Tax cuts top Singapore budget agenda and deficit looms

Income and corporate tax cuts, the final step in an overhaul of Singapore's taxation system, could lead to a record fourth straight deficit when the government unveils its budget this week, analysts said.
But the well-telegraphed changes, which will see corporate tax and the top rate of income tax cut to 20 percent from 22 percent, are priced in by financial markets as the government had already given a commitment to make them by 2005.
They said the budget for the year to March 31, 2005, due on Friday, could also feature moves aimed at boosting the fertility rate among Singaporeans, help for an ageing population and for older workers made redundant by changes in the economy.
But with a steady economic recovery encouraging the government not to tighten its belt, financial markets are unlikely to be moved by the measures.
"It's all out there. I don't think it (the budget) will make a heck of a difference," said Lim Say Boon, a director of OCBC Investment Research. A fourth budget deficit would be a talking point in fiscally conservative Singapore, though those analysts expecting a shortfall say its size is dwarfed by the government's huge and largely hidden reserves held in statutory bodies.
The city state had steadfastly banked budget surpluses, from the 1970s until its economy began to slow with the bursting of the tech sector bubble in 2000.
Singapore's trade-driven economy is on course to expand by around five percent this year, according to the median forecast of 10 economists recently polled by Reuters, after growth of just under one percent in 2003 when the deadly Sars outbreak hit.
The sluggish expansion last year did not stop the government from implementing a one-percentage-point rise in the goods and services tax (GST) to five percent on January 1, which could almost offset the changes to personal and company taxes.
Analysts say a key feature of the forthcoming budget could be fresh incentives to tackle the city state's declining birth rate.
In 1990 Singaporean women, on average, gave birth to 1.87 babies in a lifetime. That fell to 1.42 by 2001 and to 1.37 in 20 02 - far below the 2.1 rate needed for a population to replace itself. Last year saw another drop to a record low.