Singapore Budget 2017: UOB says enhanced tax reliefs to boost business, purchasing power needed

SINGAPORE Budget 2017 must address the short-term needs of businesses and provide enhanced tax reliefs to boost sentiments and raise household's real purchasing power, UOB economist Francis Tan said on Wednesday.

In a research report, Mr Tan is hoping that Budget 2017 - which will be delivered by Finance Minister Heng Swee Keat in Parliament on Feb 20 - will unveil a single-year tax relief measure to tide businesses and households during difficult times.

He noted that economic growth has been very slow and protracted due to structural and cyclical reasons.

While Singapore has largely avoided a technical recession in 2016, it "continues to bear the burden of weaker global economic fundamentals" and risks in certain sectors like the offshore and marine. The economic outlook has also been clouded by anti-globalisation rhetoric. Singapore's overall unemployment rate has also edged to 2.2 per cent in the fourth quarter of last year, the highest since 2010, Mr Tan said.

"At a time when external demand drivers are weak, an economy's growth potential depends more on domestic consumption as well as business investments.

"Indeed, both expenditure segments remain important demand drivers for Singapore's Gross Domestic Product (GDP) as they account for 60 per cent of real GDP in 2015. However, due to the looser labour market conditions (higher job vacancies and slower wage growth) as well as benign business conditions, both expenditure segments fared poorly."

Mr Tan argued that social needs have been well covered via previous Budgets. Many schemes had been implemented to help manage the rising cost of living, reduce consumption inequality, and to provide some forms of social safety nets via the pooling of risks. The goal since then was to build an inclusive society, with targeted help for older workers and the lower-income households. The focus of this Budget should thus be economic-centric.

"Similar to last year, Budget 2017 will need to finely balance both short and medium policy implementation.

"If Budget 2017 is overly prescriptive on short term problems, then it may miss the longer term picture, not adhere to the upcoming Committee on the Future Economy (CFE) recommendations and worse still, encourage irresponsible risk-taking in the private sector and promote moral hazard attitudes. If it is overly prescriptive on longer term problems, then perhaps many companies may not even survive the current downturn."

UOB thinks that the government estimate of an overall surplus of S$3.4 billion for FY2016 is on the conservative side.

UOB estimates Singapore's overall budget at a surplus of S$6.7 billion, or 1.68 per cent of GDP as it expects higher contributions from corporate and personal income taxes, motor vehicle quota premiums, and Goods and Services Tax collections.

For FY2017, UOB is expecting an overall budget surplus of S$7.2 billion.

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