Three features to look out for in the coming Singapore Budget

By Lawrence Loh

SINGAPORE — Singapore’s Budget Day will be on 18 February when the Finance Minister Lawrence Wong delivers his maiden budget statement in Parliament.

The budget comes on the heels of strong economic growth of 7.2 per cent in 2021 which is the highest since 2010. In the preceding year, the country registered a negative growth of 5.4 per cent. Going forward, the projection is for 3 to 5 per cent this year.

Amidst the favourable economic setting, Singapore’s next budget sits on a delicate confluence of critical challenges even when it charts a path to economic recovery while stabilising the financial situation.

The three crucial aspects of the budget are to take stock, take stride and take care.

Take Stock

Over the past two years, Singapore has accumulated a deficit of more than S$75 billion and drawn down its reserves by S$53.7 billion to fight the pandemic. There is now some urgency to rebuild the fiscal foundation and to even achieve a surplus, however modest. This is especially pertinent as the country is constitutionally required to keep a balanced budget over each term of government – the current term is up to 2025.

With many pressures on the revenue front, one particular erosion is the reduction of corporate income tax sources arising from the OECD agreement last year for the imposition of global minimum tax of 15 per cent. This applies to multinational enterprises with revenue of 750 million euros or more, many of which has actually paid less than this minimum rate due to various incentive schemes. The longer term tax revenue impact may also be induced by investors departing or new ones discouraged from coming.

Take Stride

The hot-button issue is probably the impending goods and services tax (GST) which is slated to be raised to 9 per cent from 7 per cent. The increase was to take place between this year to 2025, with expectation that it would be implemented sooner rather than later.

The question is whether the GST increase will be two-step as some business leaders have appealed for or single-step as many have expected. Both modes have precedents. In 2007, the increase from 5 to 7 per cent was done in one amidst an economic upcycle. Earlier in 2003, that for 3 to 5 per cent was rolled out in two steps during an economic downturn. The situation now is probably closer to the 2007 than the 2003 scenario. In any case, the 9 per cent GST is well below the global value-added tax or GST of 19 per cent.

Take Care

Of particular concern yet is the Jobs Support Scheme which has been wound down with the final extension till December last year for industries such as retail, food and beverage, and tourism. At its peak, the scheme paid up to 75 per cent of local wages in pandemic-stricken sectors. The question is whether this scheme should be extended and for what sectors should the assistance be given, if any.

Uncertainties may pertain to other assistance measures like the Jobs Growth Incentive programme which partially funds salaries for new low hires by end-March this year as well as the Temporary Bridging Loan Programme which helps with working capital amidst a supply chain crunch up to end-March.

On the sustainability front, a top-of-agenda issue is the next step on the carbon tax. It is currently at S$5 per tonne of greenhouse gas emissions for facilities producing 25,000 tonnes or more of emissions until 2023 . The rate for 2024 will be announced at this coming budget, probably together with what to expect up to 2030.

There have been proposals to allocate more provisions to drive green innovation — KPMG has suggested setting aside a bold S$1 billion fund. The Singapore Manufacturing Federation has recommended more help for firms to adopt sustainable green solutions such as solar panels and in the sustainable sourcing of raw materials.

Going Forward

The greatest wild card is possibly the inflation factor. The overall inflation of 4 per cent for December 2021, rising from the 3.8 per cent in November, is already the highest since February 2013. Even excluding accommodation and private transport, the core inflation rate is 2.1 per cent, highest since July 2014. Whether the inflation will taper off in the second half of this year, as forecasted, remains to be seen as this period may see the GST increase.

And of course, the world waits with bated breath on the touted rounds of interest rate hikes this year by the US Federal Reserve that will further compound everyone’s adaptations to the new budget.

Lawrence Loh is Director of Centre for Governance and Sustainability at National University of Singapore’s Business School where he is also Professor in Practice of Strategy and Policy.