<![CDATA[Singapore budget expected to include tax hike and Covid-19 relief package, with yearly deficit projected]>

Singapore is set to unveil its biggest annual budget since 2009 on Tuesday, one that is expected to include a goods and services tax increase to offset a substantial spending package that includes a coronavirus relief package.

All told, economists estimate that Budget 2020 could incur a deficit of almost S$8 billion (US$5.78 billion). The country is known for its fiscal prudence and is cautious with its projections.

The last time Singapore announced a huge deficit was in 2009 during the global financial crisis when it expected an overall deficit of S$8.9 billion. That number later shrank to just S$819 million.

Buildings in Singapore's central business district. DBS evacuated 300 workers on one floor as a result of a coronavirus case. Photo: Bloomberg alt=Buildings in Singapore's central business district. DBS evacuated 300 workers on one floor as a result of a coronavirus case. Photo: Bloomberg

What was supposed to be an election-year budget with several sweeteners has evolved into an epidemic-focused fiscal outlay that experts think is likely to be the city state's largest since 2009.

Singapore has to call for an election by April of 2021, although some pundits had predicted it could be called as soon as next month. But a snap election by the governing People's Action Party is looking increasingly unlikely given the coronavirus outbreak.

Maybank Kim Eng analysts expect the budget to be filled with "pre-election goodies" such as higher spending on health care, infrastructure, training and special transfers including money that could go into a fund to fight climate change.

"No doubt Budget 2020 will be generous, and the focus will be to buttress the economy," said DBS senior economist Irvin Seah. "A strong fiscal response is expected to counter the impact of the virus outbreak."

Seah projects an overall deficit of S$7.9 billion this year, and said the budget in the previous election year of 2015 " when the government projected a budget deficit of S$6.7 billion on the back of accumulated surpluses of S$11.4 billion " could be used as a reference point for this year's budget.

The GDP baseline is already weak given bleak economic conditions and the US-China trade war. DBS has downgraded its GDP growth forecast for 2020 to 0.9 per cent from 1.4 per cent, while Maybank Kim Eng downgraded its forecast to 1.1 per cent from 1.8 per cent and OCBC is now predicting growth of from 0 to 2 per cent, from its previous forecast of 1 to 2 per cent.

Calling the coronavirus outbreak "a dark cloud over regional growth prospects", Ling said there was substantial uncertainty over when the outbreak will peak and, presumably, subside.

Singapore authorities had on January 30 said they were working on a fiscal package to help businesses and citizens weather the crisis. At that time, Singapore had 16 infections and had just announced travel restrictions on those who had been to China in the past 14 days in a bid to stem the virus' spread. Now, government health authorities have reported 72 infections " one of the highest numbers outside China " with six patients in critical condition.

Globally, more than 69,000 infections and 1,600 deaths have been reported. While the bulk of the infections and deaths have occurred inside China, where the outbreak started, infections have spread to more than 25 countries and killed four outside China.

The outbreak has already disrupted the travel industry, with Singapore projecting a loss of 18,000 to 20,000 visitors daily.

On Friday, Prime Minister Lee Hsien Loong said the impact of the virus on the economy is already larger than that of Sars, adding it was possible the country could slip into a recession.

Details of this financial year's budget will be announced during its unveiling on Tuesday, but economists expect that spending to lessen the impact of Covid-19 will be pegged to the percentage of GDP that Singapore disbursed to battle the Sars outbreak in 2003. Then, the country spent S$230 million to shore up tourism-related industries as well as the transport and aviation sector, and also set aside S$1 million on a "Courage Fund" for Sars victims and health care workers.

In a party newsletter sent out on Friday night, Second Minister for Finance Indranee Rajah wrote that Singapore's experience with Sars has prepared the country to deal with economic disruptions. "We have plans that will not only see us through the current situation but also position us for the future. We have strong economic fundamentals. Our fiscal position is sound," she said.

Seah said he expects the Covid-19 relief package to "pack more punch" than the 2003 outlay on Sars given the greater current economic integration between Singapore and China. The number of Chinese tourists visiting Singapore has risen by six times over the past 17 years, and in 2019 those tourists spent S$3.2 billion in the country. China is also Singapore's largest non-oil domestic export market, at 17.3 per cent of the total share.

