S'pore Budget should tackle productivity, cost challenges

Long-term fundamentals, such as increasing productivity and lowering operational costs, top analysts' and local companies' wishlists for this year's Budget to mitigate economic uncertainties.

SINGAPORE--The country is expected to experience an economic slowdown in the first half of 2012 due to global market uncertainties before gradually recovering in the latter half, but industry watchers believe the government will continue to focus on mid- to long-term goals in such as reinforcing productivity to ensure sustainable growth in this year's Budget.

According to a research note by DBS Research Group, it noted that 2012 would be a "challenging year" because of the fluid global economic situation. This was because there is still no comprehensive resolution to the European debt crisis and the U.S. economy's recovery remained lackluster. Asia's growth has also been slowing down, with the average GDP (gross domestic product) for the top 10 Asian markets, or Asia-10, expected to moderate to 4.8 percent, down from 5.2 percent in 2011, it noted.

Singapore's economic growth will be largely dictated by these factors, with the current poor economic conditions to continue for another one to two quarters before better growth takes place in the second half of the year, it added.

That said, while growth will slow, a recession was not be expected, although inflation will remain "fairly high", DBS Research noted.

"Companies will feel the strain from both ends with revenue slowing and costs rising. Most Singaporeans will also be affected, particularly the working class. Overall business cost and general cost of living will continue to escalate," it stated.

That is why the upcoming Budget, which will be unveiled Friday afternoon, is likely to focus more on longer-term growth strategies, such as reinforcing Singapore's productivity drive and foster inclusive growth, instead of short-term "countercyclical measures", the research noted.

Boosting productivity still key
Zooming in on boosting productivity, DBS Research said it expected several measures to help companies offset rising business costs and enhance productivity gains, although the outright reduction in corporate tax was "unlikely".

Some of these measures could include a one-off tax rebate to help companies cope with rising business costs, and further enhancement to the five-year Productivity and Innovation Credit (PIC) scheme--introduced in 2010--to encourage investments in business capabilities and offset the costs of investing in tech and business capabilities, it noted.

Ernst & Young Solution's director of business incentives advisory, Tan Bin Eng, also picked the PIC as a scheme that could be enhanced to benefit small and midsize businesses (SMBs), in particular, to help them climb the "productivity ladder". This could be done by increasing the cash payout to SMBs by enhancing the cash conversion option, he noted.

"We hope the government will increase the cash payout to SMBs, otherwise the economic slowdown may blunt the effectiveness of the tax deductions under the PIC," he said. "The cash payout can be liberalized by raising the current conversion rate of 30 percent and lifting the conversion cap of S$100,000 (US$78,860). This will plough more cash back to SMBs and ensure they continue investing in productivity."

Skills development funds could also raise workers' productivity and retain employees, said Trent Mayberry, managing director of technology growth platform at Accenture Asean. He pointed to the Jobs Credit scheme, which was introduced in 2009's Budget, as "highly successful" and having a similar initiative would help companies here ride out the current economic uncertainties.

The Jobs Credit scheme helped reduce the cost for employees employing Singaporeans, through a quarterly grant to businesses, which was calculated based on 12 percent of the S$2,500 (US$1,660) earned by each employee under the country's social security savings program called the Central Provident Fund (CPF). The scheme came to a close with the final payment in June 2010.  In total, more than S$4.3 billion (US$3.4 billion) was paid to over 100,000 employers employing about 1.4 million local workers.

Adrian Ball, head of tax at Ernst & Young Solutions, added that should the Eurozone problems not be resolved and if that region experienced partial unraveling in the future, the impact on Singapore could be significant. In this worst-case scenario, a stronger dose of "fiscal medicine" may be needed, such as reintroducing the Jobs Credit scheme.

"In this case, putting cash in the hands of every employer will be more impactful than a targeted scheme that is aimed only at certain industries," Ball said.

Help for the SMBs
Singapore's Association of Small and Medium Enterprises (ASME) agreed that help in keeping operating costs low and training assistance were high on many of its member companies' wishlists.

Ang Yuit, vice president for strategies and development at ASME, told ZDNet Asia that SMBs were hoping that any measures that would increase companies' operating costs would be eased over a period of one to two years, so they would not have to absorb a sudden increase. They also hoped to see the easing of foreign worker shortages in sectors that required such manpower, as well as assistance in training employees for staff retention and expansion overseas, he added.

He also pointed out that the PIC scheme can be made "more accessible, relevant and clearer" as many SMBs find it tough to understand and hence do not take part in it.

"The key challenge that many SMBs have been facing the last year has been foreign worker manpower issues in areas such as employment pass renewals and new applications. Therefore, SMBs are hoping the government will look into addressing the detailed specifics of these issues the companies are facing," Ang stated.

One local SMB, social media monitoring service provider JamiQ, added to the call for more government support in this business demographic.

Kelvin Quee, the company's head of business development, said it wants to see the government making collaborative research between local SMBs and research institutes here more affordable. He also hoped that the new Budget measures will make it easier for companies here to work and collaborate with "talented foreigners when local equivalents are not easily available".


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