Singapore and Australia Environments
Economic and Political Environments of Singapore and Australia
Singapore is a sovereign state found in Southeast Asia. Its GDP growth stands at an average of 7.7 per cent since independence. The manufacturing sector dominates the country’s economy. Companies operating in Singapore are protected from unfair competition by the Fair Competition Act. The country has numerous tax incentives and low corporate and personal income tax rates, which makes it a favourite destination for most multinational firms. However, Singapore has strict employment laws which must be followed by companies to avoid legal conflicts. Australia has high corporate and personal income tax rates which makes it less lucrative for small and medium-sized enterprises. It also has relatively high inflation rates compared with Singapore. However, the country’s market has lower barriers to entry because large firms have not dominated it. Australia also has several employment laws that guide how employers should treat their workers. Companies must comply with these laws to operate businesses in the country. The present report has analyzed the political and economic environments of Australia and Singapore. The report has recommended that a manufacturing company that is keen to enter the international market should establish its subsidiary in Singapore to enjoy personal and corporate income taxes, numerous incentives, stable political environment, and fair competition.
Keywords: competition, GDP, inflation, tax policies, political stability, employmentIntroduction
Australia is an independent state located in the Southern Hemisphere consisting of the island of Tasmania, as well as the Australian continent and other numerous islands situated in the Indian and Pacific oceans. The country is divided into two territories and six states with its capital located in Canberra (Kramme, 2012, p. 1). Following continuous growth in two decades, law rates of unemployment, low public debts, a stable financial system, and, contained inflation, Australia entered 2018 with some development constraints driven by the sudden fall in the global prices of its primary export products. Singapore, on the other hand, is a developed economy found in South-east Asia. The country has a business-friendly regulatory environment, which encourages the growth and development of local enterprises (Lim and Looney, 2014, p. 20). A manufacturing firm that is keen to internationalize should establish its subsidiary in Singapore to enjoy the low corporate tax rate, numerous tax incentives, a stable political environment, and protection from unfair competition.
Political Environments of Australia and Singapore
The political environment consists of government actions and policies which affect the operations of companies. The actions may be on international, national, regional or local levels (Cadle, Paul, Iand Turner, 2014, p. 3). Business managers and owners must pay close attention to different variables in the political environment to understand how the actions of the government can affect their organizations. Some political factors that affect businesses include economic and tax policies, political stability, and employment laws.
Singapore is a parliamentary democracy headed by a president. The cabinet, led by the prime minister, is responsible for exercising all the executive authority (Er and Tan, 2013, p. 15). Halimah Yacob, the country’s current president, was elected in a presidential election held in 2017. Singapore has enjoyed many years of political stability. It is regarded as one of the most politically stable countries in the world. It practices a modified kind of Westminster Parliamentary leadership system where each parliament rules for a maximum period of five years. Political stability provides businesses with an enabling environment to thrive.
Similarly, Australia has enjoyed a relatively stable political environment, thanks to its sound frameworks of governance and transparent regulatory system. It is one of the top five countries ranked in the Economic Freedom Index (Critchlow, 2011). Proper governance provides business organizations with secure environments to conduct their activities. The country offers a safe environment ranked fifteenth out of 190 countries according to the ease of starting and operating businesses, a strong regulatory framework noted for its stable banking and finance regulations, and competitive office space rates and remuneration of workers. It also has a stable healthcare system rated seventh highest globally. The features make it easier for multinational firms to enter the country and conduct their business operations
Most investors establish their businesses in Singapore to enjoy its attractive tax rates, extensive double tax treaties, one-tier system of taxation, and tax relief measures. The corporate income tax rate in the country has stood at 17 per cent since 2011, which is very low (Nuţǎ and Nutǎ, 2012, p. 55). Companies can further reduce this tax if they take advantage of several subsidies and corporate tax schemes introduced by the government. In the single-tier system, tax paid by corporations on their profits is not imputed to shareholders. Some incentives provided to investors include the pioneer incentive, the regional/international headquarters award, expansion and development incentive, treasury and finance centre tax incentive, and integrated investment allowances.
