Singapore raises wealth taxes and GST to recover from Covid hit

(Bloomberg) – Singapore has raised taxes on the wealthy and increased other levies to restore finances after unprecedented spending to deal with the pandemic.

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Detailing the budget for the year beginning April 1 on Friday – which resulted in an unexpected deficit – Finance Minister Lawrence Wong said the planned changes, which include increased consumption and carbon taxes, are needed to foster a “more equitable income structure”. ”

“That means everyone is participating and contributing to a vibrant economy and a stronger social pact, but those with more means are contributing a greater share,” Wong said.

Singapore’s annual budget typically shows how it balances an open and prosperous economy – which relies heavily on free trade and foreign labor – with the satisfaction of a population whose approval has kept the Party in check. popular action in power since independence in 1965.

Despite new revenue efforts, Singapore is on track to post its third consecutive budget deficit. Wong said on Friday the shortfall would total S$3 billion, or about 0.5% of gross domestic product, for the coming year. Economists polled by Bloomberg ahead of the speech had forecast a surplus of 0.6% of GDP. This follows a revised deficit of 0.9% the previous year.

“Our budget remains expansionary to support the economy,” Wong said.

Among other “wealth taxes”, top marginal levels of personal income tax will be raised – peaking at 24% for income above S$1 million ($744,000) – and levies will be adjusted on some properties and vehicles.

Separately, the planned GST hike will be spread over two years, rising to 8% in 2023 and 9% in 2024, Wong said.

Wong, delivering his first budget speech, seeks to chart a post-Covid future for the city-state, focusing on rebuilding finances to deal with long-term challenges such as increased social spending and health care costs as the local workforce ages.

“So this budget is about charting our new course together,” Wong said. “This is a first step in renewing and strengthening our social pact for a post-pandemic world, and in realizing our vision of a fairer, more sustainable and more inclusive society.”

The new taxes aim to restore public coffers after the government committed around S$100 billion in Covid-related spending over the previous two years – which forced it to dip into reserves – and posted budget deficits in both years.

Wong also detailed on Friday plans to tighten criteria for foreign workers, which he said are necessary to ensure they are of the “right caliber” to complement Singapore’s workforce.

Reopen the economy

With the city’s Covid-19 situation stabilized, Singapore earlier this week announced plans to further reopen its economy and bring back travelers and foreign labor. It will also facilitate social distancing measures that have kept the number of cases and deaths relatively low throughout the pandemic.

The benchmark Straits Times has been one of the best performing equity indices in the world this year, gaining around 10%. It closed down 0.3%.

The Commerce Department on Thursday reaffirmed expectations for gross domestic product growth of 3% to 5% this year, which Wong reiterated in his speech. While export-oriented sectors like manufacturing and trade will remain strong, the ministry flagged the risks of a possible slowdown in global demand and the impact on aviation and tourism-related sectors from outbreaks. of Covid-19.

Inflation has also increased in recent months. That prompted the central bank to tighten monetary policy twice in the past four months, including an off-cycle move in January after the highest headline inflation reading in eight years.

(Updates with budget deficit details from second paragraph. An earlier version of this story corrects a currency conversion.)

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