Singapore pays bonus to citizens as its economy grows 3.6pc

Singapore

Singaporeans aged 21 and above will get a “hong bao”, or Lunar New Year red packet, as Finance Minister Heng Swee Keat announced a “one-off” bonus in 2018 of up to S$300 ($228.50), depending on their income.

The bonus comes after Singapore’s trade-reliant economy grew 3.6 per cent in 2017, its best pace in three years.

Song Seng Wun, an economist for CIMB private banking, said the one-off “hong bao” bonus was a product of Singapore’s economy having a “better than expected outcome” in the last year.

Singapore meanwhile said its sales tax will rise to nine per cent from seven per cent, but the change will only come “sometime” between 2021 and 2025, making it likely that the increase would kick in after the city-state’s next general election.

Global economic growth, plus comments by policymakers on the importance of raising revenue to meet future spending needs for Singapore’s ageing population, led many analysts to expect that the Goods and Services Tax, kept at seven per cent since 2007, would increase as early as the coming fiscal year.

Surprise

“The surprise for us was that the planned increase was for a much later period,” said Jeff Ng, chief economist Asia for Continuum Economics.

“This eases the need for a future government or administration to announce the GST,” Ng said.

Singapore’s next general election is due to be held by January 2021.

In the last one in 2015, the ruling People’s Action Party won 70 per cent of the vote, a strong improvement from the 60 per cent garnered in 2011.

After announcing the planned GST hike, the finance minister said “the exact timing will depend on the state of the economy, how much our expenditures grow, and how buoyant our existing taxes are. But I expect that we will need to do so earlier rather than later in the period.”

Singapore introduced a GST in 1994, with a 3 per cent rate. This was raised to 4 per cent in 2003 and 5 per cent in 2004, then to 7 percent in 2007. The current rate is among the world’s lowest for a consumption tax.

Besides the plan for raising GST, Heng unveiled other tax measures.

These include increasing the top marginal buyer’s stamp duty on residential property worth more than S$1 million effective from Tuesday, raising the excise duty on tobacco products and introducing GST on imported services from 2020.

Carbon tax

Coming in 2019 is a carbon tax, which will be S$5 per tonne of greenhouse gas emissions until 2023. The plan is to increase it to between S$10-S$15 per tonne by 2030.

Heng said spending needs will rise across various sectors in coming years, including in healthcare, infrastructure and security.

The government expects average annual healthcare spending to rise from 2.2 per cent of GDP currently, to almost three per cent of GDP over the next decade, he added.

“With an ageing population and an increasing chronic disease burden, the demands on families and Government will rise,” the finance minister said. “We will need to spend even more on healthcare.”

Heng, one of several cabinet ministers considered a possible successor to Prime Minister Lee Hsien Loong, said in the speech “We must anchor Singapore as a Global-Asia node of technology, innovation and enterprise.”