By Amanda Lee
Singapore is set to announce its 2024 budget this afternoon, in the wake of data showing that economic growth slowed last year as trade tumbled.
Recent indicators have signaled that the economy is off to a better start this year, with exports returning to growth in January and demand improving. However the recovery is fragile. Headwinds like weaker growth in key trading partners and high interest rates cloud the outlook, with businesses and households alike grappling with cost pressures.
The budget will be presented by the Southeast Asian country's Deputy Prime Minister and Finance Minister Lawrence Wong ahead of a planned leadership transition. It includes revised government revenue and expenditure projects for the current financial year, as well as estimates for the upcoming one. Here's what to know:
BUSINESS COSTS: Companies will be hoping to see measures to lower business costs, as higher for longer rates take a toll across sectors, OCBC analysts say. As high rates drive up funding costs, programs to reduce business costs are the "number 1 wish" for budget 2024, particularly among the wholesale trade sector, says Selena Ling, head of research and strategy at OCBC.
Businesses will also be looking for measures that alleviate wage pressures, DBS economists say, "amid a tight albeit softening labor market." The government has already signaled that it will enhance its Progressive Wage Credit Scheme, which co-funds wage hikes for lower-paid workers, economist Chua Han Teng says.
CORPORATE TAX: Any changes to the corporate tax system are also in focus. Wong said during last year's Budget speech that the government would implement a global minimum effective tax rate of 15% for large multinational enterprises with annual revenue of at least US$807.9 million, starting from January 2025.
That has implications for the country's appeal as a financial hub for global companies.
"As Singapore continues to future-proof its business environment and incentive regime to remain globally competitive, the upcoming Budget 2024 is particularly significant," says Yvaine Gan, global investment & innovation incentives leader at Deloitte Singapore. Deloitte anticipates the announcement of new incentive tools like qualified refundable tax credits.
"Developments remain fluid, and various professional services firms have suggested a careful recalibration of incentives in their Budget 2024 proposals," DBS's Chua Han Teng says. "Any indication on the direction of updating incentives and/or new fiscal tools will have a significant impact on attracting and retaining foreign investments."
FISCAL POSITION: Analysts pencil in a small fiscal deficit for the 2024 budget and a potential surplus for 2023.
Maybank thinks that higher-than-anticipated revenue likely led to a surplus of about 0.5% of GDP last year, and sees a small fiscal deficit of around 0.5% of GDP for 2024.
Fiscal spending will likely be ramped up to fund social programs, "and measures to defray costs and improve business competitiveness," Maybank analysts Chua Hak Bin and Brian Lee say.
DBS sees "room for a slight expansionary budget" projecting an overall fiscal deficit of S$3 billion, or 0.4% of GDP.
COST OF LIVING: Surging prices have made life increasingly expensive in Singapore, squeezing household budgets and dampening consumer spending.
Against a backdrop of softer wage growth, DBS's Chua expects the budget to provide "greater assurance" for households. "The government has indicated that it is prepared to provide additional support," he says.
Cost-of-living measures could be targeted for lower- and middle-income households, says UOB's Global Economics & Markets Research team. This is to help them cope with the recent 1% goods-and-services tax increase, as well as rising public transport and utility costs, they say.
Any announcements on further tax hikes will be closely watched.
Write to Amanda Lee at amanda.lee@wsj.com
(END) Dow Jones Newswires
02-15-24 2140ET
