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Opening Remarks By Mr Tharman Shanmugaratnam, Minister For Finance, At The Press Conference On Business Financing And Manpower Upgrading Measures, 21 November 2008, 930 Am, The Treasury

21 Nov 2008

1. Will start by giving an idea of what Budget 09 will focus on. My colleagues will then take over to talk about the two specific measures being announced today on manpower training and business financing.

2. Government is running a much larger fiscal deficit this year than was budgeted in Feb 08:

a. Additional spending on households -- enhanced Growth Dividends and U-SAVE payouts, and new Marriage and Parenthood measures

b. Higher costs of infrastructural projects

c. Revenues could also be dampened by lower stamp duty and COE collections

d. Based on all measures to date, the budget deficit for FY08 is expected to be much larger than the $800m originally estimated - probably at least three times larger.

2009 Counter-Cyclical Package

3. The package of measures to be announced in the Budget in Jan 09 will have a further, significant expansionary impact

a. The measures will lead to substantially larger government deficits in both FY08 and FY 09. This is because part of the package will be implemented in 1Q09, which falls within FY08[1].

b. The main aim of the package is to help businesses with their costs and cash flow:

    1. Govt will provide businesses assistance to help them meet their key costs, especially manpower and rental costs.
    2. This will help to keep business viable, and thus also save jobs. The assistance on manpower costs will especially make it easier for firms to retain workers rather than retrench them.
    3. Aiming at a broad base of companies and in all sectors, so that impact is felt across the economy. Measures for both small and large companies.
    4. Early implementation - starting from 1Q09, before start of the next fiscal year.
    5. These cost-relief measures will be on top of what we have already implemented for businesses:

(1) The 2% Corporate Income Tax cut and increase in corporate tax exemption threshold announced in 2007; the impact of these tax cuts on companies' cash flow has been seen from this year

(2) Various tax incentives for businesses were provided this year to support businesses upgrading their premises and those doing R&D.

c. The package will also provide relief to households:

    1. Help households tide through the tougher times ahead
    2. Help all households, but with more help for middle and lower income groups.

d. Budget will also increase Government expenditures significantly in 2009.

Two reasons:

    1. Countercyclical measures: For eg, some Ministries are bringing forward manpower hiring plans (e.g. MOE, MOH and MHA).
    2. Step up spending from 2009 as part of medium to long term plans: transport infrastructure, healthcare expenditure, Marriage and Parenthood measures, national broadband network

e. Overall, the emphasis of the Jan 09 counter-cyclical package will be on providing assistance to businesses on costs.

f. While businesses may also benefit from the increase in domestic demand as a result of the Government package, the impact of this will be limited by the fact that we are a small and very open economy, with high import content for most spending. This is unlike large economies like the US or China.

g. What I have just set out provides a brief idea of the counter-cyclical package that will be in Budget 09.

4. We will now go on to the immediate measures as indicated by PM last Sunday.

    1. These address the most important immediate needs, prior to the Jan 09 Budget:
    2. (1) Business financing measures to help good companies which are affected by the global credit crunch

      (2) Manpower upgrading measures ramping up training to preserve employment and build up capacity to take advantage of the eventual upturn

    3. MND had earlier announced measures to help the property market
    4. My colleagues will now take over to explain the two measures


[1] The coming counter-cyclical package, together with the two measures being announced today, have not been included in the estimates for FY08 given in para 2. The revised outcome for FY08 will be announced in the Budget Statement in Jan 09.