Budget 2019 is exceptional in two ways: first, it’s coming a little earlier than expected on 18 February.
Second, it’s coming at a particularly turbulent time – the world economy is slowing down, the digital disruption is displacing workers, and interest rates are rising.
In light of that, here’s what we’re expecting to see in this year's Singapore Budget.
A more aggressive push to retrain workers
According to a recent study by Cisco and Oxford Economics, Singapore faces the biggest re-skilling challenge in South East Asia.
Over 20 per cent of our full-time workforce could lose their jobs to Artificial Intelligence (AI) and automation by 2028 – higher than Vietnam (13.8 per cent), Thailand (11.9 per cent), and Malaysia (7.4 per cent).
Although it’s unsaid, we believe a lot of the disruption pertains to the finance industry. That’s because the finance industry is currently the one most heavily impacted by AI.
Last year, for example, saw major banks like DBS racing to poach top talent for its virtual banking assistant; and Standard Chartered is aggressively moving into robo-advisories.
Singapore is likely bracing for an event where large numbers of professionals are displaced from this industry, and could have trouble finding jobs that match their former pay scales.
For this change, we predict:
- Either a wider range of programmes under the Workforce Skills Qualification (WSQ) initiative, or a boost to the amount Singaporeans can use for such programmes
- A specific focus on infocomm or digital skills upgrading. Companies may be getting tax benefits for training their staff in these fields. Alternatively, we may see bigger subsidies or grants for training programmes in these fields.
Due to the nature of changes imposed by AI and automation, it’s quite likely that upskilling programmes will target Professionals, Managers, Executives, and Technicians (PMETs). This is also made likely by the fact that the number of retrenched PMETs has steadily grown since 2010.
Maintaining wage support
This would go hand in hand with the expectation of lean times ahead (thank you, Brexit and the US-China trade war), and increasing social pressure.
We’ve heard a lot of stories about struggling hawkers and the injustice of social enterprises of late, as well as mounting healthcare costs. Fact, Singapore has the fourth highest rate of medical inflation prospects in South East Asia.
On top of these, there are a growing number of political opposition candidates who are raising the issue of minimum wage, and how we don’t have that in place.
The government is likely to defend its progressive wage policy, while raising support to back wage increases. This will be especially necessary in the coming years, as companies faced with lower exports (and hence lower revenues) are not inclined to raise salaries without a bit of government incentive.
The government co-funded wage increases by 20 per cent in 2018, and is expected to step this down to 15 per cent in 2019. But we suspect they just might continue to keep it at 20 per cent instead.
A stronger push for health and life insurance
Our healthcare costs are mounting, and there’s strong social pressure on this front. For example, 82-year old Seow Ban Yam got the internet’s attention when he needed to fork out $4,477 at the Singapore National Eye Centre even after MediShield coverage.
We might see increased subsidies to MediShield Life, or the government might work with private insurers to further incentivise us to buy healthcare products. That could mean tax cuts for premiums on medical insurance, or better claim limits on Integrated Shield Plans (IPs).
If there are subsidies or lowered premiums, we expect they will mainly be focused on premiums for the recent Elder Shield (older Singaporeans need it more, as their CPF contributions were not as high in their day).
More support for mental health
The President’s Challenge for 2019 is in support of mental health. This also intersects with elder care for an ageing population, as suicides among the elderly peaked at 129 last year.
Among the support schemes rolled out for healthcare, we wouldn’t be surprised to see incentives that cover mental health needs; these have been notably lacking in our healthcare initiatives over the past few years.
A push for easier financing for SMEs
Bank interest rates are going up across the board. This can be mainly attributed to a rise in interest rates in the US, as the Federal Reserves seeks to normalise the situation after a decade of abnormally low rates (the Fed set interest rates to zero following the Global Financial Crisis, which also made loans unusually cheap in Singapore).
While the rate hikes are proceeding slower than planned, we are still expecting two more rate hikes in 2019.
Rising interest rates will make it harder for SMEs to service their loans. In addition, banks will be less willing to provide credit, for fear that borrowers cannot repay them in the event of future high rates. This will constitute a double whammy for local companies, which might already be facing lower revenue streams from the slowdown in the global economy.
The Singapore government might incentivise banks to maintain working capital loans. This could be done by helping to further guarantee the loans, or by tax incentives given to banks that better support SMEs. This has the added purpose of encouraging companies to expand, or at least not reduce headcount. That helps to maintain good employment rates in the face of a looming downturn.
More details on the Merdeka generation package
In 2018, the Prime Minister announced a Merdeka generation package, to assist Singaporeans born between 1950 to 1959. This is estimated to include roughly half a million Singaporeans.
The package is known to include:
- Outpatient subsidies
- MediSave top-ups
- MediShield Life premium subsidies
- Payouts for long term care
We were told the full details will be known in 2019, so it’s quite likely this will be revealed in the Budget 2019 announcement.
A dreaded tax hike or two
The government has been talking about raising the Goods and Services Tax (GST) for some time now, possibly to nine per cent. Hold on to your hats: this may just be the moment when they announce exactly when it'll happen.
Last year, it was stated that the GST hike will happen sometime between 2021 and 2025. The nine per cent is a final number, but there's a possibility of this happening in a staggered manner.
Besides this, some other expected tax hikes include a new carbon tax (this could impact car prices, as well as electricity prices), a sugar tax to combat diabetes, and a higher “vice tax” on cigarettes or alcohol.
These taxes have been in discussion over the past year or two, so if anything is coming of them, we’re likely to hear it this February.