How did Singapore pull off its US$19 billion coronavirus Jobs Support Scheme?Mar 11, 2021 | 🚀 Fathership
When Singapore began its coronavirus lockdown last April, little did Prashant Somosundram know that it would be 16 weeks before The Projector, the independent cinema he runs, would be allowed to reopen – and even then only at reduced capacity.
While most workplaces across the city state were forced to shut for the eight-week “circuit-breaker”, cinemas faced even greater restrictions. The Projector’s relatively small size, meanwhile, meant it seemed less well-placed than its larger competitors to weather the storm.
Somosundram, the general manager, estimates that without any income over that period he would have needed to cut up to half of his manpower cost either by reducing hours or cutting pay salaries cuts just to keep the business alive. He already runs a lean team of 14 workers.
Thankfully, the government stepped in with a wage subsidy scheme that covered up to 75 per cent of the first S$4,600 (US$2,480) earned by each of the cinema’s Singaporean and permanent resident members of staff every month.
This meant Somosundram could keep on all his workers with just management staff taking pay cuts. It also gave the management breathing room to think of ways to make revenue.
“For us, the help was critical,” he said. “And we didn’t know when we could reopen, so from a business continuity point, it gave us the mental space to not focus on those elements and figure out what our new pivot would be and that’s why we had the capacity to develop our streaming platform, Projector Plus.”
Projector wasn’t the only firm to benefit. In fact, the Jobs Support Scheme offered to subsidise, to some degree, the job of every single Singaporean and permanent resident in the country, with the exact amount dependent on which particular industry they were in and how badly it was affected by the pandemic.
Finance Minister Heng Swee Keat last week detailed the numbers behind the scheme: in the past 17 months more than S$25 billion had been committed to the scheme, aiding more than 150,000 employers.
What’s more, Heng said he would continue to help even as the economic picture improved. While 2020 was Singapore’s worst recession since it gained independence in 1965, with the economy contracting 5.4 per cent, it is expected to post growth of 4 to 6 per cent this year.
“Even as our economy recovers gradually and some sectors grow well, some other sectors remain stressed. I will tailor support to maintain resilience and support growing areas,” said Heng, who is also the deputy prime minister.
In effect, Singapore has pulled off the sort of wage subsidy scheme many other countries can only dream of. How?
Analysts suggest it’s a mix of factors that include its small size (which allowed an efficient roll-out), its vast reserves, and the prescience of a government that launched its scheme before other nations.
BEATING THE NEIGHBOURS
Heng introduced the Jobs Support Scheme back in February. In its earliest version it offset 8 per cent of wages, capped at the first S$3,600 a month, for three months. As the pandemic worsened, the figure grew – hitting between 25 and 75 per cent of wages for every employee in every industry (capped at the first S$4,600 a month) depending on the industry, then expanding to 75 per cent during lockdown, then tapering to 25 to 75 per cent as society opened back up.
Analysts say such relentless support is simply a luxury most other countries can’t afford.
Malaysia, for example, also has a wage support scheme, but it provides just 600 ringgit (US$150) per month for workers earning below 4,000 ringgit.
As of October, the programme had cost the Malaysian government 12.5 billion ringgit – roughly US$3 billion compared to the US$19 billion Singapore had spent – and helped 2.7 million workers and over 330,000 employers.
Thailand paid half of workers’ salaries, capped at 15,000 baht (US$500), for those registered under its social security system. Singapore’s scheme even dwarfed that of Hong Kong. The Chinese city had allocated HK$81 billion (US$10.4 billion) to its scheme, which had paid a maximum of HK$9,000 per month from June to August and September to November last year.
The pay off can be seen in employment figures. While Singapore’s annual average unemployment rate ticked up slightly to 3.0 per cent last year, the figure was much higher for its Asian neighbours. Malaysia’s rate was 4.5 per cent while in Hong Kong unemployment hit 7 per cent in the November to January period, the highest in 16 years.
Still, even in Singapore, the support is tapering off. The government has been weaning companies off this lifeline as the economy reopens, with less affected industries such as information technology and communications receiving lower subsidies than aviation, for instance.
Support for some sectors is expected to stop completely after the March payment.
The Projector’s subsidies have dropped from 75 per cent during the circuit breaker to 30 per cent at present. In March they will fall to 10 per cent, then stop altogether after a final payment in June.
Somosundram said this made sense. “It can’t go on indefinitely. For us, our focus was never on how much support we can get, but more on what we need to do now to make ourselves sustainable given the current limitations.”
SMALL, EFFICIENT, DEEP RESERVES
One advantage Singapore had was its sheer fiscal power, said Selena Ling, head of treasury research and strategy at OCBC Bank. Lee Ju Ye, economist at Maybank Kim Eng, agreed, saying Singapore had drawn on the deep reserves it keeps for use in emergencies. While the government does not comment on the size of its reserves, citing strategic reasons, analysts had estimated the pool to be worth more than US$1 trillion before the pandemic.
Ling noted the scheme had come “promptly”, with the first subsidies coming just as the first few cases of coronavirus were detected in the city state.
“The scheme probably headed off a potential surge in retrenchments and lay-offs during the circuit-breaker,” she said. “The payouts likely helped businesses to cover some cash flows during the very challenging period.”
Singapore’s small size had helped too, she said, as had a strong partnership between unions, employers and the government.
Lee said the success of the scheme was evident in how Singapore’s labour market had beaten expectations. While total employment fell by 172,000 last year, most of the losses were borne by non-residents, who were not beneficiaries of the scheme. Conversely, employment for residents posted a net increase of 9,300.
Even so, Lee did have some words of caution. The extension of the scheme announced last week, under which the government co-funds 10 to 30 per cent of wages, was less generous than expected, Lee said. She warned this could weigh on sectors receiving less support, such as retail, food and services, and arts and culture.