Commentary: Budget 2020 shows old medicine can soothe symptoms but won’t be enough for businesses
After short-term help with cash flow runs out, businesses in these sectors have longer-term issues they can’t ignore, say Elaine Ng, Vishal Thapliyal and Irene Liu.
SINGAPORE: With the COVID-19 outbreak hitting Singapore amid a gloomy global economic outlook, many businesses in Singapore have seen a drastic drop in footfall as consumers avoid crowded places.
This is worsened by travel advisories to Singapore issued by many countries, dampening tourist and business visits. Already, with much of China on lockdown, businesses in Singapore are feeling the effects of a drop in Chinese visitors.
Companies most affected by the impact of the disease in Singapore are in the tourism, retail, hospitality, transport and MICE sectors.
Against this backdrop, the pre-Budget measures to assist taxi and private-hire drivers and companies unveiled and assurances the Government will also provide targeted and broad-based measures in Budget 2020 to help businesses tide over the anticipated downturn have sent helpful signals.
It was also encouraging to see additional measures to support businesses during these trying times rolled out in Deputy Prime Minister (DPM) and Finance Minister Heng Swee Keat’s Budget speech on Tuesday (Feb 18).
But aside from crossing this COVID-outbreak challenge, these measures also aim to get businesses ready for the eventual upturn.
EASING THE PAIN
Broad-based measures for all businesses include tax rebates, temporary enhancement of the working capital loan scheme, wage credits and the job support scheme, were announced.
Businesses are already familiar with tax rebates, the SME working capital loan scheme and wage credits.
Tax rebates though will only help businesses that are profitable and paying taxes. The enhanced SME working capital loan scheme should help businesses with their more immediate need - cash flow - provided the banks come on board and sanction loans to the SMEs.
Hopefully, these measures will also encourage private capital to invest in companies that may have a short-term liquidity crunch but have strong mid to long-term potential.
The Jobs Credit Scheme was first introduced during Budget 2009 and proved very popular and helpful to businesses in withstanding the impact of the worst ever global financial crisis in 2009.
The Job Support Scheme announced in Budget 2020 is a similar measure to help businesses retain their workforce by defraying the costs of keeping jobs through the provision of a cash grant of 8 per cent of a qualifying employee’s gross monthly salary.
In Budget 2013, the wage credit scheme was introduced to help businesses pursue their transformation journey amidst rising wage costs and to encourage employers to share productivity gains with employees by providing co-funding on wage increases for local workers. It was also well received.
It is thus heartening to see that the wage credit scheme has not only been extended but will also be enhanced.
At present, the scheme co-funds wage increases for workers earning a gross monthly wage of up to S$4,000 but DPM Heng announced that this cap will be increased to S$5,000 with the government’s contribution also increased to 20 per cent for last year and 15 per cent for this year.
With the introduction of these measures in 2009 and 2013, our overall unemployment rate has since remained relatively steady and hovered at about 2 per cent.
The combination of the enhanced wage credit scheme and the additional cash grant will help employers address their cash flow situation, as a result reducing their need to cut jobs. It will thus help reassure workers and provide a greater sense of job security.
The sectors that are directly impacted by the coronavirus - namely aviation, food services, point-to-point transport, retail and tourism - were given extra support in the Budget in terms of property tax rebates ranging from 10 per cent to 30 per cent and also additional support to retain and re-skill employees.
The benefits of these property tax rebates and rental rebates should hopefully flow back to tenants.
MAKE HAY WHILE THE SUN SHINES
It is clear that the Government is not only concerned about the Singapore workforce being retained but is also keen for businesses to focus on re-skilling workers during this down time.
Although some measures were introduced in earlier budgets to support businesses to “go digital”, business owners have often cited more immediate challenges with the lack of financial and manpower resources to cope with daily operations.
Using the unplanned downtime generated by the outbreak, the government has given these impacted sectors a boost by increasing the funding period for reskilling from three months to up to six months under the Adapt and Grow Initiative. This is aimed at encouraging and enabling businesses to start their digitalisation journeys by re-skilling employees.
Such re-skilling is important for all sectors to tackle the digital disruption already impacting businesses prior to the COVID-19 outbreak, so that employees may be upskilled and, where necessary, re-deployed to handle other jobs and new processes that arise from digitalisation.
It is an opportune time for businesses in these sectors to make hay while the sun shines and an important step towards achieving the government’s long-term vision for Singapore to be the Global-Asia node for technology, innovation and enterprise, which DPM Heng outlined.
BUSINESSES HAVE TO RESKILL
While the short-term measures will help companies tide over some of their immediate cash flow concerns, the outlook for businesses in sectors such as retail and food services is not as certain.
On top of the reduced footfall and business activity due to COVID-19, organisations in these sectors have also been facing structural and operational challenges brought on by technological advancements.
For example, the retail sector has seen demand seized away by the significant rise in e-commerce platforms and pure online retailers while the food and beverage sector has been seen new challenges posed by the surge in online food delivery platforms.
In order to be sustainable in the long term, traditional players in these sectors must re-examine their business models and take this opportunity to reassess their strategy to better address the impact of longer-term trends such as digitalisation.
A change of strategy will also need to be supplemented by restructured operations and workforce upskilling. This will prepare them better for the business environment after the support provided during the COVID-19 period is reduced, and be more competitive in the long term.
That is why the government’s enhanced assistance to retrain the workforce in these sectors is key. It is crucial that companies take advantage of this scheme for their sustained survival.
COVID-19 has tested our country’s ability to adapt to uncertainty and Singapore has been waiting in eager anticipation of how the government can protect businesses, jobs and households.
It is possible that after these measures are in place, more help will be needed to keep the economy growing. It may be that the government will choose to supplement these at a later stage especially if it takes longer to tackle and overcome COVID-19.
Now, after the government has announced plans for that future, it is time for businesses to leverage these measures and get into action.
Elaine Ng is Tax Partner; Vishal Thapliyal is Partner (Corporate Finance, Strategic Solutions & Transformation) and Irene Liu is Government & Public Services Co-Lead. All of them are from PwC Singapore.