With the global economy looking wobbly and Singapore’s own restructuring efforts still very much a work in progress, tomorrow’s Budget will likely have its focus firmly fixed on the fundamentals that will carry the economy into the future.
Budget 2017, to be delivered by Finance Minister Heng Swee Keat, also comes amid a backdrop of significant political and technological changes worldwide, along with a rise in anti-globalisation sentiment.
A small, open economy like Singapore’s can ill afford to wait and see as such disruptions play out, economists say – and this will be reflected in Mr Heng’s speech, which will likely set out strategies for Singapore to adapt to the changing world.
Indeed, Singaporeans already got a preview over a week ago when the Committee on the Future Economy (CFE) released its report, the culmination of a year’s study and discussions, which contained many recommendations to enable the Republic to do just that.
The Budget will build on these recommendations, fleshing out details on how they will be implemented in the years ahead.
For small and medium-sized enterprises (SMEs), this will likely comprise a mix of measures to support them through a high-cost environment, keen competition and the longer-term need to scale up and innovate, said OCBC economist Selena Ling.
Workers, meanwhile, can expect more support to help them be future-ready as technological disruptions threaten traditional job roles, she added.
“There is some scope for a bigger helping hand for these displaced professionals, managers, executives and technicians with their commitments, whether tax or otherwise, while encouraging them to leverage on the SkillsFuture scheme to upgrade their skills and find new sources of employment.”
Citi economist Kit Wei Zheng noted that the CFE called for a review of the tax system to take into account rising social spending due to an ageing population and global tax reforms.
He expects that the Budget could signal a moderate increase in broad-based indirect taxes such as the goods and services tax (GST), “while mitigating the regressive nature of such moves via direct transfers to the lower income groups”.
There could also be a streamlining and consolidation of existing corporate tax incentives that may be enjoyed by multinationals, he added, along with increases in the personal income tax rates, with bigger hikes at the top end.
Overall, the Budget will likely be economy-centric, said United Overseas Bank economist Francis Tan. “Social needs look well covered via previous Budgets. Plenty of 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,” he said.
Still, he added he is hoping for a one-off tax relief measure to tide businesses and households through this difficult period of sluggish economic growth, higher job vacancies and slower wage growth.
Ultimately though, Mr Tan said the Budget will have to strike a fine balance between the short-term need of getting the economy out of a cyclical slowdown and a longer-term restructuring exercise.
“If Budget 2017 is overly prescriptive on short-term problems, then it may miss the longer-term picture, not adhere to the upcoming CFE recommendations and, worse still, encourage irresponsible risk-taking in the private sector and promote moral hazard attitudes,” he noted.
“If it is overly prescriptive on longer-term problems, then perhaps many companies may not even survive the current downturn.”