24 February 2015

Singapore's Budget 2015 supports businesses

Source: Ministry of Finance, Singapore. Infrastructure investments were also announced as part of Budget 2015.

The measures announced in yesterday's Singapore Budget 2015 by Deputy Prime Minister and Minister for Finance, Tharman Shanmugaratnam for businesses included more training help, tapering off aid for business restructuring, freezing of foreign worker levies other than for manufacturing and construction, as well as boosting innovation and expansion.

Training and development 

"We will invest continually in Singaporeans, throughout their careers," said Shanmugaratnam. With SkillsFuture, the government will help Singaporeans learn at every age and develop mastery and flair in every field. The SkillsFuture measures specific to businesses are:

· SkillsFuture Earn and Learn Programme. Fresh polytechnic and ITE graduates will be placed in jobs and receive a salary while undergoing institution-based and structured on-the-job training that leads to an industry-recognised qualification. Both trainees and employers will receive substantial support from the government.

· Targeted support for career progression. According to Shanmugaratnam, these will support individuals who wish to develop the specialist skills required for future growth clusters. 

"For example, they may include software developers, satellite engineers or master craftsmen. The awards can also support those who already have deep specialist skills and wish to develop other competencies such as business and cross-cultural  skills," he said. 

According to the Minister, the growth clusters Singapore will focus on are:

  • Advanced manufacturing, including advanced robotics and additive manufacturing (3D printing); 
  • Applied health sciences, such as developing new medical devices and better nutrition, and transforming healthcare delivery; Smart, sustainable urban solutions, from water and waste management to transport and urban planning; 
  • Logistics and aerospace, capitalising on air and seaport infrastructure and investing in new technological platforms; and 
  • Asian and global financial services. 

SkillsFuture Study Awards will be introduced in phases, starting this year, and will be awarded to about 2,000 recipients per year eventually. SkillsFuture Fellowships will also be introduced from 2016, to develop Singaporeans to achieve mastery in their respective fields. About 100 fellowships will be awarded each year.

· Under the SkillsFuture Leadership Development Initiative, collaborations with strategic companies will be stepped up, to develop a pipeline of Singaporeans to take on corporate leadership roles and responsibilities.

· Industry collaboration. To uplift the broad base of companies, and to help Singaporeans develop their careers, the government will work with employers, unions, and education and training providers to develop and implement Sectoral Manpower Plans (SMPs) in all key sectors by 2020.

To help SMEs overcome the constraints they face in developing capabilities and capacity, the government will also work with industry partners to develop a shared pool of SkillsFuture Mentors with specialised, industry-relevant skills which SMEs can tap on.

More details on these initiatives will be provided subsequently.

Restructuring support

Shanmugaratnam noted that Singapore's productivity level is 13% higher today than the start of the national restructuring journey in 2010. "This is an average growth rate of 2.5% per year. All of this gain was achieved in 2010 (11.6%) and 2011 (2.3%) as we recovered from the recession, and growth has been negligible in the three years since then," he said.

More productivity is possible, especially when globalising companies are compared against those firms which only compete locally, he added. "There is a stark difference between productivity growth in industries where our businesses compete internationally, and in those where businesses compete mainly in the domestic market, such as construction, retail and F&B. 

"Over the past five years, our outward-oriented sectors saw productivity growth of over 5% per year on average, compared to less than 1% for our domestic-oriented sectors. Further, employment growth has been mainly in the domestic-oriented sectors. This is essentially why our overall productivity growth has lagged," he said.

"Every sector can achieve a lift in productivity, but it is especially important for our domestic sectors. It will only happen as firms rethink business strategies, seek to break the mould by finding new ways of growing their revenues, and take full advantage of government incentives for upgrading. Our tight labour market itself will motivate businesses to do so. We know that this major upgrading is possible in our domestic industries where productivity has lagged, because there are leaders internationally who have done it."

As businesses may need more time to adjust to rising costs as they restructure, the Transition Support Package will be extended by two years but provided at reduced support levels.

· The Wage Credit Scheme will be extended to 2017, to give employers more time to adjust to the tight labour market. Gross monthly wage increases of at least S$50 in the qualifying year (2016 to 2017), up to a gross monthly wage level of $4,000, will qualify for 20% co-funding.

In addition, gross monthly wage increases of at least S$50 given in 2015 and sustained in 2016/2017, and wage increases given in 2016 and sustained in 2017, will continue to be co-funded at 20%.

· The 30% Corporate Income Tax (CIT) Rebate will be extended for Year of Assessment (YA) 2016 and YA2017, with a reduced cap of S$20,000 per company per YA. The reduced cap will ensure that more support is focused on SMEs.

