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Budget 2012 – How Will It Deal With The Downturn?
In the Spotlight | 15 February 2012
By: Simeon Ang
Articles (125) Profile

What is your wish-list for this year’s budget? Prior to the budget speech by Minister of Finance Tharman Shanmugaratnam this coming Friday, I know what I would wish for. Some dough ranks on the top of my wish list and probably some credits for training and upgrading purposes. Oh! And an income tax rebate would be nice! I am sure many average Singaporeans share the same view especially in light of the lower figures of GDP growth forecast that economists are pointing out. In case you did not already know, Singapore is forecasted to grow at a subdued rate of one to three percent this year.

Businesses on the other hand, have a much wider list in terms of wishes. In response to The Business Times’ call for views, chief executives of companies across all sectors said that they would like some help from the government in managing rising business costs and tight cash flows. Chief amongst these is a lower corporate income tax rate. Others include incentives to spur productivity gains, subsidies for training and development programmes and even wage bill subsidies like the Jobs Credit Scheme of 2009.

However, in a report released on Monday, 13 February, analysts at Daiwa seem to think that this year’s budget is likely to “focus on measures to enhance Singapore’s competitiveness rather than a slew of short-term quick fixes”. In a nutshell, they postulate that this year’s budget will likely not fulfill all wishes of most businesses, least of all, the average Singaporean like you and me. Why is this so? True, we are most probably headed for an economic downturn, but analysts and economists alike seem to think that this downturn will be a gradual decline unlike the steep fall in 2009 when GDP forecasts then pointed to a two to five percent contraction.

Notwithstanding, Daiwa feels that the estimated $8 billion (2.5 percent of GDP) budget will target four key areas. It feels that measures will likely be emplaced to broadly boost competitiveness through tax incentive programmes as well as programmes that will seek to help individuals to upgrade their skills. Daiwa however, opines that a corporate tax cut is probably not in the cards. Initiatives that help provide financial support for businesses are also likely to be on the table as the government looks to help SMEs and new start-ups as well as foster private sector R&D. This may be implemented through the bridging loan programme and risk-sharing schemes that was introduced in 2009.

For the average Singaporean like you and me, Daiwa feels that a personal income tax cut is unlikely though, more likely, are one-off rebates for targeted groups and possibly utility rebates. The enhancement of the popular Workfare programmes to enhance social safety nets while raising skill levels looks to be in the cards as well.

To directly combat the anticipated economic gloom, Daiwa feels that the government could fast track or bring forward some of the infrastructure projects. Additionally, capital investment is likely to grow with a focus on education as well as projects to foster sustainable growth.

Overall, it would appear that the 2012 budget is unlikely to pump a huge stimulus into the economy on a short term basis. Instead, the budget is predicted to address longer-term issues to “take advantage of the difficult times and help bounce back more strongly” after the forecasted gloom.

Simeon, an LSE graduate, is currently the editor of Aspire. He specialises on topics surrounding trading psychology, politics and macroeconomics.

Please click here for more information about this author.

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