Economists Expect Tax Increases When Singapore Unveils Its 2018 Budget

All 12 economists that participated in a Bloomberg survey conducted in January said they expect Singapore Finance Minister Heng Swee Keat to announce tax increases on February 19.

Almost all the respondents expect the goods-and-services tax to be adjusted, the Bloomberg information service also reported, but just six said it will probably be imposed as soon as this year. Five economists expect the GST rate to be changes in 2019 or later.

The government has signaled tax increases in advance. Heng has said that raising taxes is not a matter of whether, but when. Prime Minister Lee Hsien Loong said last year that “we have to plan ahead, explain to Singaporeans what the money is needed for, and how the money we earn and we spend will benefit everyone, young and old.”

Budget Deficit

In a pre-budget briefing paper, Big Four accounting firm EY estimates that Singapore ran a slight budget deficit of S$600 million in 2017, or 0.1% of real GDP. The government estimates that, not counting special transfers and interest on reserves, its spending in the year to March 31, 2018 will equal 1.3% of GDP.

Total government expenditures declined by 2% in the first three quarters of 2017, EY reports, as development expenditures fell by 23%. But operating expenditures rose by 7% on the back of increased social development spending, including education and national development.

EY forecasts GDP growth in 2018 to moderate to 2.9% (from 3.3% in 2017) “due to soft labor market conditions and the ongoing housing market correction.” But business investment could pick up in the course of this year as the government increases infrastructure spending and implements supportive business measures.

Net international reserves are forecast to reach S$296.9 billion (US$224.4 billion). Ample and growing foreign reserves will continue to provide a sizeable buffer against any crises that could potentially arise from foreign exchange or capital flow volatility,” says EY.

Tax Options

“Personal income tax could increase as we look at a more progressive tax system,” reckons EY. The top marginal personal tax rate had already been increased from 20% to 22% in 2017. Corporate tax, which has been kept at 17% for several years, is not expected to be raised. The rate is slightly higher than Hong Kong’s 16.5%, but the differential with the US has narrowed after tax cuts in that country brought down the corporate rate to 21%.

Singapore’s GST rate was last raised in 2007 by two percentage points, to 7%. Hong Kong does not have a goods-and-services tax, but others in the region have a considerably higher rate, such as China’s 17% and the Philippines’ 12%.

“None of the economists surveyed by Bloomberg projected any increase in the rate would be above two percentage points,” says Bloomberg. “It helps Singapore’s prospects for competitiveness that even with a rise of that magnitude, the GST would still stack up favorably against other Asian economies.”

An e-commerce tax may also be imposed. “It’s certainly something we would like to do,” Indranee Rajah, Senior Minister of State for Law and Finance, said earlier this month. “But we have to be careful about how we do it because we’ve seen some other countries where they implemented it and then had to dismantle it because it didn’t work out quite well.”

According to Bloomberg, two-thirds of the economists it surveyed expect an e-commerce tax. “Taxes on personal income, estates, vehicles and property each got one or two votes among the 12 economists polled,” it adds.