Budget 2021: Looking to a post-pandemic future

To cope with turbulent economic times, the Budget 2021 was unveiled this week to fight the negative impact of Covid-19 and set the stage for a strong recovery in a post-pandemic world.

The current budget, like the previous year’s, continues to support sectors and households that are severely affected by the pandemic. Yet this year, the support will be more targeted and the design is forward-looking.

Targeted Measures

Several targeted measures of this year’s budget will help Singaporean workers to either find or secure their jobs.

For current Singaporean workers, the Jobs Support Scheme will be extended in a targeted fashion. Companies in sectors that were severely hit by the pandemic, such as aviation, aerospace, and tourism, will continue to receive wage support from April to September. Other sectors, such as food services, retail and marine & offshore, the wage support will be extended from April until June.

For job-seeking Singaporeans, the government has allocated an additional S$5 billion for the Jobs and Skills Package this year, on top of the S$3 billion allocated last year. This is with the aim of hiring 200,000 locals through the Job Growth Incentive (JGI). The success of the last year’s JGI, which saw 110,000 local job seekers finding employment in the two months that it was implemented, is affirmation enough for the government to pump in S$5.2 billion more and extend the hiring window until September.

In an effort to also pivot towards more job opportunities for locals, the government will extend the Capability Transfer Programme until September 2024, which will help locals plug the skills gap in sectors.

Making sure the labor force has the adequate skills to take advantage of the post-Covid economy will be essential. With all these measures in place, the government has really pulled the right levers to help Singaporeans be employed in good jobs and acquire skills that will help them in the future.

With an eye in the future

By design, the forward-looking Budget 2021 supports skills acquisition by offering support to workers to close the skills gap, thereby preparing the labor force to seize opportunities in a world that is facing structural changes.

The budget is one of striking a fiscal balance. Like a household, a government needs to have a balanced budget constraint over time, and future taxes are anticipated to finance the current deficit. Financing these packages to fight against the impact of Covid-19 requires additional fiscal resources. The country ran a deficit of close to 14 per cent of GDP, the largest ever in the history of the republic. Last year was simply an extraordinary year. This year again, Singapore is expected to have a fiscal deficit of 2.2 percent of GDP for 2021, but this is not far from alarming.

To finance this additional fiscal burden to fight Covid-19, it is expected to tap again on the reserves that the country has buffered in the past and the government is expected to have fiscal surpluses in the future.

In unprecedented times, fiscal deficits are not the first order issue, keeping our people safe during the pandemic is the priority. This additional government expenditure will smoothen over time.

Given the extraordinary and temporary nature of the economic shock induced by Covid-19, running a fiscal deficit in the short-run and having the burden smoothen over time is ideal and what a sound economic policy prescribes. The country is expected to run fiscal surpluses in the future to have a sustainable balanced budget beyond the current crisis.

The Republic’s stellar reputation is an asset to emerge stronger and faster

The macroeconomic strength of Singapore has remained intact despite the severe global economic shock.

The economy has built a stellar reputation in the sovereign debt market. This is reaffirmed recently by international credit rating agencies– Singapore bonds have a stellar rating of AAA, the highest possible.

As such, global investors deem Singapore bonds as one of the safest investment options to hold in the world, hence requiring a lower yield to hold the Singaporean government bonds.

This is a huge advantage for the Singapore economy because this strong creditworthiness allows the country to smoothen the current fiscal burden over longer periods of time. The government’s responsible management of public finances has driven down future costs of borrowing for years to come.

This strong reputation, combined with the current low interest rate at the global level, will allow the country to navigate this turbulent macroeconomic environment. In times of extraordinary surging fiscal expenses, like the one we have now, the country does not need to match with immediate surge in taxes.

This stellar reputation of the Singapore government and a forward-looking sustainable fiscal plan will help Singapore economy emerge stronger and faster in the post-Covid world.