On 22nd Jan 09, Singapore FM proposed a S$20.5b budget for FY2009, incurring an S$8.7b deficit in the process and utilize S$4.9b from the national reserve in order to help Singapore ride over the current global financial crisis. The budget focuses on 5 areas as followed :-
Jobs. A S$5.1b Job Credit Scheme to save jobs. Companies get cash grants of 12% of the first S$2,500 of wages of each employee on the CPF payroll. This is equivalent to a 9% point cut in CPF contribution.
This measure is better than a cut in employer's CPF contribution in order to save job. A cut in employee's CPF contribution might not make a difference as most people rely heavily on CPF money to service their housing loan. This measure benefits companies that can still have profit during recession time ( recession proof or monoploise business ) and incur heavy operating cost normally due to requirement of massive manpower in their operation. With the measure, these companies could further cut down their operating cost and retain stronger cash flow for operation during bad times. Companies like SPH, SingPost, SingTel, StarHub, SIA, ST Engg, SMRT should benefit most from this measure.
Credit. A S$5.8b injection of capital for a special risk-sharing scheme initiative, which will see it sharing up to 80% of new bank lending. This in turn will generate about S$11b of loan for companies.
This measure is to allow banks relax criteria in lending out money to companies especially the SMEs to ride over the bad economy times. Singapore local banks ( DBS, UOB and OCBC ) are already considered safer as compared to foreign banks during this financial crisis because of MAS strict requirement all along and couple with this new measure, this could provide a catalyst for the expected slowth loan growth for the 3 banks in 2009.
Business. A S$2.6b scheme which includes 1% corporate tax cut to 17%, property tax rebate of 40% for industrial and commercial properties for 2009, for property developers, Government extending the period within which residential units must be launched for sale from 2 to 4 years and developers would also be allowed to rent out unsold residential units during this period.
A cut of 1% corporate tax to 17% in general benefit all the companies. At 17%, Singapore corporate tax rate is just 1.5% more than that of HongKong ( HongKong might be cutting their corporate tax in next month budget ), a very competitive rate and together with Singapore geographical position and efficient infrastructure, this could attract MNCs to continue to stay back in Singapore during bad times and might even attract more MNCs to invest here. The 40% property tax rebate for industrial and commercial properties for 2009 is another good news especially for S-Reits as this allow them to pass the rebate to their tenants so as to retain and maintain their constant stream of rental income. S-Reits that benefit from such measure would be Ascendasreit, CapitaMall Trust, CapitaComm Trust, Suntec Reit, Mapletreelog Trust, K-Reit, ARA and Cambridge Industrial Trust. However, one must be careful about the amount of debt and gearing of the above S-Reits as most S-Reits are facing debt maturity this year and required refinancing. Selection of those with gearing less than 40% and strong cashflow ( not based on highest dividend yield ) would be a wise choice. The measure about Government deferment on residential unit must be launched for sales is another good news for property developer. With current economy situation, propery developers have delay launching of their projects and sitting on land banks which was left undeveloped. CityDev should benefit most from this measure as they have quite a number of land banks on hands which they acquired during the SRAS peroid and yet to be developed. Capitaland might not benefit as much as CityDev as most of their investments are in China and Vietnam which not going to benefit from such measure from the Government.
Home. A S$4.4b scheme whereby up to S$20b infrastructure projects to go ahead, including S$1.3b worth that are being brought forward. S$4b will be invested in healthcare infrastructure over the next 5 years.
The infrastructure injection would ultimately benefit construction firms. Firms such as BBR, Yongnam, OKP, Chip Eng Seng, Lian Beng and Koh Bro. These firms have proven record of getting good contracts recently and should be able to clinch those infrastructure contracts when the Government rolls out. A point to select the better one would be the company's cashflow position. The projects might be there but due to high material costs and intense labour costs, these companies might need to borrow from banks in order to fund/bid the projects. As such, construction firms with a strong cashflow would have a higher chance to get the contracts. The healthcare infrastructure investment no doubt should benefit Parkway Life, First Reits and Parkway Holdings.
Family. A S$2.6b scheme whereby 40% property tax rebate for owner-occupied residential properties, 20% personal tax rebate ( or capped at S$2,000 ) and doubled GST credits for households.
This measure is beneficial for individual so that each individual has the cash in hand as a consumer to spend and spur the economy.
The proposed budget as a whole is a very pro-business measures which is bold and extra-ordinary. This hugh budget would not drag Singapore out of recession immediately as current crisis is globally linked but it could help people to ride over the bad times. Further measures might be along the way if the current global financial crisis get worsen down the roads.
