Singapore is planning yet another year of a slim budget deficit, emphasizing how it will fund protection for the most vulnerable households and businesses against persistent inflation.
(Bloomberg) — Singapore is planning yet another year of a slim budget deficit, emphasizing how it will fund protection for the most vulnerable households and businesses against persistent inflation.
The city-state aims to narrow the shortfall to 0.1% of gross domestic product in the year starting April from a revised 0.3% gap this year, Deputy Prime Minister Lawrence Wong said in his annual budget speech to Parliament on Tuesday. It will do so by boosting revenue by 7.1%, including raising taxes on high-value property transactions, and lowering expenditure by 2.6%.
Stocks trended lower, with the Straits Times Index extending its fall for the second day.
The S$104-billion ($78.4-billion) spending plan is meant to nudge residents further into a post-Covid reality, while seeking to blunt near-term cost-of-living pressures. Headline inflation that’s still seen running hot at 6.5% is complicating policy as the trade-reliant Singapore also stares down a gloomy global growth outlook.
In order to help Singaporeans absorb higher costs, Wong said the government would increase subsidies by S$3 billion to lower-income households to defray the higher goods-and-services tax, as well as inflation. Wong said he expects price-growth to remain high at least through the first-half of the year.
“Other governments spent more during this pandemic too. But they largely financed their additional spending by borrowing, which will eventually have to be repaid by future generations,” Wong said. “In contrast, our reserves allowed Singapore to respond quickly without falling into debt, or burdening either current or future generations of Singaporeans.”
“So we will continue to uphold our practice of fiscal prudence and the principles that underpin the protection of our reserves,” including keeping plans to raise the GST rate further, Wong said, in what he had previously described as his “Valentine’s Day present” to Singaporeans.
The government would boost the aid that adult Singaporeans would receive as the GST is raised, including an additional S$300 for all Singaporean households next January when the rate is increased to 9% as planned, from 8% now, Wong said. Among measures to help especially younger families, the government would adjust existing child subsidies to target the most vulnerable, and boost the “baby bonus cash gift” by S$3,000 for all eligible Singaporean children born from today.
Just as the government has looked to prepare households and businesses for a change in spending plans in the post-pandemic era — coming on the heels of a further loosening in its mask mandate — the revenue side of the budget also required some careful balance.
In addition to leaning on an increase in the GST rate, the government is planning higher taxes on some property transactions that would affect 15% of homes, and luxury cars and tobacco.
Singapore also intends to raise its effective tax rate for multinational enterprises to 15% from 2025, in line with the so-called BEPS 2.0 global agreement to increase the floor rate.
The budget figures follow a report Monday from the Ministry of Trade and Industry showing slower-than-expected fourth-quarter growth and a reinforcement of a sluggish outlook for this year, with GDP projected to expand between 0.5% and 2.5%
Other key points from Wong’s remarks:
- In order to encourage seniors who want to continue working, the government will extend employment credits that provide wage offsets to businesses that hire senior workers, as well as a part-time re-employment grant that nudges employers to offer such arrangements to senior workers
- Singapore will allocate an additional S$1.5 billion for its “MediFund” that supports lower-income individuals and seniors to pay for medical bills, on top of other government subsidies
–With assistance from Aradhana Aravindan, Natalie Choy, Sing Yee Ong, Low De Wei, Selina Xu, Kevin Varley, Derek Wallbank, Joyce Koh, Andrea Tan and Zibang Xiao.
(Updates with details throughout.)
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