Singapore Raises Wealth Taxes, GST to Chart Post-Covid Future
Singapore's budget is expected to focus on strengthening finances to combat rising healthcare prices.
(Bloomberg) -- Singapore raised taxes on its wealthiest 1% and increased other levies as it aims to bolster its finances to chart a post-pandemic future.
In detailing the budget for the year starting April 1 -- which is expected to result in an unexpected deficit -- Finance Minister Lawrence Wong said that the planned changes, which include boosting consumption and carbon taxes, are needed to foster a “fairer revenue structure.”
“That means everyone chips in and contributes to a vibrant economy and strengthened social compact, but those with greater means contribute a larger share,” Wong said Friday.
Singapore’s annual budget typically showcases how it balances an open and prosperous economy that relies heavily on free trade and overseas labor, with satisfying a population whose approval has kept the People’s Action Party in power since independence in 1965.
Wong, in his first budget speech, focused on bolstering finances to face long-term challenges such as rising social spending, as well as promoting the local workforce.
Singapore expects to post its third straight budget deficit, with a shortfall for the coming year of S$3 billion, or about 0.5% of gross domestic product. Economists surveyed by Bloomberg before the speech expected a surplus of 0.6% of GDP. That follows a revised 0.9% deficit in fiscal 2021.
“Our budget remains expansionary to support the economy,” Wong said.
Wealth Taxes
Among other taxes aimed at the wealthiest residents, the top marginal personal income tax levels will be raised -- peaking at 24% for income over S$1 million ($744,000) -- and levies will be adjusted on some properties and vehicles.
Separately, the rise in GST will be spaced out over two years -- increasing to 8% in January 2023 and to 9% in January 2024, a delay that could take some steam out of inflation pressures.
“The fact that Singapore anticipates a minor deficit means that it still prioritizes the recovery over returning the budget to surplus,” said Trinh Nguyen, a Hong Kong-based senior economist at Natixis SA. The increase in taxation during 2022 is “much less than expected” to keep a lid on inflation, which is expected to rise further even without the GST hike.
The new taxes will also help restore public coffers after the government committed about S$100 billion toward Covid-related spending over the previous two years -- which required it to dip into reserves -- and posted budget deficits in both years.
What Bloomberg Economics Says
“Singapore is tightening its belt but not enough to push its budget back into surplus in the coming fiscal year. It plans another shortfall in the coming fiscal year after running deficits for two years to cushion the blow from the pandemic. The economy should be able to bear the tightening.”
-- Tamara Mast Henderson, Asean economist
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Wong on Friday also detailed plans to tighten criteria for foreign workers, which he said is required to ensure they are the “right caliber” to supplement Singapore’s workforce.
Reopening the Economy
With the Covid-19 situation in the city stabilized, Singapore announced plans earlier this week to further reopen its economy and woo back travelers and foreign labor. It also plans to ease social-distancing measures that have kept cases and deaths relatively low throughout the pandemic.
The benchmark Straits Times Index has been one of the world’s best performing stock indices this year, having gained about 10%. It closed down 0.4%.
The trade ministry on Thursday affirmed its earlier forecast for gross domestic product to grow 3%-5% this year, which Wong reiterated in his speech. While export-oriented sectors like manufacturing and trade will remain strong, the ministry flagged risks from a possible slowdown in global demand and the impact on aviation and tourism-related sectors from Covid-19 outbreaks.
Inflation also has surged in recent months. That has driven the central bank to tighten monetary policy twice in the last four months, including an off-cycle move in January after the highest headline inflation reading in eight years.
©2022 Bloomberg L.P.