ALTHOUGH the government is spending billions to preserve jobs for Singaporeans amid the Covid-19 crisis, Deputy Prime Minister Heng Swee Keat said business leaders here acknowledge that the government cannot be expected to shore up companies forever.
He described their viewpoint as a realistic one, following his most recent meeting with the Future Economy Council and the Singapore Business Federation.
While the government is supporting businesses through the crisis, notably through the Jobs Support Scheme, these measures are set to taper off after about 10 months.
"At the end of it, there are some business models that will be broken. This is why in the Fortitude Budget (on May 26), I urged businesses to really rethink their business models, because it is not just the impact of Covid-19, but Covid-19 has also accelerated a lot of the structural changes which are already happening," he said in an interview with ST associate editor Vikram Khanna for The Straits Times and The Business Times on Monday.
These structural changes include a reshaping of globalisation, the digitalisation of businesses and a robotic revolution in the labour market.
Businesses that do not pivot quickly to these new growth areas could be in trouble, said Mr Heng, who is also the Finance Minister.
In the meantime, a large part of the government's economic support during this crisis is focused on people and workers. This means supporting them in terms of expenses, keeping their jobs for as long as possible and pushing for traineeship and skills upgrading.
"We have to prepare for the change because the structural changes will come faster than we imagined," he said, adding that the countries and people most prepared for these structural changes will be in a far better position.
This is why he is glad that Singapore began its industry transformations in 2016, he said. While there were businesses that were in denial about needing to change at that time, more have been getting on board.
He said he is also encouraged by the enthusiasm and creativity of venture capitalists and startups, which have been looking to new growth areas and are trying out new business models.
Mr Heng also said his key focus is on strengthening the economy, and this applies even as the government is looking to rebuild Singapore's fiscal position and reserves.
In supporting Singaporeans and businesses through the pandemic, the government has had to draw S$52 billion from past reserves to fund the four economic relief packages that will cost nearly S$100 billion.
"If our economy bounces back, faster and stronger, then revenue will grow, whether it's corporate income tax, GST (Goods and Services Tax), personal income tax or stamp duty," Mr Heng said.
He noted that there has been a decline in GST and stamp duties, with people spending less and buying fewer properties during the pandemic.
Another source for Singapore's reserves comes from land sales, Mr Heng said, and these will help to rebuild the reserves when they resume.
"Probably the most important part of it is our investments by GIC, Temasek and MAS. Each of our investing entities has a clear mandate, and I am very encouraged that every one of them has been reviewing this investment strategy over the years - we have accelerated over the last few years.
"In this period of change, I think being able to get our decisions right will make a huge difference," he said.
He added that global interest rates are extremely low at the moment, which means that Singapore should accelerate long-term infrastructure projects and make full use of this current condition once work is allowed to resume. However, he cautioned against using spending as a way to get out of trouble, or borrowing because rates are low.
While the government is exploring the possibility of borrowing for longer-term infrastructure developments, Mr Heng said these will have to be economically justifiable and bring economic or social return.
"I've seen during the Global Financial Crisis, how countries that got into problems were trying to spend their way out of trouble by building roads nowhere, by building airports nowhere. Those will eventually have to be paid for by future generations of taxpayers, and that will not be fair," he said.
Asked if he would consider increasing the contribution from net investment, Mr Heng said this will have to be studied carefully, although he does not see a need at the moment as the formula has been "quite robust".
He noted that the needs of the real economy and the movements of the financial markets are not "perfectly correlated", as shown by the faster recovery in the latter.
"We are in a situation where you have negative rates all over the world, and therefore, there is a scramble in the search for yield and markets are moving up because of that.
"But at the end of the day, I'm sure markets cannot defy gravity. It has to be linked back to the real economy, and if the real economy is going to be in the doldrums for a while, I don't think markets can remain buoyant and get detached," he said.
In turn, how the real economy performs will depend on the trajectory of the pandemic, said Mr Heng, adding that global cooperation is the most important thing in the world's fight against Covid-19.
- Firms should rethink their business models because Covid-19 has accelerated structural changes that will break existing business models.
- The government will continue supporting Singaporeans, save jobs and push for skills upgrading.
- Strengthening the economy is key to growing revenue through taxes, stamp duties and land sales.
- Borrowing is only for longer-term infrastructure development, not current expenditure.