Positioning Singapore to catch the next economic sunrise Positioning Singapore to catch the next economic sunrise Positioning Singapore to catch the next economic sunrise

Budget will see Singapore through pandemic and gear the country up to face the future with confidence

By Ong Pang Thye, Managing Partner, KPMG in Singapore

With the theme of “Charting Our New Way Forward Together”, Finance Minister Lawrence Wong’s Budget 2022 is both pivotal and forward-looking. This is the Budget that will not only take Singapore out of the pandemic with confidence, but also one that we hope will set the country on course for the future in a world marked by constant fast-paced changes and uncertainties.

We do expect that in this future, sustainability will underpin business and living, with Singapore potentially taking the lead regionally in green initiatives and financing to cut down on carbon emissions. Amid ongoing uncertainties on the global front, including how the new international tax rules will take shape, Singapore will also have to be at the forefront of these developments to seize new opportunities.

Emerging from the pandemic, Budget 2022 lays out the steps that Singapore should be taking in the medium to long term. Three priorities mentioned in the Budget speech are worth highlighting: (1) Driving an environmental, social and governance (ESG) agenda for Singapore; (2) Strengthening Singapore’s value proposition as a regional hub of choice for businesses; and (3) Upskilling our workforce and attracting talent for a digital-led world across industries.

These will be crucial for Singapore to catch the next economic sunrise and aligns with KPMG in Singapore’s 3C framework for Budget 2022 where we outline how Singapore can “Catch the Sun”, “Chart New Orbits”, and “Strengthen our Core” to emerge as a resilient, purpose-driven and growth-oriented economy.

In his Budget speech, Mr Wong reaffirmed Singapore’s commitment to the Singapore Green Plan and expressed his bold plans for Singapore to achieve net-zero emissions by or around mid-century.

One of the measures that will have significant impact on businesses will be the hike in carbon tax. Singapore is set to raise its current carbon tax of $5 per tonne to between $50 to $80 per tonne by 2030. Businesses would need to take major steps to decarbonise and tap on the Government support during this transition to ensure that their competitiveness will not be severely impacted from the increased carbon taxes.

Key to moving the green agenda as well would be green finance and green energy. This will be crucial in positioning Singapore as the go-to location in Asia for sustainability services. To develop a robust green market, Singapore will look at issuing up to $35 billion in green bonds by 2030 to fund public sector green infrastructure projects. To further drive green innovation and tech adoption, a green energy investment fund could be mobilised to drive Singapore’s and Asia’s net zero ambitions.

Certainly, emerging from the pandemic, Singapore businesses will continue to need help to tackle immediate concerns. The government will set aside $500 million for the Jobs and Business Support Package. As part of the Package, a Small Business Recovery Grant will be provided for small and medium-sized enterprises that have been most affected by Covid-19 restrictions over the past year, such as those in the food and beverage, retail, tourism and hospitality sectors.

However, the country will also have to keep its sights on global developments as they unfurl. While the net impact of the global tax rules remains to be seen, Singapore said that it will be exploring a top-up tax called the Minimum Effective Tax Rate. This is to get the effective tax rate of affected multinational groups up to 15 per cent in Singapore.

Reassessing the balance between tax and non-tax measures will be crucial in attracting multinational companies to continue to locate their offices in Singapore, if not their headquarters (HQs).

 At home, an area where we see the potential for transformation is in incentivising and anchoring “factories of the future” in Singapore. This is especially since more Singapore enterprises are adopting cutting-edge technologies to improve their manufacturing processes and produce high-value products.

As for non-tax incentives, Singapore will need to step up efforts to attract internationally trained and experienced human capital. A highly skilled workforce remains a critical value driver for Singapore into the future. Sector-specific talent will be needed for enterprise to grow and compete, and these should be considered as part of the national manpower strategy, with policies on specialised talent to meet immediate and long-term needs.

Singapore is in a much better position today than it was two years ago, when the pandemic affected the economy and led to its worst decline since independence. With Budget 2022 charting an even stronger future for Singapore, enterprises will have to hire the best talent, even as the country continues to invest in Singaporeans. 

It is important to note that the Minister for Finance has emphasised in his speech that Singapore will continue to stay open and welcome talent from around the world. 

About S$600 million will be set aside to expand the range of available solutions under the Productivity Solutions Grant, while larger local businesses will be supported by a new initiative called the Singapore Global Enterprises, which will provide bespoke assistance tailored to the needs of promising local enterprises.  

As companies large and small adopt a more permanent hybrid work model, they will need to continue to digitalise their operations across critical areas, while grooming a new generation of talent in a technology-led future. The gaps in the workforce and society will have to be bridged, with Singapore providing accessible sources of “digital knowledge” for all ages, as it grows an adaptable, innovative, and resilient workforce.

The government has announced that an additional S$200 million to build the digital capabilities of businesses and workers. This will go a long way to in empowering firms to be bold as they embrace the digital economy and aim for the international market. 

The outlook for enterprises shines bright, with optimism back in the boardroom. About 9 in 10 Singapore CEOs are bullish about the growth potential in Singapore and on their companies’ earnings over the next three years, according to KPMG’s 2021 CEO Outlook Survey. It will be a pivotal year as many transform their business, engagement and sustainability strategies, and Budget 2022 has laid the foundation for this new economic horizon.