Resident companies in Australia are taxed on their worldwide revenues. Generally, non-resident firms are required to pay income taxes only on income sourced from Australia. All firms are subject to a federal corporate tax of 30 per cent except for small companies which are taxed at 27.5 per cent (PWC, 2019). The reduced tax rates apply only to companies that fall below the designated turnover of 50 million Australian dollars. According to PWC (2019), Australia’s effective corporate tax rate is the third-highest in the world. It is one of the high taxing outliers among developed countries. Despite having the highest tax breaks, the country had the lowest research and development subsidies compared with other developed nations surveyed by the OECD. Taxes dilute the incomes of companies. Therefore, countries with high corporation tax rates like Australia are less lucrative for multinational companies that seek to increase their profitability.
Singapore’s Employment Act does not specify the minimum wages or salaries employers should pay their workers. However, employers are required to pay their workers at least once a month, and this should be done within seven days after the end of the salary period (Puckett, 2016). Overtime payments should be made within fourteen days after the designed salary period. Organizations such as the manufacturing company can, therefore, engage in legal disputes by its employees if it fails to pay them in the period designated by the Act. Also, Employees covered by the Employment act are required to work for a maximum of 44 hours a week. The Act presents a risk to multinational companies because they cannot force their employees earning bellow SGD 2000 per month to work for more hours than the stipulated. According to the Act, employees cannot work for more than six hours without a break. Shift workers should also not work more than twelve hours per day regardless of the circumstances. Furthermore, the Act entitles employees earning below SDG 2000 per month to paid holidays on all public holidays. Therefore, multinational companies cannot deny such employees payments because they failed to work on a public holiday.
Central Provident Fund (CPF) is a compulsory employee retirement savings program in Singapore. Employers must pay contributions to the CPF for employees that are permanent residents or Singapore citizens. Both the employer and the employee makes the monthly contributions to the CPF (Puckett, 2016). Besides, female workers that have been employed for three months or more are entitled to paid maternity leaves (16 weeks) and an annual childcare leave (6 days) if they have children aged below seven years. The employment laws present a risk to companies because they may not be able to profitably operate in Singapore if they fail to comply with the Employment Act.
Employees in Australia are protected by different territory, state, and federal anti-discrimination legislation; they are further protected by the general provisions of the Fair Work Act. Employers are prohibited from taking adverse actions against workers or prospective workers because of protected attributes (Mitchell et al., 2010, p. 62). While there are varying attributes covered by each legislation scheme, the common protected attributes include political opinion, pregnancy, family responsibilities, marital status, mental or physical disability, age, sexual preference, sex, colour, and race among others. The protected attributes must be respected by all companies when dealing with employees to avoid legal conflicts.
The law requires employers to grant Australian employees unpaid parental leave after working for more than 12 months. The employees are also entitled to a parental leave (paid) by the government from their employers under contract, policy or enterprise agreement (Mitchell et al., 2010, p. 64). The Australian laws also protect the employees from unfair dismissal by employers. An employee who files a suit for unfair dismissal, unlawful termination, breach of contract, general protections, and reasonable notice may, therefore, be compensated or reinstated. Therefore, companies risk financial loses through legal expenses when they dismiss their workers unfairly in Australia.Economic Environments of Australia and Singapore
The economic environment is composed of macroeconomic and microeconomic variables. The microeconomic variables are things that take place at the company or consumer level and do not affect the entire economy (Cadle, Paul, and Turner, 2014, p. 18). Macroeconomic factors, on the other hand, refer to things that affect the whole economy. Macroeconomics focuses on large-scale or general economic factors. Some economic factors that can affect a business include competition, inflation, and the GDP.
When the prices of commodities, energy, food, and services increase, the whole economy is affected. Inflation affects different facets of the economy, such as the cost of government and corporate bonds, mortgages, and the cost of borrowing money as well as the cost of doing business. In July 2019, the annual rate of inflation in Singapore fell from 0.6 to 0.4 per cent in June (Trading Economics, 2019). The rate was below the expected inflation rate (0.55 per cent). The cost of utilities and housing has steeply decreased in the country while food inflation has been steady for the past three months. Singapore’s average inflation between 1962 and 2019 is 2.57 per cent. The low inflation rate presents an opportunity for businesses to expand their operations in Singapore. Specifically, when the inflation rate is low, the nominal and real interest rates will also be low, which reduces the cost of borrowing funds and doing business.