Tourists wearing protective face masks walk at Merlion Park in Singapore. Photo: EPA-EFE alt=Tourists wearing protective face masks walk at Merlion Park in Singapore. Photo: EPA-EFE

OCBC's Ling is expecting the Covid-19 relief package to be at least S$500 million, while Maybank Kim Eng has a higher estimate at $700 million and thinks the package could include tax relief measures for Singapore's two integrated resorts " Marina Bay Sands and Resorts World Sentosa " which did not exist in 2003.

Meanwhile, CIMB economist Song Seng Wun said the relief package could be anywhere from S$500 million " or about 0.1% of GDP, equivalent to what was spent on the Sars package " to S$1 billion.

Singapore's taxi and private-hire transport sector has already been given access to a S$77 million package co-funded by the government and transport companies, and tourism officials said licence fees for hotels, travel agents and tour guides will be waived this year.

Another big cost in this year's budget is a possible goods and services tax (GST) offset package. The government plans to hike the country's GST from 7 per cent to 9 per cent sometime between next year and 2025 and has promised a GST support package to cushion the impact of the increase for Singaporean households. At the ruling party's convention in November last year, Deputy Prime Minister Heng Swee Keat, who is also the finance minister, said he would give details of the package during the budget presentation.

The last GST hike was in 2007, when the budget included a S$4 billion offset package to tide Singaporeans over for five years. This year, analysts are expecting it to be anywhere from S$5.6 billion to S$7 billion because of inflation and the increase in population, also it will also be spread over five years.

Beyond the GST offset and Covid-19 relief packages, there will also be standard budget items geared towards the labour market and social and economic developments. In addition, analysts expect some money to go into a fund for climate change, given the prime minister's announcement during the National Day Rally in August that the government would need to spend S$100 billion over 100 years to fight climate change.

ENOUGH DRY POWDER?

According to Song, the CIMB analyst, the coronavirus outbreak threw a spanner into the works of what ordinarily would have been a standard budget. The new budget, he said, will "obviously be a lot bigger than when they first drew up their budget plan even one month ago".

While unplanned expenditures can be a worry for some countries, Singapore has a large war chest of surpluses accumulated over its current term of government. The city state allows any surplus accrued at the end of each financial year to be kept as current reserves for the present term of government to tap into. Since the last election in 2015, the current government has accrued at least S$15.6 billion in surpluses based on last year's projected fiscal policy.

A tourist wearing a protective face mask walks past the Rain Vortex at the Jewel Changi Airport mall in Singapore. Photo: EPA-EFE alt=A tourist wearing a protective face mask walks past the Rain Vortex at the Jewel Changi Airport mall in Singapore. Photo: EPA-EFE

Some economists, however, are expecting FY2019 to surprise on the upside, estimating a surplus of anywhere from $17.9 billion to more than $20 billion.

"Singapore is in the fortunate position of having sufficient dry powder to strike a balance between buffering against short-term downside risks and implementing the medium-term strategy to meet structural challenges like an ageing population and digital disruption," Ling, the OCBC economist, wrote in her budget curtain-raiser.

Singapore has "ample fiscal room", said Maybank Kim Eng, which estimates that the government has S$22 billion in its coffers.

Whatever the current surplus actually is, it far exceeds accumulations in previous election cycles " S$12 billion before the 2011 general election and just S$7 billion before 2015's election.

Still, Song of CIMB said the government may dip into its ample reserves to fund this year's budget. The last time Singapore did so was in 2009 during the global financial crisis, when it drew on S$4.9 billion of reserves to fund two one-off measures to boost the economy.

"It is more of an insurance policy," said Song. "We still don't know how severe this latest outbreak will evolve to, so it is better to be a bit more [prepared] to have a bit more buffer. So although the government has accumulated huge surpluses, having a greater buffer with the reserves will make it easier if they need a supplementary budget later on," he said.

"We don't want to think of the worst-case scenario, but it is better for the government to plan for the worst-case scenario."

This article originally appeared on the South China Morning Post (SCMP).

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