C. TRANSFORMING OUR ECONOMY
C.1. Let me now go on to the first major plank of the Budget: to deepen incentives for restructuring to enable innovation to pervade the economy.
C.2. Our basic approach has been two-fold. First, we have been tightening foreign worker policies in progressive steps since 2010.
C.3. As a result, foreign workforce growth has slowed significantly in the past two years. We can expect further slowdowns in the next two years, particularly in the Services sector, as the Dependency Ratio Ceiling (DRC) cuts that were previously announced take full effect by July 2015.
C.4. The Construction sector has been the exception. While we are not making further moves to tighten foreign worker inflows for the economy at large in this year’s Budget, we will make further efforts to encourage the Construction sector to retain skilled workers and to implement manpower-saving technologies. I will speak more on this later.
C.5. The second prong in our restructuring strategy has been to provide firms with strong support for every investment that can improve productivity.
a. This year, companies will continue to benefit from the three-year Transition Support Package that we introduced last year. It is a major package of support, now estimated at about $7.3 billion. It has been very well utilised in the first year of rollout. In particular, strong wage increases over the past year will boost WCS payouts at the end of March 2014 to around $800 million, significantly more than originally estimated.
b. We are also seeing higher take-up rates for the existing Productivity and Innovation Credit (PIC) scheme. Two out of three SMEs with turnover of more than $1 million have claimed benefits.
c. Besides these broad-based measures, we are also providing targeted help to firms investing in innovative ideas through the Innovation and Capability Voucher (ICV) and Capability Development Grant (CDG) schemes.
Individual Players are Showing What is Possible
C.6. As I mentioned earlier, change is happening on the ground. Even within our ‘old economy’ sectors, individual players are doing things quite differently. They show us that change is possible and how, if we scale up such changes across whole industries, we can achieve a major impact in overall productivity. I will give just three examples of such firms, each of which is operating in industries which have had relatively low productivity.
C.7. First example is in security: Oneberry Technologies.
a. Using its proprietary system of intelligent cameras and surveillance software in place of traditional security guards, Oneberry provides security cover with no manpower on site. Instead, staff at its central command centre receive instant alerts when there are intrusions and respond with alarms and warning announcements on-site, or by alerting the police.
b. This helps Oneberry’s clients to significantly cut down on security manpower. SCAL Kim Chuan dormitory, one of its clients, managed to save $300,000 in three years as a result.
c. This technology-driven business model has also enabled Oneberry to more than double its revenue with only one-third increase in manpower.
C.8. Second example: Marcella, a menswear retailer.
a. Marcella has used technology to produce bespoke shirts at off-the-shelf prices.
b. It developed software to enable its sales staff to translate customers’ measurements automatically into draft designs. As more customer data is collected, the software makes constant improvements in creating fitting designs. This has reduced the need for alterations.
c. Marcella also uses laser technology to cut fabric to precision in its factories for better accuracy and to reduce wastage.
d. With this cost-efficient business model in hand, Marcella is opening its first retail outlet abroad, in New York, in the middle of this year.
C.9. Third, moving on to the F&B industry, let us now look at Genki Sushi.
a. The Singaporean-owned franchise has invested in a system that has reduced the number of staff serving tables by about 85%, and cut waiting times for orders by half.
b. Orders are placed using iPads and conveyed directly to the kitchen. ‘Trains’ shaped like the Shinkansen are then used to serve food straight to its diners’ tables.
c. In addition, every table has a mechanised plate-clearing system which allows customers to slip empty plates into a slot to be sent directly to the stewarding area.
d. The technologies have not only reduced the need for staff but have become a novel dining concept that attracts more customers.
C.10. These are different examples from different industries, but each shows us what is possible. We must spread this willingness to innovate and make breakthroughs.
Raising the Game in Restructuring
C.11. We will therefore provide sharper incentives in this Budget to support significant efforts in business transformation and upgrading. Our support for companies will be along five thrusts:
a. First, we will extend and deepen support for businesses to invest in innovation and skills so that they can sustain and step up their restructuring efforts;
b. Second, we will give a stronger and more specific push to the piloting and scaling-up of ICT solutions that can help to transform whole sectors;
c. Third, we will catalyse investments in growth enterprises to facilitate their growth and expansion;
d. Fourth, we will support companies in their efforts to internationalise and grow their brands in the global market;
e. Lastly, for the Construction sector, we will put in place a series of measures to help players meet the challenge of raising construction productivity.
