Fine balance between growth and restructuring for Budget 2016: Analysts

March 24, 20161:02 pm441 views

Amid the slowest GDP growth in six years and the flattest employment growthin more than a decade, Finance Minister Heng Swee Keat has set expectations for a Budget with a strong focus on the economy.

Analysts say this means that when Mr Heng delivers his first Budget speech in Parliament on Thursday (Mar 24), it will be a fine balance between helping companies brace for strengthening economic headwinds and keeping the whip on firms with respect to longer-term restructuring.

“It’s a very intricate tug-of-war, because if you overly concentrate on the short-term (economic headwinds), you lose direction in the longer term,” said UOB economist Francis Tan. “So if you use all your firepower into helping them save costs, to survive, then you may not have enough money to steer them towards other objectives, such as raising productivity.”

“It will be interesting to see how Mr Heng maintains this fine balancing act,” said ANZ economist Ng Weiwen.

“Effectively, it should not detract from the productivity-driven growth model, (where) the aim is still to increase productivity growth of at least 2 per cent per year,” he said, adding that current levels of productivity growth are close to zero per cent.

Budget 2016 is Finance Minister Heng Swee Keat’s first Budget. It is also the first Budget of the current term of Government. (Photo: Justin Ong)


In 2010, the Economic Strategies Committee led by then-Finance Minister Tharman Shanmugaratnam, set a productivity growth target for the economy of 2 to 3 per cent a year, over the 10 years from 2009.

Since then, billions of dollars have been pumped into initiatives to raise productivity, but the Ministry of Trade and Industry has acknowledged that productivity growth has been lacklustre.

Excluding the post-financial crisis rebound in 2010, productivity growth came in at a compounded annual growth rate of 0.3 per cent over 2009 and 2014.

Some initiatives that are available to companies include the Productivity and Innovation Credit (PIC) scheme under the Inland Revenue Authority of Singapore (IRAS), and the Innovation and Capability Voucher administered by SPRING.

The PIC scheme alone, which was introduced between 2011 and 2015, cost the Government S$3.6 billion when it was extending for another three years until 2018.

Singapore’s labour productivity growth over the years. (Source: BMI Research)

“Budget 2016 should be an opportunity for the Government to press the reset button, as the whip that has been used over the years hasn’t been effective at all,” said DBS senior economist Irvin Seah, referring to the Government’s restructuring efforts to reduce the Singapore economy’s reliance on foreign manpower.

Instead of manpower policies that “inflict pain” on small and medium enterprises (SMEs) and “curb their growth”, Mr Seah said that “the emphasis should be on helping companies to enhance their top-line growth in order to improve productivity”. This can entail helping SMEs internationalise, thereby raising revenues, he added.

Mr Ng from ANZ pointed that the efficacy of some of the productivity initiatives, like the PIC, may been dented due to abuse by undeserving companies.

In a Parliament sitting earlier this month, Senior Minister of State for Trade and Industry Indranee Rajah said that IRAS has clawed back S$11 million worth of improper claims from PIC cheats so far.


Five homegrown firms who have successfully implemented productivity-raising initiatives told Channel NewsAsia there are limits to chasing productivity growth by reducing manpower.

“Not everything within individual sectors and industries can be automated, and sometimes in the process of automation, manpower-reliant industries still require manual manpower to transition,” explained Loo Pei Fen, Chief Marketing Officer of IT retailer Challenger Technologies.

A customer at a Challenger outlet. (Photo: Challenger Technologies)

Mr Allen Ang, Group Managing Director of Aldon Technologies, which refurbishes parts for flat panel and semiconductor manufacturers, said there needs to be a rethink of the productivity effort.

“More attention needs to be paid to ensuring that our productivity-centric incentives are effective,” he said.

Satellite communications company Addvalue Technologies said it has already made use of several Government funding initiatives, including the PIC. What it would like to see instead, is a “concerted national strategy” to build an ecosystem to attract global players in the space or satellite industry to Singapore.

“So we would like to see the Budget provide for grants and schemes that favour foreign big players’ partnerships with local SMEs, to help build capabilities and expertise for collaborating in large-scale projects that will help international market penetration and expansion”, said its CEO Colin Chan.

Ultimately, analysts say it takes two hands to clap. Guiding the economy to higher productivity-led growth, with a greater focus on innovation and value creation, rests as much on the Government as on individuals and companies.

“We tend to have the mentality that the Government will plan everything for us, so when it comes to making decisions on our own, for example, how to use my SkillsFuture to improve myself, most people are caught in a dilemma,” said Mr Ng, acknowledging that even he was struck by the wide range of programmes under the SkillsFuture initiative.

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