· The Productivity and Innovation Credit (PIC) Bonus will be phased out after YA2015 as it was intended as a transitional measure and has been successful in spreading the culture of productivity amongst SMEs. Businesses will continue to benefit from the PIC scheme which has been extended till YA2018, and the PIC+ scheme introduced in Budget 2014.

Foreign worker levies 

As the net inflow of foreign workers (excluding construction) has slowed significantly, the Government will defer this year’s round of announced levy increases for S Pass and Work Permit Holders, with the exception of Work Permit Holder levies in the Manufacturing and Construction sectors. 

Shanmugaratnam stressed that the government is not changing its stance on reliance on foreign talent. "..to avoid any misunderstanding, let me affirm unequivocally that while we are adjusting the pace of our foreign worker measures, we are not changing direction. It remains crucial for Singapore that we restructure towards reducing our reliance on manpower, and find new and more innovative ways to do business," he said.

"Our basic approach remains unchanged. We have to stay the course in reducing reliance on labour and especially unskilled foreign workers. However, we will continue to calibrate our foreign worker policies as informed by evidence on the pace of inflows, the quality of workers being employed, and the progress being made in raising productivity, sector by sector."

Strengthening support for innovation

Shanmugaratnam noted that Singapore's public investments have catalysed S$8.6 billion of industry R&D since 2011. He lauded local electronics manufacturer Dou Yee International as an innovation success story. "From a small trading business, it has transformed itself into a dominant player in the electrostatic materials industry with an annual turnover of S$300 million. It did this through R&D and a longstanding partnership with A*STAR. Most recently, Dou Yee has worked with A*STAR to develop smart plastic packaging that extends the freshness and shelf-life of food," he said.

"In our next Research, Innovation and Enterprise five-year plan, we will step up efforts to help companies develop, test and commercialise new products and solutions. More details will be provided later in the year."

· To support SME innovation, the Capability Development Grant (CDG) will be made more accessible to companies via a simplified application process for projects below S$30,000. The CDG’s enhanced funding support level of up to 70% of qualifying costs will also be extended for three more years, to 31 March 2018.

· To promote industry collaborations, SPRING’s Collaborative Industry Projects will be extended to all industry sectors to develop productive and innovative solutions. The Partnerships for Capability Transformation (PACT) scheme will also be enhanced to foster collaboration between large companies and SMEs in their supply chain.

· The National Research Fund will be topped up by S$1 billion this year, with greater efforts to help companies develop and commercialise new products.

· To ensure that promising companies have access to capital that they need to grow, the government will:

  • Top up the Business Angel Scheme (BAS) by S$75 million and increase the co-investment cap to S$2 million per company for BAS and SPRING’s Startup Enterprise Development Scheme (SEEDS) to reduce early-stage funding gaps for startups. 
  • Pilot a venture debt risk-sharing programme to provide 50% risk-sharing to selected financial institutions for such loans, over an initial period of two years. The aim is to catalyse about 100 venture debt loans, totalling approximately S$500 million. 
Expanding overseas

To support internationalisation, the government will:

· Raise the support level for SMEs for all activities under IE Singapore’s grant schemes from 50% to 70% for three years, to 31 March 2018*.

· Enhance the Double Tax Deduction for Internationalisation scheme to cover qualifying manpower expenses incurred for Singaporeans posted to new overseas entities.

· Introduce a new International Growth Scheme to provide qualifying companies a 10% concessionary tax rate on their incremental income from qualifying internationalisation activities. The scheme will expire on 31 March 2020.

Encouraging mergers & acquisitions

To help companies acquire scale through mergers & acquisitions (M&A), the government will:

· Increase the tax allowance for acquisition costs from the current 5% to 25% of the value of acquisition, with the cap on the allowance remaining at S$5 million per YA. In addition, companies will be able to claim M&A benefits for acquisitions that result in at least 20% shareholding in the target company, down from the current threshold of 50% shareholding. Also, the M&A tax allowance scheme will be extended till 31 March 2020.

· Extend the scope of IE Singapore’s Internationalisation Finance Scheme to cover overseas M&A financing.

More details will be announced at the Ministry of Trade and Industry’s Committee of Supply.

Read more about the Budget for 2015 here.

*These are the Global Company Partnership (GCP), and the Market Readiness Assistance (MRA) grants. The current support level for both these schemes is up to 50%, except for four activities: design, branding, intellectual property, and M&A, which are supported at 70% from 1 Apr 2012 to 31 Mar 2015.