Government likely to allocate $700m in nCoV relief packages

The budget deficit could widen in FY 2020 along with increased government spending.

The government is expected to allocate at least $700m in relief packages for businesses affected by the novel coronavirus, according to a Maybank Kim Eng report. This is comparable in share of GDP terms to the $230m package during the 2003 SARS episode.

Already, the deputy prime minister and finance minister Heng Swee Keat has announced a package of measures, including support for short-term cash flow needs, and retaining and training of their workers, including support for part of their wage costs.

Targeted help is expected to be provided for the main casualties of the outbreak - the tourism and transport sectors. The government has already announced some financial support for hotels and hospitality-related businesses.

This is similar to the packages during the SARS epidemic, which was mainly targeted to tourism-related industries, with the largest amount going to training grants for tourism-related courses and property tax rebates for commercial properties.

The two integrated resorts (IRs), may also receive some direct relief, but unlikely in the form of reduced casino entry levies. Bigger allocations for SkillsFuture for tourism-related courses are also expected.

Maybank Kim Eng added that the government could potentially tweak the levy rates for services work pass holders, which can help reduce the number of potential bankruptcies in the near term.

The FY2020 budget deficit is expected to widen to 1.5% to 2% of GDP, similar to when it widened in FY2003 as the government increased spending to curb the spread of SARS. Spending in healthcare and environment & water resources sectors saw a particular jump during the outbreak.

Operating revenue could also potentially fall due to lower tax collections in the midst of tax rebates for tourism-related sectors, as well as weaker consumer spending. The impact might however be cushioned by online retail sales and food delivery services.

Besides the relief package, the budget might continue to focus on productivity schemes and retraining of workers. Maybank Kim Eng is not expecting income tax cuts, but rather higher one-off rebates on personal and corporate income taxes, which has been common in most pre-election budgets.

More funds may also be allocated to social expenditure, particularly in education, as well as on pushing back against climate change and rising sea levels. With Budget 2020 likely to be the last for the current electoral cycle, there may also be a jump in special transfers to include targeted support and benefits for lower income households.