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SMEs need more help: Inderjit Singh

MP for Ang Mo Kio GRC, Inderjit Singh said the Budget could have been more inclusive for Small and Medium-Sized Enterprises (SMEs) which are battling the double whammy of rapid cost increases and a tight labour market.

SMEs need more help: Inderjit Singh

MP for Ang Mo Kio GRC Inderjit Singh

SINGAPORE: MP for Ang Mo Kio GRC, Inderjit Singh said the Budget could have been more inclusive for Small and Medium-Sized Enterprises (SMEs) which are battling the double whammy of rapid cost increases and a tight labour market.

Mr Inderjit was speaking in Parliament on the first day of the Budget debate where he focused a large part of his speech to rising business costs.

Although the Budget included a none-off SME cash grant, capped at S$5,000, Mr Inderjit said this is insufficient and that the Budget should have instead considered offering a tax rebate.

Mr Inderjit said: "I was disappointed that this year's Budget failed to address the shorter term problems faced by companies especially the high business costs. The Budget should have instead considered offering a tax rebate pegged against a proportion of a company's income so that it is reflective of the size of the company. But there is a lot more that the government can do in addressing the cost issue.

"In theory, the measures implemented in the Budget to boost productivity may be sufficient, but in reality, many of the smaller companies may have trouble implementing them. They may not have the resources to focus much on productivity for now as they are fire-fighting with high costs and so the Budget should have looked at helping them in the short-term. As such, many of the smaller companies may not even benefit from the productivity schemes as they may not qualify for them.

He also suggested a thorough cost reduction review exercise to help companies with rising costs.

"The strategy to restructure is not a bad one and it is one that would benefit Singapore and Singaporeans in the long-run. However, the time horizon the government has provided for this restructuring to occur needs to be reviewed. We need to have a slower start but we can accelerate later. For now, we should focus on the short term cost issues and allow companies to survive first. My fear is that once again, the government may be inducing a significant squeeze out of SMEs who are the biggest employers in Singapore and if we are not careful, the day MNCs move out in large numbers, we will see a vacuum and a hollowing of our economy without a strong base of home grown companies."

Mr Inderjit said the government's latest revision in its foreign worker policy will lead to higher labour costs for SMEs.

"Today, the strategy to create a productivity-led growth is not wrong but once again the government is adopting an "instant tree' mentality of expecting everyone to make progress overnight. Business models take time to change with productivity improvements taking a longer time to set in. Therefore, the government should be more realistic at the pace of change of the economic restructuring as in the short- and medium-term, we will be penalising our SMEs with higher labour costs.

"In the past, the government was too liberal in our foreign worker policy and opened the gates to many to come in and now when we realised the economic and social problems that are created, we are taking the other extreme and completely turning off the tap. This is not the right thing to do as companies take time to adjust to such changes in the labour market. According to a team of economists from the Lee Kuan Yew School of Public Policy, if Singapore wants to achieve moderate economic growth for this decade, there needs to be about 1.5 per cent employment growth even if we meet our productivity increase targets.

"Singaporeans alone will not be able to meet this job growth and therefore at least in the medium term, companies here will have to turn to foreigners to supplement this. Hence, turning off the tap completely now will kill off the much-needed labour supply for our companies and to grow our economy."

In his speech, Mr Inderjit also highlighted one main concern for SMEs - the rising cost of renting or owning industrial or commercial space which can be traced to a policy shift by JTC.

He said: "Traditionally, JTC was very firm in its industrial land policy being only available to companies here for designated uses and at subsidized rates. In recent times however, JTC has offered their industrial land to REITs and other private developers, and these are now being redeveloped into strata-titled industrial units which are rented to non-industrial tenants for higher yields including child care centers, and even religious organizations.

"I recently spoke to some SME owners who are tenants in a JTC development in Toa Payoh which is now operated by a leading private property firm. Some of the tenants who are now negotiating a lease renewal with landlord face substantially higher rent at 40 percent increase. This is clearly an industrial policy gone wrong. We should never allow industrial land to be used for investors. Now what has happened is that the genuine companies who need industrial land have to pay way beyond what it should be and therefore they cannot survive as they also cannot compete with similar economies such as Taiwan, Korea or Malaysia."

Mr Inderjit said JTC should review their policy and go back to being a direct industrial landlord as the current policy, he stressed, has created a major impact on the bottom lines of businesses.

"In fact, JTC should practice a differentiated land pricing policy because pegging industrial land to the market is not realistic in Singapore where the market for land is on the higher end of the curve due to shortage of supply. JTC should offer land based on prices offered in equivalent competing economies so that our companies can compete effectively," he added.

In the area of Entrepreneurship promotion, Mr Inderjit is concerned that high business costs and foreign labour restrictions will affect the number of start-ups in Singapore.

He said: "All the productivity related incentives don't mean much as they will not have significant topline revenues and will not benefit from many of the productivity schemes."

Mr Inderjit also pointed out that while the government has kept corporate taxes relatively low, there are other high overheads that companies here face that add to their high operational costs and erodes their profits.

"There are many hidden taxes too - GST, high levies for foreign workers, series of duties and taxes on utilities and transportation, like COE and ERP charges, that add to escalating business costs."

In his conclusion, Mr Inderjit said the Budget shows the government recognizes the fact that more Singaporeans are finding difficulty in keeping up as Singapore grows rapidly and there is a need to restructure the economy and spend more to strengthen the safety nets to help reduce the stress Singaporeans face.

However, he suggested a revision in the timeline for the restructuring to occur.

"We need to have a slower start but we can accelerate later. For now, we should focus on the short term cost issues and allow companies to survive first. When we talk about restructuring the economy, we will also have to restructure the way the government contributes to cost. If we are not careful at the pace of restructuring the economy, we may end up hurting the future potential of our economy as we reverse many of the good things we have been doing as recommended by the Economic Review Committee in 2002.

"My fear is that once again the government may be inducing a significant squeeze out of SMEs who are the biggest employers in Singapore and if we are not careful, the day when MNCs move out in large numbers, we will see a vacuum and a hollowing of our economy without a strong base of home grown companies. For the long-term view of Singapore, this is also not good and will undermine our restructuring efforts. If we want our restructuring to have a maximum effect we need work with our SMEs together on this journey."

Source: CNA/fa

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