Singapore is gearing up to address pressing economic concerns in its upcoming budget announcement, set for February 16. With sticky inflation, sluggish growth, and geopolitical uncertainties looming, the government’s focus is expected to alleviate cost-of-living pressures and bolster employment opportunities.
Economists anticipate an expansionary fiscal stance, with projections of an overall fiscal deficit ranging from 0.4% to 1.2% of GDP. Despite initial forecasts of a deficit, buoyant tax revenues are expected to result in a modest surplus for the fiscal year ending March 31.
Although lower than its peak of 5.5% in early 2023, inflation remains elevated at 3.3% as of December. Economic growth has slowed significantly from 3.6% in 2022 to 1.2% in 2023, with the trade ministry forecasting growth of 1% to 3% for 2024.
Implementing a 1-percentage point increase in sales tax and scheduled hikes in water tariffs have added to the burden on Singapore’s 5.9 million residents. Relief measures introduced during the pandemic, such as household vouchers for food and groceries, are expected to continue. Job-related measures are anticipated to include unemployment benefits for laid-off workers and initiatives to upskill citizens to adapt to disruptions from artificial intelligence in labor markets.
Economists are also keen on details regarding the implementation of pillar 2 of BEPS 2.0, an OECD project to establish a minimum effective tax rate for large corporations. While Singapore’s current headline tax rate is 17%, some investors benefit from effective rates as low as 4%. Finance Minister Lawrence Wong has signaled intentions to implement Pillar 2 by 2025 but remains flexible to international developments.
BEPS 2.0 is expected to limit Singapore’s ability to utilize tax incentives for attracting investments, a factor under scrutiny in the country’s ongoing economic strategy. As Singapore navigates these challenges, the forthcoming budget announcement will be closely watched for its policies and initiatives to foster economic resilience and sustainability.
