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Singapore Warns Of Waning Finances

by Mary Swire,, Hong Kong

10 March 2014

Singapore's Minister for Finance Tharman Shanmugaratnam has stressed the importance of Singapore balancing its books over the long term, in a Budget 2014/15 speech that echoed concerns raised just a few days ago in Hong Kong's equivalent.

Already, with increased social and healthcare spending, the Government is forecasting a small budgetary deficit of SG1.2bn (USD950m), or about 0.3 percent of gross domestic product (GDP), in 2014/15, after a surplus of 1.1 percent of GDP in 2013/14. Government spending is expected to rise by 8.3 percent, outstripping a 4.1 percent rise in revenue.

Tharman disclosed that Government expenditure is likely to increase by 3 percent of GDP by 2030, due to infrastructure spending and social spending, especially in healthcare. Healthcare spending, on account of the ageing population, is expected to double from 2011 levels to SGD8bn by 2015, before reaching SGD12bn by 2020.

While he confirmed that Singapore currently has a healthy fiscal reserve position – with current net investment return contributions providing two percent of GDP, or about SGD8bn each year to its budget – Tharman pointed out that tax revenues are not, under current policies, expected to increase as a percentage of GDP.

"In fact, revenue growth could moderate," he said. "Asset markets are likely to moderate, and we are not going to get the same amount of asset market-based taxes as we've done in the last few years. … Our current fiscal advantage will not last. And at some point, therefore, our revenues will fall short of expenditures."

He concluded, therefore, that Singapore "must be prepared for the years ahead and build up our revenues for the spending needs of the next decade and beyond. … We need to raise revenues over time to ensure that we can meet our future needs without the risk of persistent deficits."

The Government's tax strategy for dealing with this fiscal gap would be based on three principles: the maintenance of economic growth through globally-competitive tax rates, a progressive fiscal system, and a low burden on the middle income taxpayers.

He provided no details of where he foresaw that the increased tax revenues could be found, noting only that Singapore already has a significantly progressive tax system with a wide tax base. Singapore already has a goods and services tax (GST), it was pointed out, while Hong Kong, struggling with an over-dependence on direct taxes, does not.

Having regard to the future competitiveness of Singapore and the possible impact of tax increases on taxpayers, Tharman did not go into whether there will be a need for tax rate hikes (the GST rate having last been increased in 2007) or whether the tax base will have to be further extended with other types of taxes being introduced.

TAGS: Finance | tax | economics | fiscal policy | budget | corporation tax | goods and services tax (GST) | Singapore | tax rates | revenue statistics | services

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