SINGAPORE - For the first time in five years, Singapore policymakers will have some flexibility in their spending choices that will allow them to use the annual Budget to target long-term economic priorities.

Economists and analysts, who advise big investors on where to deploy their money, are billing Singapore’s Budget 2024 – due on Feb 16 – as a mission statement on how Singapore plans to confront emerging global and local macroeconomic policy challenges.

The foremost of those challenges is sustaining competitiveness, which is defined as a country’s ability to drive productive growth and, consequently, deliver employment and income growth, and welfare in the form of affordable education and healthcare.

As an export-driven economy, the issue of competitiveness boils down to Singapore’s ability to remain a choice investment venue where local and foreign investors can start new businesses and manufacturing plants, and expand existing ones to sell their services and goods at competitive prices worldwide.

“Unlike the previous Budgets, the core of this year’s Budget is to address long-term issues, unlocking Singapore’s medium-to-long-term potential,” said HSBC’s Asean economist Liu Yun.

In a similar vein, Ms Selena Ling, head of research and strategy at OCBC Bank, said: “In a world fraught with technological disruptions, especially with AI, and climate change, refreshing Singapore’s social compact may have to go hand in hand with reinventing Singapore’s economic competitiveness.”

Analysts expect a host of initiatives aimed at boosting competitiveness – from tweaks in the Productivity Solutions Grant (PSG) to reduce upfront costs, to grants for all sectors to co-fund expenses relating to artificial intelligence (AI) technology acquisition, and also include training and upskilling costs.

They also expect an extension of schemes aimed at helping companies go green and to get access to financing. For instance, the Enterprise Financing Scheme – Green, and the Energy Efficiency Grant may extend beyond March 2024, with expanded coverage to spur more companies to adopt green or energy efficient solutions. The Enterprise Financing Scheme (Trade Loan and SME Working Capital Loan) may also be extended by one more year.

Global investors will be looking for more guidance on how Singapore will implement the domestic top-up tax (DTT) and its impact on the competitiveness of multinational companies here. The DTT is part of the Base Erosion and Profit Shifting (BEPS) 2.0 Pillar 2 scheme that seeks a global minimum corporate tax of 15 per cent on large multinational corporations from 2025.

Economists believe that with the tumultuous years following Covid-19 in the rear view mirror, near-term fiscal support in the forms of cash handouts, utility credits and various rebates will largely be targeted in nature, and geared towards helping the most vulnerable.

While the rate of change in prices – inflation – has slowed, the amount of money required to buy virtually anything is still higher than what it was in 2019. In fact, consumers are being asked to pay more in goods and services tax (GST), utility bills and transport fares.

Hence, another enhancement to the Assurance Package may be possible. But the magnitude will likely be rather limited.

Cost-of-living support assistance, such as the CDC vouchers scheme, are in some ways needed to help maintain healthy levels of private consumption, which accounts for nearly a third of Singapore’s gross domestic product.

But too large an injection of cash by the Government carries the risk of stoking inflation. Thus, the need for a targeted approach.

Ms Ling believes the special transfers to households have been very significant, probably as high as $3 billion, in the last two years – with the Assurance Package in 2023 providing support throughout the year with cash, top-ups to MediSave, Child Development Account, Edusave Account and Post-Secondary Education Account, as well as upsized CDC vouchers.

“So the bar is set relatively higher,” she said.

With Singapore not in immediate threat of a recession or another pandemic, there is less urgency to front-load such fiscal transfers, she noted.

Mr Alvin Liew, senior economist at UOB, said labour policy initiatives could act as a nexus between cost-of-living relief measures and workforce productivity, with further incentives deployed to encourage individuals to equip themselves with knowledge and skills in the areas of digitalisation, AI and the green transition.

He said the Government can consider an annual SkillsFuture credit top-up, funded via a capped co-matching scheme with their employers as well as expanding the scope of courses eligible for SkillsFuture claims, with a focus on training programmes related to machine learning, data analytics, cloud computing, AI and clean-energy technology.

The Government can also consider increasing the quantum under the Course Fees Relief scheme and expand the scope of courses applicable for relief.

DBS Bank expects a re-employment support scheme for involuntarily unemployed job seekers, which will be combined with upskilling and reskilling aid. More incentives could be provided to support training for the in-demand skills that have been identified by the Green Skills Committee, said DBS economist Chua Han Teng.

A more employable workforce would not only mean more people will be able to manage their household budgets on their own, but also boost the availability of skilled labour – a critical element of competitiveness.

Manpower availability, retention, and foreign worker policies ranked as the three most pressing challenges after the rising cost of doing business here in the Singapore Business Federation’s National Business Survey 2023-2024.

Businesses are still struggling with elevated costs, mainly because of persistently high interest rates which are needed to keep inflation in check. But a higher cost of borrowing also limits the ability of businesses to invest and expand. They are also affected by additional hikes in GST, utility tariffs and a carbon tax that is needed to pay for the green transition.

The spike in wage inflation is also a key concern for businesses here. Analysts expect the Government to respond by enhancing the co-funding share under the Progressive Wage Credit Scheme for 2024-2026 and raising the Local Qualifying Salary.

An additional one-off Central Provident Fund transition offset may also be on the cards to mitigate the impact on business costs from the upcoming scheduled increases in the CPF monthly salary ceiling to $8,000 by 2026.

A day before the Budget, the Ministry of Trade and Industry (MTI) will give its final assessment on the economic progress made in 2023, and the outlook for 2024.

Based on MTI’s advance estimates, the Singapore economy grew by 1.2 per cent in 2023, moderating from the 3.6 per cent growth in 2022. However, 2023 ended on a strong note, chalking up better-than-expected GDP annualised growth of 2.8 per cent in the last quarter.

Hence, analysts expect MTI’s prognosis for 2024 to lean towards an improved economic trajectory on the back of a pick-up in manufacturing momentum, especially for electronics and semiconductors, as well as sustained growth in international visitor arrivals and tourism receipts.

But the ministry, which placed advance estimates of 2024 growth at between 1 per cent and 3 per cent, may also warn of risks to the outlook emanating from rising geopolitical tensions, high interest rates and increasing cost of managing climate change.

The US Federal Reserve – the world’s most influential central bank – continues to push back expectations of imminent rate cuts, while market sentiment in China – Singapore’s top trading partner – remains fragile.

While the World Bank tips 2024 global growth to slow for the third straight year to 2.4 per cent from 2.6 per cent in 2023, the International Monetary Fund is more upbeat at 3.1 per cent.

Ms Ling said most investors now recognise that geopolitical risks can still potentially upset inflation assumptions and expectations of imminent monetary policy easing by major central banks.

“Given the busy elections calendar this year spanning Indonesia, India, and the United States, just to name a few, our client polls highlighted that geopolitics has now overtaken recession and inflation fears from a year ago,” she said.

Ms Liu said as an extremely open and trade-dependent economy, Singapore remains vulnerable to external challenges.

“That said, the recent green shoots in a turnaround in the global tech cycle provide hope for Singapore to stage a decent recovery,” she said.

“We expect the lion’s share of the spending in the Budget to be channelled to areas that continue unlocking Singapore’s medium-to-long-term potential. As such, the Government will likely continue ramping up support in areas like job creation, human capital upskilling, digitalisation, R&D and green transition.”