Pacific money | Economy | Southeast Asia
The city-state’s economic mandarins are signaling a return to normalcy following the easing of the COVID-19 pandemic.
The Singapore government is out of its depth Budget 2023 and it sends a signal that things have mostly returned to normal since the pandemic. Total government spending on operation and development is set at 15.3 percent of GDP, which is roughly the pre-pandemic level. From 2020 to 2022, government spending rose to an average of 16.7 percent of GDP due to fiscal stimulus as well as contraction in GDP. The preferred ratio appears to be around 15 percent of GDP, and government spending in 2023 should return to its pre-pandemic trajectory.
Spending will decrease by 2.6% in 2023 compared to last year, while government revenue from taxes and fees will increase by 7.1%. The Goods and Services Tax (GST), which increased from 7 percent to 8 percent at the beginning of the year, is expected to generate an additional S$2.9 billion, an increase of 20 percent. Stamp duty will also rise in 2023 in an attempt to cool off. housing market, although there are fewer objects this year. Public investment funds such as GIC and Temasek are also expected to generate a net return of S$23.5 billion in 2023.
Further tax increases are also being reported over the next few years, including an increase in the corporate tax rate planned for 2025. This is part of a global plan to set a minimum corporate tax rate worldwide. Since the plan involves international cooperation on a very large scale, it is quite possible that this will never happen. But the government nevertheless signals that they agree with the idea. We also expect a carbon tax of around $25/tonne to come into effect in the near future, and I’m very curious to see what impact this will have on an economy like Singapore’s, which is very sensitive to tax incentives.
On the spending side, the government plans to increase financial support to cushion the impact of higher goods and services taxes and broader inflationary pressures. They also plan to increase benefits such as first-time homebuyer grants and family assistance. In general, this is an expansion of existing programs, not new initiatives, and, in particular, this budget is aimed at strengthening support for families with children, increasing state-paid parental leave from two to four weeks, and increasing cash bonuses for each child in the family. . The government is concerned falling birth rateand these measures are clearly intended to make Singaporeans more attractive to get married, buy an HDB condo and start a family.
The 2023 budget is also seizing the opportunity, now that the burden of pandemic-related support has eased, to replenish various government trust funds and donations worth S$16.8 billion. Contributions to these accounts are separate from general operating expenses related to government administration and are used to fund long-term economic and social welfare programs.
Combined with spending cuts and solid returns on public investment funds, Singapore’s overall budget deficit is expected to narrow to S$3.5 billion, or about 0.5 percent of GDP. By comparison, at the height of the pandemic in 2020, the deficit widened to S$51.5 billion, more than 10 percent of GDP. Part of the proceeds will go towards stimulating family planning and mitigating the effects of rising prices. But the main takeaway from this budget is probably that the government is willing to bring the deficit back under control and believes the economy is strong enough to bear the weight of additional taxes for that purpose.