February 21, 2010
According to a Bloomberg report on 18 February 2010, Singapore may incur a budget deficit of as much as S$8.1 billion dollars or 3 per cent of its gross domestic product this year.
It will be the third consecutive budget deficit after a predicted deficit of S$8.7 billion dollars in 2009 when the reserves were tapped to give cash to companies and citizens to shower the reccession.
While economists say that there are unlikely to be changes to corporate and personal income taxes, GST may be raised to boost government revenue.
“Given the likelihood of a sizeable deficit by Singapore standards, we doubt that the fiscally conservative government will judge it timely to further deplete a major source of government revenue,” said Kit Wei Zheng from Citigroup.
Alvin Liew from Standard Chartered made a bold prediction:
“We forecast that the GST will be raised to 10 percent by 2012 as an expected increase in tourism broadens the domestic consumption base, making indirect taxes a more significant contributor to government revenue.”
GST was raised from 5 to 7 per cent in 2006 just after the election amidst much public displeasure.
Prime Minister Lee Hsien Loong claimed that the GST hike was necessary to “help the poor”, but till now he had not explained how it had helped the lower income group in Singapore.
The budget deficit incurred pales in comparison to the billions of dollars lost in failed overseas investments by Singapore’s two sovereign wealth funds Temasek Holdings and GIC.
The Chairman of GIC is Singapore’s octogenarian leader Lee Kuan Yew while Temasek Holdings is led by his daughter-in-law Ho Ching. None of them have prior experience in the finance industry.
GIC is expected to lose more than S$10 billion dollars when its stake in Swiss bank UBS is converted entirely to shares on 5 March.
Till today, nobody knows exactly how much GIC has lost though its Deputy Chairman Dr Tony Tan revealed that it has since “recouped” half its losses due to a stock rally last year.
As for Temasek Holdings, it is an “Asian investment firm” owned entirely by the Ministry of Finance and therefore is not “accountable” to the people of Singapore.
With the next election looming around the corner, Singaporeans can expect a bag of “carrots” to be dangled in front of their eyes after which GST and other taxes will be increased when the ruling party gets voted into office again with another “overwhelming mandate.”
PM Lee unveiled a “progress package” for Singaporeans before the 2006 elections. After he won another 5-year term, one of the first things he did was to raise the salaries of himself and his ministers.
Singaporeans should not be too concerned if GST will be raised to 10 per cent. Even if it’s raised to 20 per cent, there is nothing they can do about it.