Singapore Matches More Problems With More Money in Budget

(Bloomberg) -- Singapore’s budget on Monday was all about boosting government revenue through higher taxes in order to pay for rising spending needs.

While the city state has substantial reserves that it draws on to help fund the budget, that’s not a long-term solution for a fiscally conservative government like Singapore’s. Finance Minister Heng Swee Keat said authorities must act prudently as the economy matures and the population ages, outlining a range of tax increases, including on property, consumption and online services, such as video streaming.

Here are six charts that give the highlights of the budget:

The much-anticipated goods-and-services tax increase was indeed delivered, with Heng announcing plans for a boost to 9 percent from the current 7 percent rate, sometime in the period from 2021 to 2025. GST hasn’t been raised since 2007 and the delayed implementation allows Singaporeans to adjust to the changes ahead of an election that must be held by 2021.

The government estimates that an increase of 2 percentage points in the GST will provide additional revenue of almost 0.7 percent of gross domestic product each year.

The short story on the balance sheet: The government sees a bigger surplus for the current fiscal year ending March 31, while projecting a slight deficit in the financial year to come. The surplus on the primary budget, which excludes investment returns on government reserves, breaks a two-year streak of spending outpacing revenues.

Singapore will take in more revenue from corporate and personal income taxes in the coming year, with the corporate levies bringing in the bulk of payments of any single tax at about S$15 billion, the government estimated. The goods and services tax and motor vehicle levies will also bring in more money, while revenue from stamp duties are set to ease, even though the top marginal rate was raised for properties above S$1 million.

Defense will retain the biggest single-sector share of expenditures in 2018, with transportation and education almost matching that portion. A key priority in coming years will be spending on healthcare, which Heng said has more than doubled since the start of the decade to S$10.2 billion in the 2018 fiscal year. Average annual healthcare spending is set to rise to almost 3 percent of GDP over the next decade from 2.2 percent currently as the population ages rapidly.

He also highlighted higher expenditure on security and public projects, including housing and railways. Infrastructure spending is set to climb to S$20 billion in the coming fiscal year.

Singapore’s net investment returns -- or interest earned on its healthy reserves -- now make up the biggest contributor to the government’s revenues, Heng said. The projected amount in the fiscal year beginning April 1 is almost S$16 billion, more than double the contribution of S$7 billion in 2009.

The increasing reliance on reserves to finance the budget has been a sore point for Heng and other government officials, who want those funds to be used for emergencies rather than daily spending.

“Now that our economy is maturing, and our population is aging, we must husband this resource carefully, prudently and responsibly,” said Heng.

There were immediate goodies in the budget, too: Heng announced that each Singaporean will receive a one-time handout to share in the government’s larger-than-expected surplus for the year ending next month. Individuals will receive S$100, S$200 or S$300, depending on their income level.

The surprise boost could modestly lift consumption in the near term, since “most people will probably spend the additional cash that they’ll get this year,” said Michael Wan, an economist at Credit Suisse Group AG in Singapore.

To contact the reporters on this story: Michelle Jamrisko in Singapore at mjamrisko@bloomberg.net, Myungshin Cho in Seoul at mcho38@bloomberg.net.

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Jason Koutsoukis

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