2012 budget plan accelerates growing pains

Singapore businesses have been saddled with tighter foreign worker measures and higher CPF contributions.

These changes, which can be costly for SMEs to implement especially in the current difficult environment, are deemed essential by the Singapore government for restructuring the economyin the long run.

OCBC believes the short-term pain has been offset somewhat due to increased cash assistance from the government, but will it be enough to get them through?

Here's more from OCBC:

Main thoughts on the FY12 Budget
The FY12 Budget took a very balanced approach for a post-elections budget, and clearly illustrates that fiscal prudence remains the key foundation stone for Singapore, especially in this age where the sovereign fiscal excesses of selected nations are under intense market scrutiny. Although the planned neutral fiscal position does not focus on providing a short-term countercyclical boost to the economy, it concentrates on positioning both Singapore companies and society for the future.

A carrot-and-stick approach to business restructuring and upgrading?
Many of the businesses’ near-term wishlist were answered while addressing Singapore’s longerterm challenges of upgrading and restructuring the economy. Athough we were not anticipating any easing of the foreign worker policy, it may come as a shock to businesses that a calibrated reduction in the Dependency Ratio Ceilings (DRC) in the manufacturing and service sectors was introduced. Moreover, the government said that they may have to consider further increases in the foreign worker levy beyond July 2013, which could be a hint of further things to come. This was also in addition to the hike in the employer CPF contributions for older workers, which would add to higher manpower costs.

Short-term pain for medium-term gain
That said, the implementation of further measures to reduce the inflow of foreign workers was actually balanced with significant assistance to help SMEs adjust to the changes ie. short-term pain for medium-term gain. Notably, this included the cash windfall from the one-off cash grant to help companies offset higher business costs which is pegged at 5% of their YA12 revenue capped at $5,000, as well as the Special Employment Credit (SEC) to help attract and retain older workers, and generous enhancements to the Productivity and Innovation Credit (PIC) scheme to provide a 60% cash payout for up to $100,000 of firms’ PIC expenditures.

Financial help to businesses to offset additional foreign worker levies
In addition, SMEs will also receive enhanced training support in the form of 90% course subsidy,  increased absentee payroll cap from $4.50 to $7.50 an hour, including for the self-employed persons, and increased grants for capability development. It is important to note that the total help to businesses is estimated at about $1.4 billion this year, which more than offsets the additional amount that they have to pay due to increased foreign worker levies. In conclusion, the theme “An inclusive society, a stronger Singapore” clearly sums up the farsightedness in the policy focus, namely by looking beyond the current economic headwinds to focus on the challenges of an evolving and restructuring economy, and more importantly, the need for a fair and inclusive society to underpin the growing Singapore economy.