How Budget 2018 will boost Singapore’s construction industry

The Government’s proactive stance towards innovation and managing financial risk will propel the construction industry forward.

Photo by Shawn Ang on Unsplash.

SINGAPORE: Announced on 19 February, Budget 2018 introduced a variety of measures to support innovation and boost funding for infrastructure projects.

The Budget reflects the Government’s desire to encourage innovation adoption in the sector, as well as to minimise the financial risks associated especially with long-term, large-scale public infrastructure projects.

Construction’s Innovation Push

There will be more support for firms to innovate across the entire value chain. A variety of grants and research ventures implemented to help improve the rate of technology adoption in construction.

1. Grants and tax deductions to support innovation and adoption

The Productivity Solutions Grant (PSG) will provide funding for up to 70% of qualifying costs for Small to Medium Enterprises (SMEs) seeking to adopt off-the-shelf technologies with a defined scope.

Businesses can apply for the new grant through the Business Grants Portal (BGP), which will provide a list of supportable equipment and technology solutions relevant for their sectors, from April this year.

PSG follows up on the expired Productivity and Innovation Credit Scheme by IRAS.

For larger companies, the Enterprise Development Grant (EDG) offers up to 70% of co-funding for companies who are seeking to build up a range of capabilities.

The tax deduction on licensing payments for the commercial use of intellectual property (IP) will also be raised to 200 per cent, capped at S$100,000 of licensing payments per year.

To support businesses to build their own innovation, the tax deduction for IP registrations fees will be doubled to 200 per cent. This will be capped at S$100,000 of IP registration fees per year.

The tax deduction for qualifying expenses incurred on research and development (R&D) done in Singapore will also be raised to 250 per cent, from 150 per cent. The change will take effect from YA2019 to YA2025.

To help businesses find partners to co-create solutions, a virtual crowd-sourcing platform called the Open Innovation Platform will be piloted this year. The platform will match businesses seeking technological solutions with info-communications and technology (ICT) firms and research institutes.

2. Dedicated research ventures

To be launched this year by the National Research Foundation (NRF) and Temasek Holdings, the NRF-Temasek IP Commercialisation Vehicle will draw on Temasek’s global investment networks and NRF’s local R&D connections to grow companies that draw on IP from publicly-funded research.

At least $100 million will go into this joint venture, in order to help companies turn research into commercial projects.

The National Robotics Programme, first launched in 2016, will be expanded to further encourage use of robotics in the built environment sector, particularly in construction.

Funding Future Infrastructure

To tackle the challenges of infrastructure investments in the coming years, the Government will look at two key tenets: saving and borrowing.

This is motivated by the fact that certain expenditures can be lumpy with hefty upfront investments, yet their benefits can only be enjoyed many years down the road

3. Government funding for major infrastructure projects

A new $5 billion Rail Infrastructure Fund will be set up to save up for major rail lines. Saving ahead for these lumpy investments through such funds will help to reduce the burden in the coming years.

The fund can be topped up in the future when Singapore’s fiscal position allows.

This is similar to the Changi Airport Development Fund, which was started in 2015 to save up for Changi Airport’s Terminal 5. The fund now has $4 billion.

4. Possibility of borrowing by stat boards and govt-owned companies

The Government also plans to explore borrowing by statutory boards and government-owned companies to finance upcoming infrastructural projects.

These projects generate economic returns over many years after they are completed, therefore the burden of the costs involved should not be shouldered by a single generation.

Already, several statutory boards are looking at this option.

The Government will also consider providing guarantees for some of these long-term borrowings for critical national infrastructure.

A government guarantee will not only enhance the confidence of creditors, but also tap the strengths of Singapore’s reserves to back infrastructure projects, without directly drawing on the reserves.

These four components of Budget 2018 will sustain the construction sector’s expansion in capabilities over the coming years. With faltering private demand in recent years, the Budget offers a breath of fresh air in support of the sector.

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