Pacific Money | Economy | Southeast Asia
The city-state’s economic mandarins are signaling a return to normalcy after the waning of the COVID-19 pandemic.
The Singaporean government is out with its 2023 budget and it sends a signal that things are basically back to normal after the pandemic. Total government expenditures for operations and development purposes are set to equal 15.3 percent of GDP, roughly the same level it was before the pandemic. From 2020 to 2022, government spending surged to an average of 16.7 percent of GDP due to fiscal stimulus as well as shrinking GDP. The preferred ratio seems to be around 15 percent of GDP, and government outlays in 2023 are set to return to their pre-pandemic trajectory.
Expenses will contract by 2.6 percent in 2023 compared to last year, while government revenue from taxes and fees is set to increase by 7.1 percent. The Goods and Services Tax (GST), which went from 7 to 8 percent at the beginning of the year, is expected to bring in an additional SG $2.9 billion, an increase of 20 percent. Stamp duties will also rise in 2023 in an attempt to cool off the housing market, although fewer properties this year. State investment funds like GIC and Temasek are also expected to contribute SG $23.5 billion in net returns in 2023.
More tax increases are being telegraphed over the next few years as well, including a planned 2025 increase in the corporate tax rate. This is part of a global plan to set a minimum corporate tax rate around the world. Because the plan involves international cooperation on a very large scale, it is entirely possible that it will never happen. But the government is nevertheless signaling they are on board with the idea. We are also expecting a carbon tax of around $25/ton to come into effect in the near future, and I am very curious to see what impact this has on an economy like Singapore’s, which is very responsive to tax-based incentives.
On the spending side, the government plans to increase financial support to cushion the impact of the GST increase and broader inflationary pressure. They also plan to increase benefits such as grants for first-time home buyers and assistance for families. In general, these are increases to existing programs rather than new initiatives and in particular this budget looks to step up support for families with children, increasing government-paid paternity leave from two to four weeks and increasing cash bonuses for each child a family has. The government is concerned about falling birth rates, and these measures are clearly aimed at making it more attractive for Singaporeans to get married, buy an HDB flat, and start a family.
The 2023 budget also takes the opportunity, now that the strain from pandemic-related support has eased, to top up various government trust funds and endowments, to the tune of SG $16.8 billion. Contributions to these accounts are separate from the general operational expenses incurred in running the government and are used to fund longer-term economic and social welfare programs.
Coupled with reduced spending and solid returns from state investment funds, Singapore’s overall fiscal deficit is expected to shrink to SG $3.5 billion, or about 0.5 percent of GDP. As a point of comparison, during the height of the pandemic in 2020 the deficit ballooned to SG $51.5 billion, more than 10 percent of GDP. Some of the revenue will be recycled into family planning incentives and cushioning the impact of rising prices. But the main takeaway from this budget is probably that the government is ready to bring deficits back under control and feels that the economy is strong enough to bear the weight of additional taxes for that purpose.