Experts predict GST hike will proceed as scheduled, but more targeted support for the vulnerable is expected.
SINGAPORE: As the cost of living continues to be a pressing issue, Singapore’s Budget 2023, to be unveiled on February 14, is expected to include more measures aimed at assisting the most vulnerable groups impacted by rising inflation. Experts also foresee provisions for retrenched workers and support for businesses to navigate upcoming challenges.
Despite these relief measures, the planned 1 percentage point increase in the Goods and Services Tax (GST) to 9% in 2024 is likely to go ahead as scheduled. Economists believe the hike is essential for ensuring fiscal sustainability, particularly given the growing government expenditure on healthcare.
DBS senior economist Irvin Seah explains that with limited room for changes in corporate and personal income taxes—Singapore’s primary sources of revenue—the GST increase is “inevitable and necessary.” Maybank economists Chua Hak Bin and Lee Ju Ye also predict the GST hike will proceed, citing recovery in sectors such as hospitality and aviation, with the reopening of China providing additional support to counter potential global slowdowns.
Targeted Support
Regarding relief efforts, experts anticipate that the Government will focus on providing targeted aid to ease the rising cost of living. One possible measure is an expansion of the Assurance Package, which was initially introduced in 2020. Originally set at S$6 billion, the package was increased to S$8 billion, with an additional S$1.4 billion expected to be allocated in Budget 2023. UOB economists estimate that this top-up could range from S$500 million to S$1 billion to help households cope with the higher costs due to the GST increase.
This increased funding could lead to higher cash payouts for lower-income groups and seniors. Other potential measures may include GST vouchers, U-Save rebates, MediSave top-ups, Community Development Council (CDC) vouchers, and education-related subsidies. RHB senior economist Barnabas Gan expects a strong focus on helping lower-income groups and seniors, with potential enhancements to programs like the Workfare Income Supplement that supports lower-wage workers.
Retrenchment Support
Another expected initiative is unemployment support for retrenched workers, with eligibility criteria such as a minimum period of full-time employment before retrenchment. This support could resemble the COVID-19 Recovery Grant, which offered temporary cash assistance to workers whose livelihoods were affected by the pandemic. Retraining subsidies may also be provided to help workers transition to sectors experiencing labor shortages.
Supporting the Middle-Income Group
Deloitte Singapore tax expert Sabrina Sia suggests that the middle-income group, which often feels squeezed between low-wage earners and higher-income earners, should also receive additional attention. She proposes increasing the earned income relief quantum to better address the inflationary pressures faced by this group.
Balancing Act
Economists emphasize the need for prudence in government spending, given the commitment to maintaining a balanced budget over the Government’s five-year term. After the substantial drawdown of national reserves in 2020, spending is expected to be cautious. While immediate relief is crucial, long-term fiscal goals should also be prioritized. According to DBS’ Irvin Seah, excessive cash handouts could fuel demand-pull inflation, ultimately undermining efforts to address rising costs.
In conclusion, Budget 2023 is expected to strike a balance between providing short-term support for those affected by rising costs and ensuring Singapore’s long-term fiscal health.