Supporting Innovation and Skills
Extension and Enhancements to the Productivity and Innovation Credit Scheme
C.12. The Productivity and Innovation Credit (PIC) scheme is due to expire in Year of Assessment (YA) 2015. There have been many calls for its extension. I have decided to extend the PIC scheme for another three years until YA2018. This extension will cost the Government a total of $3.6 billion.
C.13. I will also introduce a “PIC+” scheme for SMEs, to help firms that are making more substantial investments to transform their businesses. Under the current PIC scheme, the expenditure cap is $400,000 per year for each qualifying activity and the cap can be combined to a total of $1.2 million across three years. I will raise the expenditure cap to $600,000 from YA2015. This means that SMEs can now claim tax deductions for up to $1.8 million6 in expenditure. (Refer to Annex A-5.)
C.14. To illustrate, take the example of a medium-sized logistics company planning to invest in an automated storage and retrieval system at a cost of $1.6 million. Under existing PIC rules, the company can claim enhanced tax deductions on the cost capped at $1.2 million. With the new PIC+, it can now enjoy deductions on the full $1.6 million expenditure and expect total tax savings of about $530,000.7
Extension of Tax Incentives for Innovation
C.15. To continue encouraging private R&D, we will extend the 50% additional tax deduction on qualifying R&D expenditure for another 10 years till YA2025, and the further tax deduction administered by the EDB for another five years till 31 March 2020. (Refer to Annex A-5.)
C.16. We will also extend the writing down allowance for cost incurred to acquire qualifying Intellectual Property Rights for another five years till YA2020. (Refer to Annex A-5.)
Industry Transformation through New Industrial Spaces
C.17. We will create new industrial spaces that cluster companies within the same industry. SMEs will benefit from lower costs through the consolidation of operations, pooling of resources and aggregation of demand for delivery and other services.
a. For instance, JTC’s Food Hub concept will feature an integrated cold room-warehouse shared facility operated by a third party provider who will also provide logistics services. This will not only lower the capital investments needed by SMEs – as they no longer need to invest in their own cold rooms – but also enable them to benefit from more efficient supply chains.
Extension of the Land Intensification Allowance
C.18. In addition to these cluster strategies, we will continue to encourage individual businesses to maximise land use. We will renew the Land Intensification Allowance (LIA), due to expire next year, for five years to 30 June 2020. We will also extend the LIA to the logistics sector as well as to businesses carrying out qualifying activities on airport and port land. (Refer to Annex A-5.)
Promoting Continuing Education and Training
C.19. We are undertaking a major review of our Continuing Education and Training (CET) system to support the up-skilling of our workers on a continuous basis and the transformation of our economy. The review will be completed later this year. As more funds will be needed for the expansion of our CET system, I will top up the Lifelong Learning Endowment Fund (LLEF) by $500 million, bringing the total fund size to $4.6 billion.
Adopting ICT Solutions to Increase Productivity
C.20. Our second major thrust is to catalyse the adoption of ICT especially in our SME sector.
C.21. ICT is transforming almost every industry internationally. While the Public Sector and our larger corporations have been actively leveraging ICT, we have to help our SMEs step up adoption of ICT solutions.
C.22. We will give this a major push over the next three years. We will launch an ICT for Productivity and Growth (IPG) programme, comprising three key initiatives which I will elaborate on in turn.
Scaling-up Proven ICT Solutions
C.23. The first concerns proven ICT solutions. Over the past three years, IDA has worked with trade associations and the ICT industry to develop and deploy sector-specific solutions under the iSPRINT scheme. In F&B, for example, more than 50 F&B operators have adopted a wireless integrated restaurant system that has relieved their service staff from manual and repeated tasks.
C.24. We target to extend the reach of these sector-specific proven solutions from the existing 500 SMEs to another 10,000 SMEs over the next three years. We will subsidise 70% of the costs of ICT products and services. (Refer to Annex A-2.)
