Strengthening Singapore's competitive edge with Budget 2022 has been saved
Strengthening Singapore's competitive edge with Budget 2022
Written by Dion Thai, Global Employer Services Tax Partner and Jod Gill, Tax Director. The below are their personal views and may not represent the views of Deloitte.
As published in The Business Times on 10 February 2022.
COVID-19 and other significant headwinds continue to impact economies across the world but Singapore's economic recovery thus far is stronger than expected. According to figures released by the Ministry of Trade and Industry in January, Singapore's gross domestic product (GDP) grew 5.9% year on year in the fourth quarter, bringing full-year growth for 2021 to 7.2%, the fastest since 2010.
This growth, coupled with high vaccination rates, provides a strong foundation for Budget 2022, which should encourage the authorities to double down on key policy in areas that will strengthen Singapore's competitive advantage and social compact, as well as prepare the country for a brighter and greener future.
Keeping borders open
The fourth quarter of 2021 saw a marked change in recent border policy, with the introduction of Vaccinated Travel Lanes to several countries, and quarantine restrictions being eased to allow individuals to serve stay-home notices (SHNs) at their homes unless travelling from high risk locations.
The global outbreak of the Omicron variant has inevitably increased case numbers in Singapore. However, closing the borders to visitors from countries with high COVID-19 cases would undoubtedly affect Singapore's reputation and connectivity with the rest of the world, which would also inevitably impact the country's growth prospects in 2022.
As businesses look to Budget 2022 for direction, they are hoping it will contain clear directives such as keeping borders open wherever possible in order to boost economic growth, and to provide businesses with the stability they need to plan their operations, including their talent needs.
The future of work
Two years into the pandemic, remote work has proven to be the new norm. Cross-border remote work in particular has added an entirely new talent option to the workforce, creating opportunities and threats for employers, employees and governments around the world.
Singapore is a regional hub used by many large global employers to remain competitive and attract global talent. As a result of the tightening labour market and immigration policies, many employers are already considering hiring skilled foreign talent remotely outside of Singapore.
Such scenarios are complex from an employment and tax perspective and could potentially have an eroding impact on Singapore's tax base. It would be helpful if the Inland Revenue Authority of Singapore (IRAS) could provide a clear picture of the tax implications of such work arrangements in the upcoming Budget.
Additionally, the loss of these roles may also have a wider societal impact as Singapore employees may have less opportunities to learn such skills, not to mention the significant economic impact of losing the domestic spending of these roles.
Singapore's population shrank by a record 4.1% in 2021, with the decline driven largely by a 10.7% decrease in its non-citizen/permanent resident population. Immigration policies will continue to be a sensitive topic, but the Singapore Budget needs to ensure that businesses can continue to attract and employ the best talent in order to avoid the issues highlighted above.
Long-term solutions to the talent issue could include hiring inexperienced (or less experienced) local staff and training them over time, or reconfiguring job roles accordingly. Retraining and upskilling are necessary regardless of the scenario. An extension of the Jobs Growth Incentive scheme, SkillsFuture and Adapt & Grow initiatives, supported by further measures in Budget 2022, would be helpful in the aforementioned efforts.
Domestically, hybrid work arrangements have also become commonplace. Many employers have reconsidered their needs for office space during the pandemic and downsized accordingly. They have also adopted permanent hybrid work policy, giving employees the flexibility of continuing to work from home, while still maintaining an acceptable level of physical presence in the office.
Budget 2022 should include measures that encourage employers to adopt a hybrid work policy in order to maximise innovation and attractiveness of roles, particularly in highly competitive sectors, and to be able to continue attracting the best international talent. More than half (53%) of over 200 companies in Singapore surveyed by HSBC last year about the future of work pointed to a hybrid work policy as a way to promote innovation.
Strengthening our social compact
Overwork, exhaustion, and the inability to properly disconnect from work are some of the main reasons why turnover is so high in many sectors, according to the Microsoft Work Trend Index for 2021. Among the Singapore workers, 49% feel exhausted and 58% feel overworked and so, for many people, it may be easier to reset than to renegotiate how they work.
Many employers have invested significantly in scaling employee welfare programmes, but this has not been the case across the board. According to Ceridian's 2022 study, only 33% of Singapore respondents said their employers provided flexible schedules, 30% received employee assistance programmes, while 23% said they didn't receive anything to relieve mental health and wellness problems—a significantly higher figure than the global average of 19%.
Budget 2022 should provide a further boost to employers who wish to invest in such programmes to strengthen our social compact. As the current legislation is vague and silent on the provision of such benefits, it would be helpful for IRAS to provide clarity on the tax treatment of such benefits.
Employee mental health is critical, especially in light of the events of the past two years, so it seems counter-intuitive if such benefits are taxable if employees utilise them.
Given that the impacts from the green transition would vary significantly between different sectors, support measures to ensure Singaporeans—whether they are undergraduates or mid-career professionals—have the opportunity to acquire the relevant skill sets would be helpful. This would support the implementation of Singapore's Green Plan. Budget 2022 should also provide employers with more available green financing, while also increasing green jobs and strengthening corporate accountability.
Preparing Singapore for a brighter future
The stronger than expected economic recovery and the high vaccination rate provide an opportunity to take bold measures in order to strengthen Singapore's competitive advantage in the region. Budget 2022 provides such a chance, and above all, businesses will want clarity on how the aforementioned issues will be addressed in order to make significant talent, sustainability and investment decisions that will continue to benefit Singapore in the long run.