UPDATE 2-Singapore sees lower 2022 budget deficit at 0.3% of GDP

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SINGAPORE, Feb 14 (Reuters) - Singapore expects the 2022 budget deficit to be S$2 billion ($1.51 billion), or 0.3% of gross domestic product, down from a previous estimate of S$3 billion, finance minister Lawrence Wong said on Tuesday.

Wong, who was presenting the 2023 budget to parliament, said the city-state must brace for a period of higher inflation and that the government would help citizens and businesses weather the higher costs of living.

Singapore faces the prospect of a slowing economy amid inflationary pressures and rising interest rates. Meanwhile, its expenditure is increasing largely pegged to healthcare, driven by its ageing population.

Wong, who is also deputy prime minister, said the government would help families and businesses.

The government will enhance a support package to help Singaporeans offset a recent sales tax hike from S$6.6 billion ($4.97 billion) to S$9.6 billion.

The second step of a scheduled sales tax hike would go ahead as planned in 2024. The sales tax will increase to 9% next January, after increasing from 7% to the current 8% on Jan. 1 this year.

Wong said this would offset all the spending increases lower-income households face due to inflation and the sales tax hike, while "substantially covering" spending increases for middle-income households.

"But I hope all Singaporeans understand it is not fiscally sustainable to rely so heavily on government support year after year to cope with inflation," Wong said.

Singapore's 2023 core inflation is forecast at 3.5%-4.5% and headline inflation at 5.5%–6.5%.

Singapore's key consumer price gauge rose 5.1% in December, while the core inflation rate - which excludes private road transport and accommodation costs - was unchanged from the rise in November.

For 2022 as a whole, core inflation averaged 4.1%, higher than the 0.9% recorded in 2021. Meanwhile, headline inflation came in at 6.1% last year, up from 2.3% in 2021. ($1 = 1.3269 Singapore dollars) (Reporting by Xinghui Kok, Chen Lin; Writing by Kanupriya Kapoor; Editing by Ed Davies and Jacqueline Wong)