital solutions; 70% government co-funding for pre-approved digital solutions; and SME participation in pilot projects by IMDA and industry leaders (see Table 4). SME Centres, first introduced in 2013, will also be enhanced over the next two years with a pilot initiative for promising micro and small enterprises. Qualifying enterprises will receive more targeted support such as customized in-depth business diagnosis and development of business plans. Tightening of Foreign Labour Measures Will Hurt SMEs A surprise tightening of foreign worker measures from 2021 will be negative for the construction, marine shipyard and processing industries. The S pass DRC will be reduced further from 20% to 18% by 1 Jan 2021 and 15% for 1 Jan 2023 (see Table 5). This comes on top of stricter DRC ratios over 2020-21 for the services sector announced in Budget 2019. SMEs will feel a deeper impact compared to large firms that have deeper pockets to mitigate manpower challenges; based on the SBF survey 31% of large firms invested more in automation and technology to rely on less manpower, compared to just 17% of SMEs (see Fig 1). Largest Fiscal Deficit Since 2001, But Overstates Stimulus This will be the largest fiscal deficit, at 2.1% of GDP, since 2001 (at 1.7%) (see Fig 2). In absolute terms, the $10.9bn deficit is the largest in the last 20 years. But the large fiscal deficit does not necessarily imply a large fiscal stimulus over the next year, as many items involve sums - including the $6bn GST Voucher and $5bn Coastal Protection Fund - to be deployed in the future. Forecast 2020 GDP at +1.1% as Covid-19 Disrupts Recovery With the Covid-19 outbreak casting a dark shadow over growth prospects this year, we lower our 2020 GDP forecast to +1.1% from +1.8% (see Table 7). Our base case is for a one quarter contraction (around -1% in 1Q) followed by a weak recovery in 2Q as China and other countries start to relax border control measures. However, we are mindful of the risks of a technical recession if the outbreak lasts longer than expected and governments err on the cautious side and delay the relaxation of border controls. The Covid-19 will impose a severe deflationary impact, as the collapse in demand will likely outweigh any price pressures from supply disruptions. We trimmed our forecasts for headline CPI to +0.7% (from +0.9%) and core CPI to +0.9% (from +1.2%) in 2020. Our base case is for the MAS to maintain its policy of a “slight appreciation” of the SGD NEER in April 2020 unless the outbreak is prolonged and a recession appears imminent. March 9, 2020 2
Economics Research
Table 1: $6.4bn Fiscal Support Package
Amount
Measures Details
($mn)
A) Additional amount allocated to To support frontline agencies containing the outbreak, with bulk of it going to the Ministry of
800
fight the outbreak Health
B) Stabilisation and Support Package 4,000 To stabilise the economy and support workers and enterprises
To help firms retain local workers - employers will receive an 8% cash grant on the wages of each
Jobs Support Scheme 1,300
local employee from Oct to Dec 2019, subject to a monthly cap of $3,600
Raise monthly wage ceiling from $4k to $5k, for qualifying wage increases given in 2019 & 2020;
Enhancement to Wage Credit Scheme 1,100
and raise the government co-funding levels for 2019 & 2020 from 15% to 20%
Corporate Income Tax Rebate of 25% of tax payable, capped at $15k; enhancement of tax
Help businesses with cash flow treatments under the Corporate Tax System; enhance the Enterprise Financing Scheme's Working
Capital Loan component
Enhancement to Adopt & Grow Retrain and reskill workers through redeployment programmes in the tourism, aviation, retail and
Initiative food services sectors
Property Tax Rebate For qualifying commercial properties (see Table 2)
6-month period assistance to help defray business costs and protect jobs, and safeguard Changi's
Aviation Sector 112
air connectivity
Maritime Sector 1 50% port dues concession to cruise ships and regional ferries from Mar 2020 to Aug 2020
C) Care and Support Package 1,639 To help Singaporeans with their household expenses during this period of uncertainty
Adult Singaporeans aged 21 & above to receive a one-off cash payout between $100 and $300
Care and Support - Cash 825
