ITH painstaking detail and a clear outline of the big picture, the Government has spelt out the role it will play to help businesses step into the future.

It will help them mitigate costs. It will give them incentives to upgrade. It will even spread innovations from early adopters to a larger pool.

But, after it has created the right conditions, it is ultimately up to businesses to become more productive, said Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam, who wrapped up three days of Budget debate.

“Productivity cannot just be summoned up,” said Mr Tharman. “We have tightened our labour market policies and we are providing strong support for businesses to upgrade…however, businesses have to respond…”

Addressing the challenges of rising business costs from higher rentals and wages, Mr Tharman said the “wrong strategy will be to weaken our economy” and be less vibrant.

The Government will thus help to mitigate costs through various ways, such as making more commercial space available.

In the next three years, the new supply of multiple-user factory space coming onstream will be double the demand seen in the previous three years, he noted.

More cluster industrial spaces will also be created to help small and medium-sized enterprises (SMEs) share services and reduce their upfront costs.

But Singapore will neither protect inefficient businesses, nor let markets run wild.

In Hong Kong, for example, where the market is left on its own and retail rents have soared, businesses have ended up catering mainly to the high-end Chinese clientele.

Conversely, in Japan, rentals are protected, and while many mom-and-pop stores have survived, wages have stagnated.

Singapore has chosen the middle path. “When we see the market heating up, we take action to boost supply and find other ways to help businesses to mitigate cost,” said Mr Tharman.

The “permanent solution” to tackle the rising business costs is to raise productivity, he said. That’s because costs in Singapore will never be low and will approach those of advanced countries.

To survive, businesses must “have advanced country capabilities in innovation, in the commercialisation of R&D, in managerial skills, in the way we invest in employees so that they develop deep skills”, he added.

In its restructuring journey, Singapore has managed to keep employment levels high, and has not gone the easy way of shedding lower-skilled firms and jobs, Mr Tharman said.

This inclusive approach must continue, and “productivity in a full-employment economy” is what the Government aims for.

Mr Kurt Wee, president of the Association of SMEs, said he is not too sure about whether the rising business costs can all be absorbed by the SMEs or mitigated through productivity gains, and some costs may be passed on to consumers.

CIMB economist Song Seng Wun said it “boils down to the individual business’ capacity to change and how well it can absorb the cost pressures”.