Higher taxes not expected for expansionary Budget 2020

Singapore

THIS term of government's large accumulated surplus should allow for an expansionary Budget 2020, even in the absence of tax increases apart from the upcoming goods and services tax (GST) hike, say analysts.

"Barring any unexpected increase in spending needs, we do not expect any significant change to funding sources," said KPMG Singapore's head of tax Tay Hong Beng. "The case for a GST increase could otherwise be difficult to justify."

OCBC Bank head of treasury research and strategy Selena Ling said there "is easily room" for Budget 2020 to plan for a deficit of up to 2 per cent of gross domestic product.

With the total accumulated surplus at the end of the 2019 fiscal year potentially reaching S$15.6 billion, this "provides a sizeable kitty to put aside for large expenditures such as research and development, infrastructure projects, and potentially climate change initiatives", she added.

Furthermore, that accumulated figure is based on a projected deficit of S$3.5 billion in FY2019 - but the actual deficit could turn out smaller, said UOB economist Barnabas Gan.

At the halfway mark of the fiscal year, revenue collection was more than half the year's budgeted amount, while expenditure was less than half.

Continued global uncertainty, soft domestic dynamics, and the election cycle are some reasons that analysts see an expansionary Budget ahead.

"In view of the challenging situation as well as the consideration of an election budget, Budget 2020 is expected to be larger than Budget 2019," said SIM Global Education senior lecturer Tan Khay Boon.

An HSBC Private Bank outlook report estimates that Budget 2020's fiscal impulse could be up to 1.9 per cent of GDP. But with growth expected to pick up this year, "it may be premature for a substantial stimulus package", said Mr Gan.

On the funding side, tax increases seem unlikely, he added: "I think the focus for this year will really be to pay attention to Singapore's competitiveness and competencies rather than trying to pull out revenue drivers."

No one expects corporate or personal income taxes to be raised in the current economic climate.

Ernst & Young expect the 17 per cent corporate income tax rate to be maintained, and instead propose extending the corporate income tax rebate of 20 per cent - granted for year of assessment (YA) 2019 - into YA2020 and YA2021 too.

As for raising personal income tax rates, "such a move may be a bit tricky to pull off in an election year given that the resident personal tax brackets were only recently raised in YA2017", says Ms Ling.

If anything, tax reliefs could be reviewed in line with the higher cost of living, said Deloitte Singapore global employer services leader Sabrina Sia.

With more dual-income families and a push for gender equality, gender-neutral working parent child relief is also worth exploring, she added.

Granted, ever-increasing spending needs may make it hard to justify new reliefs, she said: "It may be easier to just grant tax rebates rather than introduce new tax reliefs as rebates are generally granted one-off."

EY partner for people advisory services Kerrie Chang does not expect new reliefs in Budget 2020, but suggested that "it may be time to review the eligibility requirements associated with a number of reliefs".

These include the income threshold for financial dependents, set at S$4,000 per calendar year.

"Raising this income threshold could encourage younger people to enter the workforce, teaching financial responsibility and work ethic, without their parents losing the tax relief," she said.

As for other revenue sources, while the Budget speech - set to be delivered in Parliament on Feb 18 - may include green issues, moves such as increased diesel or carbon taxes are less likely than support for research and development, said Mr Gan.

Nor are changes expected to the framework for the Net Investment Returns Contribution (NIRC), derived from returns on invested reserves.

"The current situation, though challenging, may not require changes to NIRC to fund government spending," said Dr Tan. "This is especially if the GST hike is able to generate sufficient funding to finance the expenses."

In Budget 2018, it was announced that the GST rate will go up from 7 per cent now to 9 per cent, at some point between 2021 and 2025. This year's speech will give details of an off-set package to help citizens cope.

Some economists expect this to be accompanied by news of the hike's potential timing. UOB's Mr Gan, however, thinks the government could give details without a timeline.

Given the volatile economic outlook, the government may not announce the hike's date yet, agreed PwC Singapore GST leader Kor Bing Keong.

PwC hopes for a five-year support package funded by setting aside half the additional revenue - estimated to be at least S$3 billion a year - to be collected in those five years.

The support package will likely be given to the lower and middle income groups and retirees, said Mr Kor, who expects it to include cash payouts, Medisave top-ups and rebates for utilities, service and conservancy charge, rental, and property tax, as well as top-ups of the Public Transport Fund.

Deloitte Southeast Asia indirect tax leader Richard Mackender notes that the last time GST was increased in 2007, the package included cash, top-ups to Medisave and education accounts, property tax rebates, and grants to public hospitals, the public transport fund, and to town councils.

Then, the government's calculation was that the package provided benefits of on average seven times the additional GST cost to a Singaporean household in a four-room public flat, he noted.

"Therefore, it is likely that the government will ensure that a fair and reasonable proportion of the additional GST revenue would be returned by way of offset this time too."

With the 2007 package being S$4 billion over five years, the upcoming one can be expected to be similar or larger, said EY indirect tax services partner Yeo Kai Eng. OCBC's Ms Ling expects the new package to be 50 per cent more than in 2007 - or even double.

Apart from households, firms might get help, suggested Mr Tay.

"As an extension of past measures, a separate package could also be considered targeted at entrepreneurs and small businesses that are not GST-registered. This could be in the form of utilities or rental rebates, or even working with co-working space providers to provide rental rebates," he said.

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