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Singapore set for 2022 budget surplus as COVID-19 costs recede, tax hike looms

  • Feb 11, 2022

By Aradhana Aravindan SINGAPORE (Reuters) – Singapore could return to a small budget surplus in 2022 as the economy recovers from the COVID-19 pandemic, with the government turning its focus to rebuilding public finances and an imminent tax hike after two years of unprecedented spending.

SINGAPORE (Reuters) – Singapore could return to a small budget surplus in 2022 as the economy recovers from the COVID-19 pandemic, with the government turning its focus to rebuilding public finances and an imminent tax hike after two years of unprecedented spending.

The transport and financial hub, seen as a bellwether of the global economy, is forecast to grow 3% to 5% this year after expanding at its fastest annual pace in over a decade in 2021.

The rebound has paved the way for the government to start raising taxes and to limit support measures to businesses yet to recover from the impact of COVID-19, such as those in the travel and hospitality sectors.

The government had forecast a budget deficit of about S$11 billion ($8 billion), or 2.2% of gross domestic product, for the fiscal year 2021 that ends in March. The deficit ballooned to a record 13.9% of GDP in the prior year.

The government has also had to draw from reserves to fund more than S$100 billion in support packages.

“The urgency to beef up revenues is a priority for policymakers, putting the long-planned 2 percentage point Goods and Services Tax (GST) hike in the spotlight,” HSBC economists said in a research note, forecasting a S$5 billion surplus for 2022.

The government plans to raise GST to 9% from the current 7% between 2022 and 2025. At next Friday’s budget, Finance Minister Lawrence Wong will likely provide a timeframe for the hike, which analysts estimate could bring in additional annual revenues of more than S$3 billion.

HSBC estimates that a 1 percentage point GST hike will add 0.5-0.7 percentage points to headline inflation in 2023 and 2024.

Singapore’s central bank tightened its monetary policy settings in January on elevated inflation pressures, and is expected to tighten again in April.

The central bank forecast core inflation to be 2.0–3.0% this year, while headline prices are expected to rise 2.5–3.5%.

While the government has already outlined a S$6 billion package to soften the blow of the GST hike for lower income households, it could also try and address the rising cost of living.

Spending priorities are likely to focus on the funding of long-term infrastructure projects and the need to reskill or upskill the domestic labour force, OCBC Bank’s Selena Ling said.

She said the government will also spend more on healthcare due to an ageing population and towards promoting a green and sustainable economy. Ling forecast a budget surplus of S$2.7 billion for 2022, with a deficit of about S$6.8 billion in 2021.

Some economists are expecting a carbon tax increase as well as a review of tax incentives for multi-national companies, following the global agreement on a minimum corporate tax rate.

($1 = 1.3426 Singapore dollars)

(Reporting by Aradhana Aravindan in Singapore; Editing by Ed Davies)