Coronavirus Singapore: government digs deep on new relief package

Singapore said on Tuesday that it would tap into its deep reserves for a second consecutive year to fund continued targeted support for businesses amid the Covid-19 pandemic, upending analysts' expectations that the government would exercise prudence with no end in sight to the global health crisis.

Unveiling the 2021 budget in parliament, Deputy Prime Minister Heng Swee Keat said the fresh drawdown of up to S$11 billion (US$8.31 billion) was necessary "given the exceptional circumstances we are in".

"We are extremely fortunate to be able to tap on our strategic assets and deploy the resources required to deal decisively with Covid-19 and the considerable uncertainties that lie ahead," said Heng, who is also finance minister. "We should never take our reserves for granted."

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Last year, the government obtained approval from the country's president, Halimah Yacob, to draw some S$52 billion from the reserves, though Heng said the government now forecasts the 2020 drawdown to be S$42.7 billion. Expenditures were lower than expected in areas such as public health as the Covid-19 situation in the city state had been brought "largely under control", Heng said.

The total drawdown for both last year and this year is now expected to be S$53.7 billion.

Heng also indicated a willingness to draw even further on reserves, saying that based on the current outlook with the expectation that the economy would recover, the government should be able to meet a statutory requirement for it to balance its budget.

"However, if the global public health and economic outlook worsens, we may not be able to do so," he said. Further drawdowns would be used to fund economic transformation measures, and Halimah has been briefed on this strategy, Heng said.

Deputy Prime Minister Heng Swee Keat indicated a willingness to draw even further on the city state's reserves. Photo: Reuters alt=Deputy Prime Minister Heng Swee Keat indicated a willingness to draw even further on the city state's reserves. Photo: Reuters

Selina Ling, head of treasury research and strategy at OCBC Bank, said she had not expected a fresh drawdown from the reserves. But with the 2020 drawdown amount lower than expected, the final S$53.7 billion figure was "not that different" from what was originally projected and was also spread over two years, she said.

Jeff Ng, a senior treasury strategist at HL Bank, said that with the new budget, Heng had "pivoted slightly away from addressing immediate challenges towards making Singapore thrive in a new normal, post-Covid-19 world".

This is the only third time the government is dipping into the reserves, with the first time being in the middle of the Global Financial Crisis in 2009. The size of Singapore's reserves is a state secret, but estimates by most analysts put it at well above S$1 trillion (US$750 billion).

In his budget speech, Heng announced a S$11 billion Covid-19 Resilience Package that includes a continuation of a wage subsidy scheme first unveiled last year to save as many jobs as possible during the pandemic-fuelled downturn.

Other measures include S$24 billion of funds for firms and workers to emerge stronger from the recession, such as giving start-ups access to debt and S$5.4 billion to support the hiring of 200,000 Singapore citizens.

"We will invest in our people - so they can bounce back and be ready for opportunities that arise; we will invest in our businesses - so they can innovate, build deep capacities and seize growth opportunities," Heng said.

The combined spending measures are expected to lead to an overall government deficit of S$11.01 billion for this financial year, or 2.2 per cent of GDP. The 2020 deficit was S$64.9 billion, or 13.9 per cent of GDP.

Heng said he had to address parliament nine times over the budget last year and quipped that his wish for this year was to have just one budget. But he also said Singapore's economic recovery hinges on how the global situation plays out.

"Not everything is within our control," he said.

Heng also said he expects Singapore's goods and services tax (GST) to be raised from 7 per cent to 9 per cent as early as 2022 and no later than 2025. The idea was first mooted three years ago, but was delayed last year due to the impact of the coronavirus pandemic on the economy.

Without the GST hike, Singapore will not be able to meet its rising recurrent needs, such as health care spending, Heng said.

Heng said the Singapore government is also exploring the use of borrowing to finance major, long-term infrastructure projects through the issuance of new bonds under an act that could be introduced in parliament later this year.

Heng also pointed to climate change as a risk Singapore needed to guard against.

Heng said the current trajectory of Singapore's carbon tax - which prices greenhouse gases at S$5 per tonne until 2023 - may be revised following a review. The government previously said it hoped to increase the price to S$10 to $15 by 2030.

"The effects of climate change have intensified and global momentum to address climate change has accelerated significantly," Heng said. "So, we are in a new situation today. As a responsible member of the international community, Singapore will be expected to do more, along with other countries, as climate change issues take on greater gravity."

He said the findings of the carbon tax review would be announced in next year's budget "to give time for businesses to adjust to any revision in the carbon tax trajectory".

This article originally appeared on the South China Morning Post (SCMP).

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