15 February 2018
Asia week ahead: Singapore budget steals limelight

A hike in Singapore’s good and services tax (GST) seems to be a done deal but it bodes ill given already weak domestic spending

Higher consumption tax in Singapore

An annual rite of spring, Singapore’s Finance Minister Heng Swee Keat unveils the Budget for 2018 on Monday, February 19. The budget is likely to reaffirm official 1.5-3.5% growth and 0-1% inflation forecasts for 2018. Over the last two years, Singapore’s economic growth has recovered close to the top end of the government’s estimate of potential growth of 2-4% (3.5% in 2016 and 3.6% in 2017).  However, firmer headline growth masks underlying weakness, reflected in domestic demand and stubbornly low consumer price inflation. With the end of last year’s export surge, sustaining the current rate of GDP growth in coming years will entail continued fiscal pump-priming.

Higher GST could depress consumer spending

The government has flagged a rapid rise in public expenditure in the coming years, though this will also be accompanied by a drive to raise tax revenue. A well-publicized tax initiative in the 2018 budget is a hike in the Goods and Services Tax (GST). It looks like a done deal with a 2 percentage point hike to 9% to be phased in over two years, while bringing e-commerce under the GST net is also under consideration. The move may be some help in the recovery of inflation from its current low level (0.6% in 2017). But the risk is that a tax hike could potentially backfire by depressing consumer spending further.

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Good MornING Asia - 15 February 2018

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