Singapore had earlier viewed the start of a new decade as an opportunity to rebound from last year’s anemic growth that nearly knocked the city-state into recession. Then came the coronavirus, or Covid-19, curveball.
The global health emergency is quickly evolving into an economic one which has sent Singapore’s political leadership scrambling to devise countervailing stimulus measures to mitigate the fallout, significantly as the nation enters an election cycle.
With the unveiling of a so-called “Unity Budget” earlier this week that includes an S$800 million (US$575 million) virus containment package, Singapore’s prime minister-in-waiting, Heng Swee Keat, appears at first blush to have stuck the landing.
“We will put in every effort to slow down the spread of the virus,” said Heng, who is currently finance minister, upon delivering a more than two-hour budget statement in Parliament.
The 58-year-old is set to become Singapore’s next leader as the ruling People’s Action Party (PAP) prepares to hand power to a cadre of younger ministers soon after the next polls.
With 86 coronavirus cases, the city-state has among the highest number of infections outside of mainland China, the outbreak’s epicenter where over 2,000 have so far died.
Singapore’s meticulous virus detection and containment effort has won international praise from disease experts and the World Health Organization (WHO) for employing sophisticated contact-tracing and disease surveillance.
But as it moves to complement its model public health response with well-crafted fiscal stimulus measures, Singapore again finds itself teetering on a recessionary abyss.
The Ministry of Trade and Industry (MTI) this week slashed the city-state’s economic growth forecast to account for the projected negative impact of the Covid-19 outbreak.
MTI’s gross domestic product (GDP) growth forecast was downgraded to between -0.5% and 1.5%, from an earlier 0.5% to 2.5%.
The outbreak, it said, is expected to affect Singapore’s outward-oriented manufacturing and wholesale trade sectors amid contracting growth in epidemic-hit China, the city-state’s largest trading partner.
While the ministry is not projecting a full-year recession for 2020, Prime Minister Lee Hsien Loong has said a recession could still occur and deemed the economic impact of the evolving virus crisis as already worse than the 2003 Severe Acute Respiratory Syndrome (SARS) outbreak, which killed 33 people in Singapore.
The latest spending plan to combat the Covid-19 threat puts Asia’s richest nation on track, according to government statistics, for its highest overall budget deficit since at least 2005, totaling S$10.9 billion ($7.7 billion), or 2.1% of GDP. It estimated a deficit of $1.7 billion ($1.2 billion), or 0.3% of GDP, in 2019.
Apart from an S$800 million package to counter the virus, the bulk of which will be channeled to the Ministry of Health, a further S$5.6 billion ($4 billion) in economic stimulus measures will go to support sectors impacted by the downturn, as well as helping households cope with the cost of living in one of the world’s most expensive cities.
A S$1.3 billion ($928 million) job support scheme will see 8% wage offsets for 1.9 million local employees, while a S$1.1 billion ($785 million) enhanced wage credit scheme will provide higher government co-funding for wage increases.
Higher cash payouts and scheme enhancements are also in the S$106 billion ($75.6 billion) budget plan.
“The focus still is essentially on the longer term, but obviously in the near term, this is about cushioning the economy from the downside of the coronavirus outbreak by helping companies and therefore, in turn, helping workers and helping households,” said Song Seng Wun, an economist with CIMB Private Banking in Singapore.
The priority is taking care of economy first, Song added, “but, when it comes to election time, job security and money in the pocket will obviously help the incumbent.”
Budgets are closely watched in Singapore for indicators of a forthcoming election season given the PAP’s track record of calling snap polls earlier than its mandate requires.
Generous cash bonuses and subsidy schemes were also handed out ahead of the last two general elections in 2011 and 2015.
“This budget has handouts to almost everyone, and it can create a feel-good effect among the people which is a positive for elections,” Tan Khay Boon, an economics professor at the Singapore University of Social Sciences (SUSS).
The government’s decision to temporarily delay an unpopular goods and services tax (GST) hike from 7% to 9% until after next year – an increase that was originally due to take place between 2021 and 2025 – has been welcomed by opposition parties and will take the heat off the issue at the ballot box, analysts say.
Heng, who is also deputy prime minister, said the decision was reached due to the weaker state of the economy following reviews of revenue and expenditure projections.
Singapore’s economy registered its worst performance in 2019 since the 2009 global financial crisis, with GDP growing 0.7% last year, down from 3.4% in 2018.
Garry Rodan, director of the Asia Research Center at Australia’s Murdoch University, believes political considerations also motivated a change in strategy on the issue.
“The government has not been able to win broad public support for increasing the GST. Meanwhile, opposition parties have portrayed this reform proposal as likely to entrench rather than arrest or reverse rising inequality,” he told Asia Times.
“To try and counter that portrayal, the government has therefore announced measures in the budget to not just delay but also partially contain the impacts of an eventual increased GST on the most vulnerable low-income Singaporeans.”
A GST increase could not be postponed indefinitely owing to fiscal needs, said Heng, who also unveiled a S$6 billion ($4.2 billion) offset package to cushion the blow of the eventual tax increase.
CIMB economist Song believes the GST rise will be introduced after the polls, in 2022 at the earliest, provided that the economy improves.
“When you raise tax against the backdrop of stronger growth and stronger job creation and wage growth, people take it better in stride,” Song told Asia Times. “The coronavirus outbreak and a more uncertain year pushed back the implementation of GST, but it will come just as sure as the sun will rise.”
The next general election must be held by April 2021, but it remains unclear when exactly it will be called. The closely-anticipated release of a report tasked with defining Singapore’s electoral boundaries has, moreover, not been released. Analysts say the Covid-19 outbreak now raises the possibility of a vote closer to the government’s April 2021 end of term.
“It now seems unlikely that the election will be held anytime soon,” said Michael Barr, an associate professor of international relations at Flinders University. “More to the point it would be seen to be irresponsible to call an election in the next couple of months, so they almost certainly will not do it.”
Mustafa Izzuddin, an academic and political analyst, believes the PAP could see a lift when polls take place either in the last quarter of 2020 or in the first quarter of 2021.
“Heng’s political stock and benevolent statesmanship has been enhanced by this budget, which is likely to be the last before the next election,” he told Asia Times.
“This challenging period is a litmus test on the leadership strength and the durability of the social compact between the government and the people,” said the analyst.
“Right now, the government’s handling of the coronavirus situation and passing a lucrative and all-encompassing budget has won it more plaudits than detractors.”
[Reporting from Singapore]