Piloting of Emerging Solutions
C.25. Second, we will encourage first movers, who can pilot emerging technology solutions that have the potential to transform businesses. These can, for example, include innovations in sensors, data analytics and robotics.
C.26. Over the next three years, we will support 80% of the qualifying costs for firms that are implementing innovative solutions that are new to Singapore. The support will be capped at $1 million per participating firm. (Refer to Annex A-2.)
Enabling High-Speed Connectivity for Businesses
C.27. Third, we will promote high-speed connectivity for SMEs. It is difficult for SMEs to take full advantage of cloud computing and data analytics solutions without high-speed Internet access.
C.28. We will subsidise SMEs’ fibre broadband subscription plans of at least 100 Mbps (Megabits per second) and provide support for them to implement Wireless@SG services at their premises. (Refer to Annex A-2.)
C.29. We will also ensure that more buildings have facilities to bring fibre broadband to their business tenants. We will subsidise building owners for up to 80% of the costs of new in-building infrastructure, capped at $200,000 per building. (Refer to Annex A-2.)
a. As this is not a permanent measure, building owners are strongly encouraged to take this up within the next three years.
b. IDA will consult the industry and building owners to determine the most optimal way to structure the subsidy.
C.30. These initiatives will cost $500 million over the next three years.
Catalysing Investment in Growth Enterprises
C.31. The third thrust in our efforts to promote industry transformation will catalyse financing for companies at various stages of growth so that they can take full advantage of growth opportunities.
Co-Investment Programme Phase II
C.32. SMEs in the growth and expansion stage often need a boost in financing to achieve sufficient scale and become globally competitive. In 2010, the Co-Investment Programme (CIP) was launched to catalyse patient growth capital for Singapore-based enterprises, through co-investing with the private sector.
C.33. The Government set aside $250 million for the first phase of the programme, of which approximately $160 million has been deployed. This has already catalysed over $500 million of investments from private sector players, or over three times of the Government’s outlay.
C.34. In view of the good take-up to date, we will launch the second phase this year with the Government providing an additional $150 million to match private sector investments. The CIP will continue to focus on investing in growth-oriented Singapore SMEs and providing the patient capital to help SMEs that need more time to execute their expansion and internationalisation plans. (Refer to Annex A-3.)
C.35. The additional capital will be allocated to two funds:
a. SME Co-Investment Fund II. Similar to the existing SME Co-Investment Fund, this second fund will make direct equity investments into companies alongside other private equity investors.
b. SME Mezzanine Growth Fund. This is a new fund that aims to meet the demand from SMEs for mezzanine financing, a hybrid debt-equity instrument. It provides a more flexible financing option for SMEs that do not wish to dilute their equity but face challenges in increasing their borrowings from traditional banking sources.
Enhancement of the Micro-Loan Programme
C.36. In addition, young SMEs often face financing challenges that hinder their potential growth. They lack a track record and are inherently more risky investments, making it difficult for them to obtain loans from banks. We thus launched the Micro-Loan Programme (MLP) in 2001, with the Government taking on some of the risk for small loans below $100,000, to encourage banks to lend to our small and young businesses.
C.37. The Government will take on more of the risk, to spur lending to young SMEs. SPRING Singapore will raise the government risk-share in the MLP for young SMEs (firms which have been registered for less than three years) from 50% to 70%. The enhancement is expected to catalyse an additional $32 million in loans for FY2014 and FY2015. (Refer to Annex A-3.)
Crowdfunding for Start-ups
C.38. We are also studying the potential for equity crowdfunding, which is emerging in some countries as an alternative source of financing for start-ups and small companies. MAS and SPRING are looking into an appropriate regulatory framework for such new business models.
Seizing Growth Opportunities Overseas
C.39. Our fourth thrust concerns internationalisation. Take-up of IE Singapore’s schemes to help companies internationalise has grown over the past year. We will make targeted enhancements to further assist companies in seizing opportunities overseas.
Financing for Internationalisation
C.40. First, we will raise the maximum loan quantum supported by the Internationalisation Finance Scheme (IFS) from the current $15 million to $30 million. This will boost debt financing for companies to make additional asset investments abroad or fund working capital expenses for secured overseas projects. With this enhancement, the IFS is expected to catalyse up to $500 million in loans over the next two years for companies pursuing internationalisation. (Refer to Annex A-4.)