(depending on income). An additional cash payout of $100 if the adult has at least one child
One-off GST Voucher - U-Save Special Payment for eligible HDB households. Additional GST
GST Vouchers 362
Voucher - U-Save rebate for larger households with 5 or more members
Service and Conservancy Charges Extension of S&CC rebate by another year. Eligible HDB households to receive 1.5 to 3.5 months of
134
(S&CC) Rebate rebates
Workfare Special Payment for lower- Low-wage workers to receive an additional 20% of their WIS payment for 2019, with a minimum
141
income workers payment of $100
Needy Singaporeans (living in 1-room & 2-room HDB flats and do not own more than one property)
Grocery Vouchers 16
to receive vouchers worth $100 each year in 2020 and 2021
All Singaporeans aged 50 and above, including the Pioneer Generation and Merdeka Generation, to
PAssion Card Top-Up 151
get $100 top-up to PAssion Card
Grants to Self-Help Groups 10 To help fund community programmes to support needy households
Source: Budget 2020, compiled by Maybank Kim Eng
Table 2: Details of Property Tax Rebate for Qualifying Commercial Properties
Property Tax
Property Tax Payable for
Rebate Rate (%)
Accommodation and function room components of *hotel buildings
Accommodation and function room components of serviced apartment
buildings
Meetings, Incentives, Conventions and Exhibitions (MICE) space components of
following prescribed MICE venues: 30%
Suntec Singapore Convention & Exhibition Centre
Singapore EXPO
Changi Exhibition Centre
Other qualifying commercial properties. Examples include:
Premises of an international airport
Premises of an ^international cruise or regional ferry terminal 15%
Shops (e.g. retail and F&B), including those within hotel buildings,
serviced apartment buildings, and prescribed MICE venues; &
Premises of tourist attractions
Marina Bay Sands
10%
Resorts World Sentosa
Above property tax rebates of 30%, 15% & 10% do not apply to premises or a part of any premises
used for a residential, industrial or agricultural purpose, or as an office, a business or science
park, or a petrol station
* Refers to hotels licensed under the Hotels Act.
^ Refers to Marina Bay Cruise Centre, Singapore Cruise Centre, and Tanah Merah Ferry Terminal
Source: Budget 2020
March 9, 2020 3Economics Research
Table 3: Wage Credit Scheme - Summary of Changes
Existing WCS Enhanced WCS
Scheme
(as announced in Budget 2018) (as announced in Budget 2020)
Qualifying
Years 2018, 2019, 2020 2019, 2020
20% of qualifying wage increases in 20% of qualifying wage increases in
2018 2019
Level of Co- 15% of qualifying wage increases in 15% of qualifying wage increases in
funding 2019 2020
10% of qualifying wage increases in
2020
Gross Monthly
Wage Ceiling $4,000 $5,000
Gross monthly wage increases of at Gross monthly wage increases of at
least $50 given to Singaporean least $50 given to Singaporean
employees in the qualifying year, up employees in the qualifying year, up
to a gross monthly wage level of to a gross monthly wage level of
Qualifying $4,000, will be co-funded. $5,000, will be co-funded.
Wage Gross monthly wage increases of at Gross monthly wage increases of at
Increases least $50 given in 2017, 2018 and least $50 given in 2017, 2018 and
2019, up to a gross monthly wage 2019, up to a gross monthly wage
level of $4,000, and sustained in level of $5,000, and sustained in
subsequent years of the scheme, will subsequent years of the scheme, will
be co-funded. be co-funded.
Source: Budget 2020
Table 4: Expansion of SMEs Go Digital Programme in Budget 2020
Initiatives Details
Provides a step-by-step guide to help SMEs select appropriate digital
Industry Digital solutions and relevant skills training programmes for each stage of their
Plans (IDP) growth. IDPs have so far been rolled out to 10 Industry Transformation Map
(ITM) sectors.
To help newly-established SMEs by offering basic digital solution packages
Start Digital to SMEs with an 18-month subscription period, of which the first six months
will be free.
Pre-approved SMEs can receive up to 70% Government cofunding for pre-approved digital
Digital Solutions solutions through the Productivity Solutions Grant (PSG).
Pilot Projects SMEs can also participate in pilot projects that are shaped jointly
by IMDA and industry leaders.
