S'pore budget to cushion impact of slower growth: analysts
Wed, Feb 13, 2008

THE Government is expected to cut personal income taxes and announce a financial package to cushion the impact of rising prices and slowing economic growth in its 2008 budget, analysts said.

Finance Minister Tharman Shanmugaratnam is likely to announce Friday an 'inflation offset package' aimed at helping primarily the poor and elderly cope with rising living costs, they said.

'This year's budget will be closely watched,' Citigroup economist Kit Wei Zheng said.

Singapore, South-east Asia's most advanced economy, grew 7.5 per cent last year. The stock market sizzled to record highs and companies reported robust earnings.

But with some economists saying the United States is in a recession, the government forecasts Singapore's trade-reliant economy to expand at a slower clip of 4.5 per cent to 6.5 per cent this year.

While salaries increased and a record number of workers were employed last year, many Singaporeans and foreign residents saw their purchasing power eroded as soaring crude oil prices drove up the costs of food and other items.

Prime Minister Lee Hsien Loong was quoted earlier this month as saying inflation could exceed five per cent this year, compared with 2.1 per cent in 2007.

'Against a backdrop of intensified downside risks to growth and sharply higher inflation, the thrust of the budget will be to aggressively tackle issues related to costs of living and business competitiveness,' Mr Kit said.

'Given buoyant government revenues, we expect a generous budget, with large transfers and rebates to offset higher costs of living, possible cuts in income tax rates and other measures to lower business costs.'

The government is expected to end the financial year with a surplus instead of a deficit, which it had earlier projected, analysts said.

Hoe Woei Chen, an economist with United Overseas Bank (UOB), expects a personal income tax rate cut to 18 per cent from 20 per cent.

She also expects a large part of the budget to address 'the widening income gap' and to help lower-income groups and the elderly.

'Because of the strong economic growth last year, the government has plenty of room for manoeuvre,' Mr Hoe told reporters.

Hand-outs & top-ups
'We expect some cash handouts and rebates and the usual top-ups.'

Mr Kit, of Citgroup, expects the 'inflation offset package'to be an extension of the four billion Singapore dollars in cash handouts, savings top-ups and rebates the government gave last year to temper the impact of a rise in the goods and services tax.

The tax increased by two percentage points to seven per cent.

A bigger portion of this year's package could be in cash in a bid to spur domestic spending and mitigate the impact of an export slowdown, he added.

With inflation hurting family budgets, the prime minister said the increase in prices was a global trend and he suggested Singaporeans find ways to cut costs.

The budget was expected to help businesses, with UOB's Hoe saying small and medium enterprises could see some tax incentives.

Firms hit by soaring office rents were also likely to get some rebates, said economist Song Seng Wun of CIMB-GK Research.

Corporate tax cut
Another cut in corporate income taxes may be possible, especially after regional rival Hong Kong in October reduced its rate by one per centage point to 16.5 per cent, said Kit, of Citigroup.

Singapore's rate stands at 18 per cent.

Accounting firm Ernst and Young said the government should ease rules governing tax exemptions for profits of company branches in foreign countries, on foreign service income and foreign dividends. -- AFP


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