Building Capabilities for Internationalisation
C.41. Second, we will enhance the Global Company Partnership (GCP) Programme by providing additional support in two areas:
a. We will raise the support level for pilot and test-bedding projects from the existing 50% to 70%. This is to assist our companies to establish track records and prototype new products to break into overseas markets.
b. We will also expand support for staff attachments in overseas markets.
C.42. This should benefit some 200 companies over the next two years. MTI will announce more details at the COS.
The Construction Sector
C.43. Our fifth and last thrust has to do with the more intensive efforts needed to upgrade the Construction sector.
C.44. Transforming the industry requires change across the whole construction eco-system: from ensuring that developers and architects create designs that allow for more efficient downstream construction operations; to ensuring adequate supply of pre-fabricated components; and to allocating land near the site for storage needs during the construction stage.
Upstream Measures to Tackle Construction Productivity
C.45. We will take a few initiatives in this budget to encourage change across this ecosystem.
C.46. First, for selected Government Land Sales (GLS) sites, we will mandate the use of productive technologies such as Prefab Prefinished Volumetric Construction and Prefab Bathroom units in the tender conditions. JTC will also stipulate a minimum percentage level of prefabrication as part of tender conditions for Industrial Government Land Sales (iGLS) sites.
C.47. In addition, we will incentivise developers to adopt productive technologies in developments on non-GLS sites.
C.48. We will continue to increase the legislated buildability-scores (B-score) and constructability-scores (C-score) for projects.
a. From September this year, private projects that are outside of the GLS programme will need to meet the same higher standards as public sector projects and private sector projects on GLS/iGLS sites. This is expected to reap 9% to 14% in manpower savings on such projects.
b. We will also require standardised floor heights and building components such as drywalls for new projects.
C.49. The public sector will also take the lead by using productive technologies more aggressively to provide a demonstrative effect, and catalyse mass demand. Development agencies such as LTA, JTC and HDB will continue to adopt more advanced technologies such as shield tunnelling, and optimise the use of precast and prefabricated components in their upcoming projects.
C.50. For government construction projects, tender evaluation will favour firms with good track records in adopting productive construction designs and methods.
C.51. More details on these upstream measures will be provided by MND at the COS.
Targeted Foreign Worker Policies for Construction
C.52. We will also introduce further calibrated measures to discourage construction firms from over-reliance on lower skilled foreign workers. First, we will increase the foreign worker levies for construction Basic Skilled Work Permit Holders.
a. The levy for Basic Skilled or R2 Work Permit Holders employed within Man-Year Entitlement (MYE) will be increased from $600 to $700 in July 2016. We are announcing this change in the Construction sector two years in advance because of the significant pre-planning needed in such projects.
b. Levies for Higher Skilled or R1 Work Permit Holders will remain unchanged to further encourage construction firms to opt for more skilled foreign workers.
C.53. In the longer term, we will be looking into mandating a minimum proportion of R1 Work Permit Holders at the firm level to improve the skill profile of the foreign workforce.
C.54. We will help construction firms retain workers with better skills and experience. We will introduce a new Market-Based Skills Recognition Framework to complement the existing upgrading pathway which requires Work Permit Holders to pass a skills certification test to achieve Higher Skilled status.
C.55. Under this new framework, Basic Skilled workers who have worked in Singapore for at least six years and who earn a salary of at least $1,600 will be allowed to upgrade to Higher Skilled or R1 status.
C.56. Many firms have provided feedback through the Singapore Business Federation’s SME Committee about the need to retain experienced workers who have acquired deep skills and valuable knowledge on the job.
C.57. We will extend the maximum Period of Employment for R1 Work Permit Holders from non-traditional sources (NTS) and the PRC from 18 to 22 years.
C.58. This extension of Period of Employment will also apply to the Marine and Process sectors.
C.59. More details will be released by MOM.
Monitor Foreign Workforce Growth in Other Sectors
C.60. We will continue to closely monitor the growth of foreign manpower in other sectors, to ascertain whether further tightening measures, including levy increases, are needed for 2016 and beyond.
Last updated on 21 Feb 2014