New initiative to enable SMEs access global markets via B2B and B2C diigtal
channels. For B2C, eligible SMEs will be co-funded at 70% for Multichannel
Grow Digital E-commerce Platform solution packages. For B2B, the government will
support SMEs to benefit from overseas procurement demand, starting with
indstrial hardware and food supplies.
Source: Budget 2020
Table 5: Reduction in S Pass Sub-Dependency Ratio Ceiling for Figure 1: Firms Taking Steps to Mitigate Manpower Challenges,
Construction, Process & Marine Shipyard But DRC Tightening Will Exacerbate Local Talent Crunch
Sector Current Changes
DRC
To be reduced to 35% on 1 January 2021
Services 38%
as announced at Budget 2019
Manufacturing 60% No change
Construction 87.5% No change
Process 87.5% No change
Marine Shipyard 77.8% No change
S Pass sub-DRC
To be reduced to 10% on 1 January 2021
Services 13%
as announced at Budget 2019
Manufacturing 20% To be considered for reduction in future
Construction
To be reduced to 18% on 1 January 2021,
Process 20%
and to 15% on 1 January 2023.
Marine Shipyard
Note: When a DRC or a sub-DRC cut is implemented, firms will not be able to renew Source: Singapore Business Federation
work passes of foreign workers that have exceeded the revised DRC or sub-DRC.
However, for the foreign workers above the DRC/sub-DRC limits, firms can retain
them until their work passes expire to avoid disrupting existing operations.
Source: Budget 2020
March 9, 2020 4Economics Research
Table 6: Foreign Worker Levy Schedule
Dependency Ratio Levy Rates ($) (R1/R2)
Sector Tier
Ceiling (DRC) 1 Jul 2019 1 Jul 2020 1 Jul 2021
Basic Tier (All) ≤10% 330 330 To be
S-Pass announced in
Tier 2 10-20% 650 650 2021
Basic Tier 300/700 300/700 300/700
Construction WPH ≤87.5%
MYE-Waiver 600/950 600/950 600/950
Basic Tier ≤10% 300/450 300/450
Services WPH Tier 2 10-25% 400/600 400/600
Tier 3 25-38% 600/800 600/800
350/500 350/500
Marine Shipyard WPH Basic Tier ≤77.8%
300/400 300/400
To be
300/500 300/500
Basic Tier announced in
300/450 300/450
Process WPH ≤87.5% 2021
600/800 600/800
MYE-Waiver
600/750 600/750
Basic Tier ≤25% 250/370 250/370
Manufacturing Tier 2 25-50% 350/470 350/470
Tier 3 50-60% 550/650 550/650
Note: Numbers in red refer to Foreign Worker Levy rates announced in Budget 2020.
Source: Budget 2020
Fig 2: FY2020 Budget Deficit (2.1% of GDP) Expected to be the Widest in 20 Years
SGD bn
Overall Budget Balance % of GDP (RHS)
15 3
10 2
5 1
0 0
-5 -1
-10 -2
-15 -3
FY00 FY02 FY04 FY06 FY08 FY10 FY12 FY14 FY16 FY18 FY20
Source: Ministry of Finance, CEIC
Table 7: Key Macroeconomic Indicators
2019 2020E 2021E
Real GDP (%) 0.7 1.1 2.0
Manufacturing -1.4 0.3 1.5
Construction 2.8 2.4 2.6
Wholesale & Retail Trade -2.9 -0.1 1.0
Transportation & Storage 0.8 -2.9 2.8
Accommodation & Food Services 1.9 -5.4 4.0
Finance & Insurance 4.1 3.9 3.6
Information & Communication 4.3 2.5 2.5
Business Services 1.4 0.6 1.4
Fiscal Balance (% of GDP) -0.3 -2.1 0.3
Inflation Rate (%, period average) 0.6 0.7 1.3
Unemployment Rate (%, period average) 2.2 2.1 2.1
Exchange Rate (per USD, end-period) 1.35 1.35 1.33
3M SIBOR (% p.a., end-period) 1.77 1.20 1.40
Source: CEIC, Maybank Kim Eng estimates
March 9, 2020 5Economics Research
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