The article is published in The Business Times on 24 February 2015.
In many ways, this year's Budget continues the push to transform Singapore's economy. The goal is quality growth and sharing the fruits of that growth more evenly. Most Singaporeans have something to gain from this year's budget. Examples include enhanced subsidies for school-going children, greater contributions for workers, and subsidies for low and middle-income workers.
But the key plank in this year's budget has to be the SkillsFuture initiative. It is a significant undertaking indeed, with the government setting aside S$1 billion per year for the next five years, aimed at helping Singaporeans acquire deeper skillsets valued by industry.
SkillsFuture complements the ongoing productivity drive. While the Productivity and Innovation Credit (PIC) and other productivity initiatives aim at boosting capital productivity, SkillsFuture raises labour productivity by building capacity in our workforce in a way that is more closely matched to employer requirements. This investment in skills upgrading is what will sustain real wage growth, as global competition intensifies and technological advances challenge a growing range of jobs.
This long-term investment in people and their skills is what will shift us from value-adding to value-creating.
The government has recognised that in value creation, every form of innovation counts and is worthy of support. SMEs venturing to innovate are being promised support, whether they are developing a new process or brand, developing online marketing or leveraging Big Data. Not just "revolutionary" innovative activities, but "evolutionary" ones now count too, as far as applying for incentives under the Capability Development Grants (CDG) goes.
While pleased with this development, we naturally feel that this does not go far enough as this would only benefit very small projects (those below S$30,000). It would have made a bigger impact to encourage pervasive innovation through a broad-based tax incentive scheme for all types of innovative activities.
As this budget recognises, externally oriented companies and sectors tend to be more markedly productive than domestic-oriented ones. More SMEs are also thriving overseas, overcoming the constraints of the domestic economy. New technologies are also enabling smaller players to compete effectively with larger companies; these include technologies such as digitisation and crowd-sourcing. The move to provide more support to internationalising SMEs is thus a welcome move. All activities supported under IE Singapore's grant schemes will be raised from 50 per cent to 70 per cent for three years. Double tax deduction for internationalisation will now also be extended to cover salaries incurred for Singaporeans posted overseas. The new International Growth Scheme to help Singapore businesses internationalise is equally welcome, providing concessionary tax rates to Singapore businesses, and is timely with the implementation of the Asean Economic Community later this year.
Besides internationalisation, companies can also make large productivity gains by joining hands with like-minded ones within the same industry. Industry collaboration is particularly important to SMEs to build skills in their people, and tapping industry-wide innovation. The Sectoral Manpower Plans and SkillsFuture Leadership Development initiative are thus crucial in this regard.
Overall, this is a most forward-looking budget, aimed at building skills and capacity that will bring our economy to the next frontier. It will build a new generation of innovative and more globally oriented businesses. Still, it would have been sweeter had it also included an initiative to honour our pioneering businesses that have contributed significantly to the Singapore economy as part of SG50. This would have gone a long way in inspiring more businesses to emulate successful pioneer ones in their perseverance and vision.
The article is contributed by Tay Hong Beng , Head of Tax at KPMG in Singapore and Harvey Koenig, Tax Partner at KPMG in Singapore. The views expressed are their own.