S'pore directs $3.9B to enhance productivity

update Singapore's 2010 budget focuses on US$3.9 billion investment over next five years to boost worker productivity and research efforts.
Written by Victoria Ho, Contributor

update SINGAPORE--The government has pledged to direct S$5.5 billion (US$3.9 billion) to boost worker productivity and R&D (research and development) efforts, but funds aimed at raising innovation may not go far enough among small businesses.

In his budget 2010 address Monday to the Parliament, Singapore Finance Minister Tharman Shanmugaratnam said the country needs to focus on honing such specialized skills for the long term in order to capitalize on the growing opportunities in the region. This will include a "productivity" fund of of S$5.5 billion (US$3.9 billion) over the next five years dedicated to tax benefits, grants and training subsidies, the minister said.

Within this effort to raise productivity, S$480 million (US$340 million) a year will go toward a productivity and innovation credit, to offer tax reliefs to buinesses that invest in R&D, registration and acquisition of intellectual property (IP) such as patents, design activities, automation through technology or software and training employees.

But according to Chiu Wu Hong, executive director of tax services at KPMG in Singapore, the incentives may not go far enough to catalyze enterprises that do not pay much taxes.

"The cashback incentives for undertaking innovative activities is limited to only S$21,000 (US$14,909), but new investments in automation and systems may cost much more," Chiu explained in an e-mail interview. The incentives, he added, will benefit profitable businesses and are aimed at inculcating a culture of innovation among these enterprises.

Singapore must offer value
Shanmugaratnam said the country needs to grow "high-value" skills over the next five years, in order to capitalize on the growing opportunities in the region.

In his speech, he said the local economy contracted by 2 percent in 2009, but noted that the damage was less than expected. The government had forecast a reduction of 2 percent to 5 percent GDP (Gross Domestic Product) at the start of last year.

Pointing to 2009's Resilience Package, aimed at helping citizens retain jobs, he said this initiative kept confidence up and helped buoy the country through the crisis.

On 2010, the government expects Singapore's growth to be between 4.5 percent and 6.5 percent. "This is a strong expansion, but has to be seen against the contraction we saw in 2009," Shanmugaratnam said.

However, he said the quick gains in productivity seen in the 1980s and 1990s are now over, and raising skills and productivity is the only way the country can achieve higher wages for its people.

The government aims to achieve a productivity boost of 2 percent to 3 percent per year for the next 10 years. If this goal is reached, citizens can expect real incomes to climb by a third by the end of the 10 year-period, he said.

To that end, the next "leap in productivity" will involve the restructuring of Singapore's overall economy toward higher-value activities and upgrading enterprises with tax incentives and individuals with training programs, said Shanmugaratnam.

In addition to the fund incentives, the government will also establish a high-level National Productivity and Continuing Education Council to coordinate public and private efforts at developing a training and education system for the workforce.

This council will also commit S$2 billion (US$1.4 billion) to a National Productivity Fund, starting with S$1 billion (US$710 million) this year. The fund will provide grants to businesses and develop centers of expertise for industries, aimed at growing their knowledge base.

Startups to provide competitive strength
According to Shanmugaratnam, more Singaporean companies are demonstrating significant competitive strengths and the country should support these in its endeavor to focus on higher-value activities.

Sectors such as clean energy, healthcare, education and transport management, hold opportunities for Singapore companies to expand in the rapid urbanization of emerging markets in the region, he said.

Part of this drive will see the government spending S$45 million (US$31 million) over five years to grow entrepreneurs and business leaders for small companies.

On startups, Shanmugaratnam said: "One of the hurdles companies face is in securing finance at a very early stage of growth."

To help address this challenge, the government will strengthen the availability of angel investment by providing a tax deduction incentive to private investors. Angel investors that commit a minimum of S$100,000 (US$71,000) to a startup can claim a 50 percent tax deduction on the investment at the end of a two-year holding period.

This scheme will be available for the next five years and is expected to cost the government S$60 million (US$42.6 million) over the period, he added.

Beyond the startup phase, SMBs (small and midsize businesses) will also benefit from S$1.5 billion (US$1.1 billion) in funding over the next 10 years, for which the government will seed up to half this sum, he said.

Starting this year, the government will provide S$250 million (US$177 million) to match private sector investments.

"We must encourage a continuous flow of startups and new entrants into the economy, and allow the most efficient and competitive players the room to grow and scale up," Shanmugaratnam said.

The government will also pump S$1.5 billion (US$1.1 billion) into the National Research Fund to spur innovation.

Cranking up R&D investment as a whole, the country set aside 3 percent of GDP in R&D last year, compared to 2.8 percent in 2008, and will raise this figure to 3.5 percent over the next five years, the minister said.

He highlighted the example of Finland, which has "consistently topped the ranks in global indicators of scientific productivity and new-to-market product innovations", thanks to a sustained R&D policy.

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