Singapore’s 2019 budget spells bad news for some

Like previous budgets, this years is extensive and progressive. However, benefits are swayed towards Singaporeans born in the 1950s.

By Joelyn Chan

Singapore Finance Minister Heng Swee Keat made his Budget speech on 18 February 2019. This year is of greater significance, as it’s the city-state bicentennial year. As part of the commemoration, the government is distributing a S$1.1billion (US$0.7 billion) Bicentennial Bonus and setting up a S$200 million (US$148 million) Bicentennial Community Fund. These financial windfalls will go to lower and middle-income families.

However, these extra expenses are not coming from Singapore’s reserves. Those are being held for a financial rainy day.  The working population is putting up the extra revenue.

GST collection on imported goods will contribute more to government coffers

In 2018, 10 million Singaporeans took trips abroad. Overseas trips among residents have seen a year-on-year increase for the past 13 years.

Source: Statista

The government will leverage these outgoing departures to collect more revenue from goods and service taxes (GST). From 19 February 2019, just one day after the budget speech, the threshold for GST relief was reduced, regardless of time spent away from Singapore.

Source: Singapore Customs

A Singapore Customs’ spokesman noted, “The revision of GST import relief for travellers ensures that our tax system remains resilient, given rising international travel.”

Singapore will increase its GST rate in the near future

Finance Minister Heng justified the nation’s impending decision to increase GST by citing healthcare spending, as well as other financial outgoings like pre-school education and security. He added, 9% GST is not high by international standards, as the OECD average stands at 19%.

Source: EY

Back in 2006, Prime Minister Lee Hsien Loong announced that the government would raise the prevailing GST rate of 5%. 5% GST was set in 2004. In the 2007 budget, the government confirmed a 2% increase in GST. The budget was announced in February 2017, and the GST hike was made effective in July 2017.  The next 2% increment is due between 2021 and 2025.

Is the GST hike necessary?

In 2018, GST contributions to Singaporean and Malaysian revenues stood at 15.3% and 9.8% respectively. Singapore’s persistent decision to increase GST runs contradictory to its neighbour. Malaysia removed its 6% GST in June 2018. Both nations are facing ageing populations, and their respective governments have their own set of financial commitments.

Malaysia has a steady stream of petroleum related revenue, unlike Singapore which has no natural resources. Singapore’s decision to increase GST, one of its top three largest contributors to revenue, could be necessary in uncertain times ahead. Minister Heng noted, “in planning for this financial year, we were also faced with the global economic outlook being downgraded by the International Monetary Fund (IMF), as global trade tensions grew.”

A popular budget would garner more votes for the ruling party

Depending on which group the Singaporean fall under, this year’s budget may leave him worse off. For instance, a middle class 30 years old Singaporean will benefit from a 50% personal income tax rebate, capped at S$200 (US$148), in the 2019 financial year. He may also be part of the 1.4 million citizens who receive a GST cash voucher up to S$300 ($221). However, if he travels and buys an expensive imported product back, he may end up paying more GST than the benefit from Budget 2019.

The deadline for Singapore’s next general election is January 2021. But PM Lee noted the possibility of an early election.  The Singapore Democratic Party (SDP) anticipates a general election by end of 2019. It launched its election campaign in February to sway long time supporters of the ruling People’s Action Party.

To keep support high, the incumbent needs to be seen fighting for the working population. Producing a report card with healthy government reserves is not enough. Giving additional benefits to elderly or topping up Central Provident Fund accounts, that are restricted till retirement age, is insufficient.  The government needs to show that it cares for every single citizen, or risks losing working Singaporean votes.

About the Author

Joelyn Chan
Joelyn is a freelance writer based in Singapore. She graduated from Nanyang Technological University with a Double Bachelor in Accountancy and Business. During her free time, she explores the latest developments in fintech and business.