Singapore balances budget by taxing home, car buyers
singapore — When it comes to balancing the books, Singapore’s government has a tall order. The country’s constitution demands that the budget is balanced over each government’s term (which is a maximum of five years); the island doesn’t borrow money to fund government expenditure and the government doesn’t have any external debt.
“If social spending continues to increase, they will find it more limited in terms of revenue raising options,” said Michael Wan, an economist at Credit Suisse Group in Singapore. “The challenge is to manage changes in the revenue base such that you continue to maintain competitiveness in the global economy,” because “there’s only so much you can tax of the higher income earners before you engender a potential shift out of the country.”
Here is a snapshot of the country’s economy ahead of the fiscal 2016 budget, which Finance Minister Heng Swee Keat presented in parliament on Thursday.
Slowing job growth
The city-state’s policy makers may be under pressure to provide some support to businesses and consumers, as growth in both employment and the broader economy slows.
The finance minister has signalled he will be “prudent” in this budget even as the government seeks to help companies cope with short-term challenges and find medium-term growth opportunities.
Cooling housing market
The government has used taxes to cool Singapore’s property market. In 2009, as low interest rates and demand from foreign buyers raised concerns that the property market was overheating, the city-state’s government began introducing residential property curbs. Higher stamp duties on home purchases were part of the mix.
These measures may not go any time soon: while home sales have fallen, prices still remain well above global financial crisis levels.
Rising government spending
The government has increased fiscal support for the economy in recent years as its population ages and growth slows.
Singapore’s government expenditure may increase to 17.3 per cent of gross domestic product in the year starting April 1 from 17 per cent in fiscal 2015, according to Joseph Incalcaterra, an economist at HSBC Holdings. That would be the highest spending relative to GDP since at least March 2010.
Growing, ageing population
Spending on healthcare and transport has become a bigger chunk of the Singapore budget, while de- fence and education now take up smaller shares.
“Managing the pace of increase in social spending will be important,” said Wan. “In many countries, this can escalate quite quickly,” and many of these commitments are quite permanent and can be hard to roll back, he said.
Costly car permits
Thanks to costly vehicle ownership permits to control congestion and pollution on the island, rising demand for cars means the revenue from such licences have risen in recent years as a percentage of GDP. That’s on top of a road tax that’s imposed on vehicles.
Investment companies’ help
Still, net investment returns from organisations is estimated to rise to about three per cent of GDP in the next fiscal year from about 2.2 per cent in the 12 months ending March 31, according to Credit Suisse Group.