Singapore—The Government is expected to roll out the country’s biggest budget in over 10 years on Tuesday, February 18. Analysts expect an announcement concerning a rise in Goods and Services Tax (GST) in order to balance out a relief package for the fallout stemming from the Covid-19 outbreak, which is expected to substantially affect Singapore’s economy.
Experts are also saying that this year’s deficit could reach as much as S$8 billion, according to the South China Morning Post (SCMP), although this may be a cautious projection. In 2009, amid the financial crisis felt around the globe, the deficit was expected to reach S$8.9 billion, which eventually amounted to only S$819 million.
This year’s budget was expected to be geared toward the next General Election, scheduled to be called before April 2021, with attendant goodie bag packages. However, the Covid-19 outbreak threw a wrench into the machinery and has had even the election taking a back seat.
SCMP quotes an analyst from Maybank Kim Eng as saying that “pre-election goodies” including allocations for healthcare, climate change, workers’ training and the like would be included in this year’s Budget.
Arvin Seah, a senior economist at DBS said, “No doubt Budget 2020 will be generous, and the focus will be to buttress the economy. A strong fiscal response is expected to counter the impact of the virus outbreak.”
Analysts are also expecting the country’s GDP to go down between 0.5 to one percentage point, due to the effects of the virus outbreak as well as ongoing US-China trade tensions.
The tourism and travel sectors are among those most badly hit by the outbreak, with between 18,000 to 20,000 fewer visitors to the country daily.
On Friday, February 14, Prime Minister Lee Hsien Loong announced that Covid-19 had already had a greater economic impact than SARS did in 2003, and warned of the possibility of a recession.
Indranee Rajah sent out a newsletter that same evening, saying that the Government was ready to handle the economic disruptions due to Covid-19, based on its experience with SARS 17 years ago, She wrote, “We have plans that will not only see us through the current situation but also position us for the future. We have strong economic fundamentals. Our fiscal position is sound.”
Meanwhile, economists expect that the coronavirus relief package will be anywhere between S$500 million to S$1 billion, with some saying that tax relief measures could be given to the two integrated resorts in the country – Resorts World Sentosa and Marina Bay Sands, both which had not been around yet during the SARS outbreak in 2003.
While the Budget has not been announced, relief measures for businesses have already begun. There is a S$77 million package from the Government and transport firms made available to taxi and private-hire companies, and the fees for licenses for travel agents, tour guides and hotels have been frozen for this year.
But the public is watching out for one particular announcement in this year’s Budget—which has to do with a possible rise in Goods and Services Taxes (GST). Deputy Prime Minister Heng Swee Keat, who is also the country’s Finance Minister, announced in November that he would outline the details of the the proposed increase of the GST from seven to nine percent, which the Government said would take place between 2021 and 2025.
The GST was last increased in 2007. That year, a S$4 billion offset package was included in the budget to help Singaporeans deal with the rise in the GST over five years. This year, analysts expect a similar offset package of between S$5.6 to S$7 billion.
Amid economic challenges, the Government currently has at least S$15.6 billion in surpluses, which is allowed by law to be kept as current reserves, with some analysts saying that the surplus could be as high as S$20 billion.
According to OCBC’s OCBC economist Selena Ling, “Singapore is in the fortunate position of having sufficient dry powder to strike a balance between buffering against short-term downside risks and implementing the medium-term strategy to meet structural challenges like an ageing population and digital disruption.”
CIMB economist Song Seng Wun says that there is a possibility of the Government dipping into its reserves for this year, which it did in 2009, at the height of the financial crisis.
SCMP quotes him as saying, “It is more of an insurance policy. We still don’t know how severe this latest outbreak will evolve to, so it is better to be a bit more [prepared] to have a bit more buffer. So although the government has accumulated huge surpluses, having a greater buffer with the reserves will make it easier if they need a supplementary budget later on.” -/TISG