SINGAPORE: When Finance Minister Heng Swee Keat delivers the Budget for 2018 on Monday (Feb 19), the focus will be on the long term.
One reason being this year’s Budget will have “the benefit of riding the wave of a firmer economic footing for the first time”, said UOB economist Francis Tan.
Compared to the first two Budgets of the Government’s term, Singapore’s economic growth quickened last year on the back of a stellar run in the manufacturing sector. Official data released this week showed the economy expanded 3.6 per cent in 2017, trumping earlier estimates and the Government's revised growth forecast ranges.
With a slowing economy out of the way, Mr Heng is expected to devote his attention to the longer-term goals of economic restructuring and transformation.
Also high up on the agenda will be the task of keeping Singapore in good fiscal health as the Government's expenditure continues to outstrip revenue.
“I see this year’s Budget continuing its focus to transform the economy in areas of capabilities building, innovation and internationalization, as well as go deep and granular in addressing skills gap and skills mismatches,” said Mr Liang Eng Hwa, chairman of the Government Parliamentary Committee (GPC) for Finance and Trade.
“On the social front, I expect the Finance Minister to focus its attention on healthcare and eldercare. What is also getting attention for this year’s budget is our finances,” the Holland-Bukit Timah GRC MP added.
Here are the five issues that could be given the spotlight in Budget 2018:
1. LAYING OUT SINGAPORE’S SPENDING NEEDS
In the lead-up to the Budget, the Government has signaled that higher public expenditure on areas, including healthcare and infrastructure, will be inevitable as Singapore’s population ages.
By 2030, one in four Singaporeans will likely be aged 65 and above.
Before that, the country’s ageing population will reach a “critical demographic crossroad” this year, when the share of the population who are 65 and older will match those under 15 for the first time, said Mr Tan.
Given the demographic challenges, one major implication is the need for more healthcare and social spending in the coming years, according to the UOB economist.
A greying population also means that forward-planning will be necessary when it comes to infrastructure to enhance the liveability of Singapore, said Mr Heng in an earlier interview with Channel NewsAsia.
Amid heightened terror threats, homeland security will also be “a very major item” in the upcoming Budget as it is an "important area to invest resources in”, Mr Heng said last month.
2. TAX HIKES: NOT IF, BUT WHEN
In light of growing spending needs, speculation of a review of the tax regime has dominated the chatter in recent months especially since Prime Minister Lee Hsien Loong said that raising taxes will be inevitable.
Some economists and tax experts are expecting Budget 2018 to see a hike in the Goods and Services Tax (GST), given how Singapore’s rates remain comparatively low against regional countries.
Other forms of tax increases that the taxman might be mulling include an e-commerce tax, a further increase in “sin” taxes such as those levied on tobacco, alcohol and gambling, as well as wealth taxes.
But each has its own downside.
For one, many economists have described higher GST as a “regressive” tax that would hurt the lower-income household, while some like Nomura economist Brian Tan fear that a hike in GST would be “tempting fate” and risk derailing the turnaround in the broader economy.
Overall, OCBC’s head of treasury research and strategy Selena Ling reckoned that Budget 2018 will likely see a “give and take tone”.
“The finance minister had previously articulated the need to keep the tax system fair and progressive across income groups,” she wrote in a note. “A sustainable tax system is one that rewards effort by individuals and enterprise, and fiscal sustainability is about striking the right balance between current and future generations.”
As such, the Government’s underlying principle of being prudent with its spending will likely be given more emphasis.
Last year, a permanent 2 per cent downward adjustment was implemented to the Budget caps of all ministries and organs of state, as part of an effort to control expenditure.
Moving forward, the Government will need “to instill further prudence” to ensure a responsible and sustainable fiscal position, said Mr Liang who is hoping for the finance minister to provide “greater clarity on (Singapore’s) fiscal position in the medium to long term” amid growing expenditure.
“How is the revenue trajectory picture looking beyond 2020 ... and whether we have in place sustainable and diversified revenue sources to fund the various big ticket expenditure items that are our priorities,” he elaborated.
But for FY2017, there will be some good news in the form of a bumper Budget surplus on the back of stronger growth, said UOB’s Mr Tan. The economist is estimating an overall budget surplus of S$3.1 billion, which works out to 0.7 per cent of GDP, compared to the Government’s estimates of S$1.9 billion.
Apart from a rise in collection from corporate income tax, higher volume of property transactions may have bumped up Government revenue from stamp duties.
This means that the Government will have “more firepower” in Budget 2018 to nudge its economic stakeholders towards the seven strategies mapped out in the Committee for Future Economy (CFE) report, he said.
4. TRANSFORM BUSINESSES, WITH HELP FOR STRUGGLING INDUSTRIES
With that in mind, firms can expect a "pro-business" Budget with more support when it comes to innovation, going digital and venturing abroad.
Experts are pencilling in more measures to strengthen the Industry Transformation Maps (ITMs) – the 23 roadmaps that were first announced in Budget 2016 as part of a S$4.5 billion industry transformation programme – as well as a ramp up in research and development (R&D) tax incentives to fill the gap when the Productivity and Innovation Credit (PIC) scheme expires.
“It has been laborious for both large and small companies to leverage the current R&D enhanced tax deductions to scale their innovation efforts. For SMEs in particular, where cash is key to survival, they would no longer find it worth the effort to avail of the incentive with the expiry of the PIC,” said Ms Tan Bin Eng, partner and business incentives advisory leader at Ernst & Young Solutions LLP.
She suggested a simplification of the Government’s current approach of evaluating R&D eligibility and documentation requirements, particularly for SMEs. Alternatively, it could also consider extending and increasing the cash payouts under the PIC exclusively for R&D-related activities, Ms Tan added.
Budget 2018 may also contain some relief measures for underperforming sectors, such as the construction and the offshore and marine sectors. These include a deferment of the foreign worker levy hikes or bringing forward more public sector infrastructure projects for the construction sector, experts said.
5. CONTINUE TO UPSKILL WORKERS, BOOST PRODUCTIVITY
Ensuring that Singaporeans remain employable in the face of a fast-changing economic landscape will also be on the agenda.
To sharpen the plethora of policies that were rolled out over the years, Mr Liang expects enhancements to be unveiled for schemes, such as the Professional Conversion Programmes under Workforce Singapore.
“There is the real possibility that disruptive changes to employment may outpace the speed in which workers can reskill themselves. Hence, as we restructure the economy to create new jobs, we need to double efforts and intensity to develop new skills sets among our workers,” said Mr Liang.
There should also be continued efforts to boost overall labour productivity, said UOB’s Mr Tan.
While overall labour productivity in 2017 surged to a seven-year-high of 4.5 per cent, the improvement was powered mainly by the externally-oriented sectors.
By contrast, labour productivity growth in the domestically-oriented sectors remained stuck in low gear.
“It thus remains important that Budget 2018 contains more tools and resources to help improve the labour productivity of the service sectors,” he noted.