TMF Group Managing Director Singapore Edmund Lee argues that while deep-seated differences among countries remain, it is important for leaders and international institutions to focus on coordinating actions to mitigate an economic, social and political fall-out from COVID-19.
By Edmund Lee
Against intensified domestic and international challenges, the Singapore 2020 Budget is admirable in providing relief in a directed manner focused on turnaround and recovery, while also providing incentives for long-term growth.
The expansionary Budget, a 7 per cent increase from the SGD 78.2 billion for financial year (FY) 2019, is seen as an especially favourable move for businesses, especially those sectors who will feel the brunt of the COVID-19 outbreak more severely than others.
The provision of a universal 25% corporate tax rebate (capped at SGD 15,000) is the most straightforward benefit available to all companies. Other tax treatments have also been enhanced in this year’s Budget. These include tax losses and unabsorbed capital allowances to be carried back for 3 years instead of just 1 year, as well as accelerated capital deductions on renovation and refurbishment expenditures, to encourage companies to carry out upgrading work in their downtime.
However, as the COVID-19 outbreak worsens, business activity has contracted across the region at a record pace. Measures to contain the COVID-19 pandemic have hammered the world economy, as the pandemic incited a supply shock disrupting global supply chains worldwide but also caused a significant demand shock as consumers and businesses defer non-essential expenditures.
The bleak economic picture ahead thus resulted in Singapore delivering a landmark second stimulus package – the Resilience Budget – worth SGD 48 billion, drawing on national reserves for the first time since the global financial crisis in 2008. It also comes just five weeks after the annual Singapore 2020 Budget, which allocated a total of SGD 6.4 billion for health care and support to businesses and households hurt by the outbreak. This additional fiscal spending has pushed up the Government’s virus-related relief to almost SGD 55 billion, or 11% of gross domestic product, and will enhance schemes to reduce job losses and the extent of unemployment.
Businesses can defray wage costs with the enhanced Jobs Support Scheme and Wage Credit Scheme. To retain local employment, companies will receive an 25% cash grant based on the gross monthly wages of their local employees for nine months, subject to a monthly wage cap of SGD 4,600 per employee.
There will be higher support for sectors more affected by COVID-19, with cash grants of up to 75%. The Government will co-pay 20% of qualifying wage increases in 2019, and 15% of increase in 2020 if this higher wage is sustained till September 2020.
A COVID-19 Support Grant has also been established, where low- and middle-income Singaporeans will receive a cash grant of $800 per month for three months, if they have been retrenched due to COVID-19. Coupled with additional support for SkillsFuture initiatives, this is expected to ease the burden on businesses and mitigate the extent of the downturn.
As of now, it is difficult to predict if the above measures will be sufficient in mitigating the crisis. However, the announcement of such an unprecedented Resilience Budget in such a short time indicates that the Government is continuing to actively monitor and respond to circumstances as they arise.
While the economic consequences as a result of COVID-19 are potentially devastating, the geopolitical consequences are harder to predict – but might be the most long-lasting as they accumulate and intensify. Over the past decade, tensions primarily revolved around Brexit, US-China trade tensions and South-east Asia maritime disputes, which manifested into growing protectionism in the form of economic policy, tariffs and commercial measures. This current state of geopolitics has only exacerbated, not stabilised, the COVID-19 crisis – losing valuable time to contain the virus.
The full-blown pandemic has now resulted in the widespread closure of borders, limitation of tourist trade, blockage of manufacturing production and most alarmingly, the rapid decline of stock exchanges in Asia, Europe, and the United States.
Thus far, Singapore has provided a balanced and measured response that can be perceived as truly ‘combating the virus’. The Government has been lauded as a model for other countries to strive for – being one of calm, composed and decisive leadership.
Maintaining a stance of ‘aggressive neutrality’, Singapore has been deliberately careful in being politically neutral in order to serve as an island of stability in a sea of turbulence. These include instances at the beginning of the outbreak, where certain hotels in Singapore refused to accommodate travellers based on their country of origin. The governmental authorities were swift to crack down on these providers to enforce open, equal and non-discriminatory treatment.
Most recently, Malaysia announced the Malaysia Control Order (MCO) with just over 24 hours’ notice before implementation, which had an immediate and significant impact on Malaysians residing in Johor Bahru but commuting to Singapore to work on a daily basis.
The Singapore Government promptly issued a same day announcement of logistical and financial support to companies that were urgently seeking local accommodation for the affected workers in order to minimise disruption.
The geopolitical implications of a global pandemic thus depend heavily on the nature of the public response and the effectiveness of international cooperation.
While deep-seated differences among countries remain, it is important for leaders and international institutions to focus on coordinating actions to mitigate the fall-out from COVID-19. These commitments will only improve business and investors’ confidence in the authorities’ ability to navigate through the unprecedented pandemic challenges and ensure a smoother recovery period on the horizon.