SINGAPORE/HONG, KONG – Singapore is set to deliver a strong budget this week to offset the damage to the economy from the coronavirus, with analysts predicting the biggest deficit in almost two decades.
The fiscal gap may widen to 1.5 percent of gross domestic product in the year beginning April 1, the highest since the 1.7 percent shortfall recorded in the 2001 financial year, according to the median estimate in a Bloomberg survey of economists. This year’s deficit will probably come in at 0.3 percent, compared to the government’s earlier projection of 0.7 percent.
Singapore was already planning support for businesses hit by the trade war when the coronavirus broke out early this year. The city-state, which has more than 60 cases of virus infections, is losing as many as 20,000 tourists a day amid travel curbs. The economic impact is already more severe than during the 2003 SARS pandemic, Prime Minister Lee Hsien Loong was cited as saying Friday.
“Budget 2020 comes at an opportune time for a more expansionary fiscal stance to provide a much needed lift to buffer the downside growth risks,” said Selena Ling, head of research and strategy at Oversea-Chinese Banking Corp. in Singapore.
The coronavirus could shave off 0.5 to 1 percentage point from GDP growth this year, depending on how severe the epidemic is, she said. The government — which will publish fourth-quarter final GDP estimates Monday — had predicted a recovery from last year’s expansion of 0.7 percent, the slowest pace in a decade.
Nine of 10 analysts polled by Bloomberg through Feb. 13 said the single-most urgent economic need for the budget to address was rapid-response efforts to counter the spread of the virus and to shore up businesses.
That is what Singapore is likely to deliver, with Minister Lawrence Wong, co-chair of the government’s task force on the virus response, saying in a Feb. 12 interview that a “strong” economic package is coming in the budget.
He didn’t specify an amount, but economists at Citigroup Inc. estimated the total package could reach 700 million Singapore dollars ($503 million) and could include support beyond the transport and tourism sectors. That would dwarf the SG$230 million provided in response to the SARS outbreak in 2003, Citi analysts Wei Zheng Kit and Kai Wei Ang said in a Feb. 11 research note.
With a possible early election this year, the government may also seek to target other industries with support.
Here is a look at what else Deputy Prime Minister Heng Swee Keat, who is also the finance minister, may deliver in his budget speech in Parliament on Tuesday afternoon in Singapore:
Small and medium-size enterprises traditionally have been key winners in the Singapore budget, given the government’s priority to boost its homegrown firms within and beyond its borders.
Small businesses were predicted to be the biggest winners in this budget by seven of 10 analysts polled in the Bloomberg survey.
Some of the budget proposals outlined by the SME committee of the Singapore Business Federation are more research & development spending to connect SMEs with higher-learning and research institutions, and help for SMEs on cybersecurity through training and expert advice.
GST, other taxes
OCBC’s Ling is among those looking for an offset package to further mitigate effects on parts of the population when the government raises the goods-and-services tax by a planned 2 percentage points to 9 percent sometime between 2021 and 2025.
For tax and financial advisory firm KPMG LLP, its wish list includes enhanced tax deductions for digital skills training and for consultancy and professional fees, a 200 percent tax deduction for costs related to developing sustainability strategies, and a rebate on property taxes for infrastructure that meets sustainability standards.
Innovation and climate
When Heng’s focus shifts to the long term in his budget address, he is likely to emphasize measures to stay ahead on innovation and climate change.
The government has consistently pushed an agenda of digitization and automation, including training for Singaporeans in next-generation industries. Trade and Industry Minister Chan Chun Sing said last month that the budget also would provide more support to older workers who need to boost their skills.
Given that the government has outlined a need for SG$100 billion in spending on climate change initiatives over the next century, Ling said she’s counting on those efforts to appear again in this budget.
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