Australia’s annual inflation increased from 1.3 to 1.6 per cent in June. The latest consumer price index was above the market expectation, which stands at 1.5 per cent (Trading Economics, 2019). Transport prices and food inflation has continued to escalate. The average inflation rate between 1951 and 2019 is 4.97 per cent. The country recorded the highest inflation of 23.90 per cent in 1951 and the lowest rate of -1.30 per cent in 1962. The high inflation implies that the cost of living in Australia is higher compared with Singapore. Businesses operating in countries with higher inflation may experience the risk of business failure because they will have to raise their wages to keep attracting workers.
The Gross Domestic Product (GDP)
In 2018, Singapore’s GDP was 364 billion dollars. The average GDP between 1960 and 2018 was 86.13 billion dollars (Trading Economics, 2019). GDP measures the overall market value of all domestic products in a specific year. When compared with the previous years, it tells businesses whether the economy is growing by producing more services and goods, or contracting because of less output. Singapore’s GDP was at its highest in 2018, which means that its economy is expanding. The GDP can influence the behaviour of financial markets. A strong GDP growth may translate to higher corporate revenues, which bodes well for stock markets. Therefore, the strong GDP in Singapore provides an opportunity for companies to enjoy high stock prices.
The GDP of Australia, on the other hand, was 1432 billion U.S. dollars last year. The value reflected growth from the previous year, which was 1330.8 billion U.S. dollars. The average GDP between 1960 and 2018 was 435.12 billion U.S. dollars (Statista, 2019). The country had the highest GDP of 1576.20 U.S. dollars in 2013 and the lowest GDP in 1960 (18.60 billion U.S. dollars). Australia’s GDP is higher compared with Singapore showing that it has a stronger economy. Therefore, Investors may find Australia more lucrative for doing business compared with Singapore.
The manufacturing sector is the largest industry in Singapore, contributing more than 20 per cent of its GDP. The manufacturing industry entails key clusters like transport engineering, logistics, biomedical sciences, chemicals, and electronics (Felipe, 2018, p. 6). In 2017 the manufacturing industry grew by 35 per cent with precision and electronics engineering benefiting from high product demand. The industry is highly competitive, with many companies offering similar products. Therefore, manufacturing companies entering the industry may face the risk of making loses because of competitive pressures.
Industries in Singapore are guided by the Fair Competition Act, which is a generic competition law established to reinforce pro-competition and pro-enterprise policies, enhance market efficiency and boost economic competitiveness. The Act prohibits three types of activities: decisions, practices and agreements which restrict, distort or prevent competition such as production control, market sharing, bid-rigging, and price-fixing; abuse of positions through activities like refusal to offer essential services or key products; some types of schemes like rebates used by organizations to restrict fair competition and predatory pricing; and acquisitions and mergers that lessen competition (Bali, McKiernan, Vas, and Waring, 2016, p. 213). Thus, multinational companies developing operations in Singapore have an opportunity to grow their business due to fair competition.
Large firms have not dominated the Australian market because it has a large economy. They do not control the Australian employment and output. Some sectors in the country are highly concentrated (Caldera, Desha, and Dawes, 2018, p. 339). However, they are not as concentrated as in other developed countries. In developed economies, firms in different industries have network effects or economies of scale. As such, some industries in Australia and other countries are controlled by large companies. The market shares of big firms in Australia have not experienced notable changes lately. Their earnings have not increased faster than the country’s GDP. Therefore, there are low barriers to entry, which provides an opportunity for multinational companies to establish their operations in Australia.Conclusion and Recommendation
Singapore is an appropriate host for the business because it has a stable political environment, lucrative tax policies, a lower inflation rate and a higher GDP. The company will enjoy numerous tax incentives and low corporation tax rates. Australia is among the countries with the highest corporation tax rates. Because taxes dilute profits, the company will spend more on taxes if it establishes more branches in Australia. Although the company may face high competition from other companies in Singapore, it will benefit from fair competition and low barriers to entry because the Fair Competition Act controls the country’s companies.
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Singapore and Australia Environments – Course Researchers
Singapore and Australia Environments