By Francis Kan
SINGAPORE — With Budget 2020 around the corner, economists have been bandying terms like “expansionary budget” and “dependency ratio ceilings” as they attempt to predict what Deputy Prime Minister and Minister for Finance Heng Swee Keat are likely to present on Feb 18. To get you ready for the big day, we take you through some terms you might hear.
What almost everyone agrees on is that this year’s Budget will be highly expansionary. That means the government expands the money supply by decreasing taxes, increasing government spending, or both, helping to prop up a slowing economy.
With the economy expected to take a big hit from the novel coronavirus (COVID-19) outbreak, given the sharp anticipated fall in tourists and business travellers, economists believe the government could spend big on an 'anti-epidemic' package and other measures to help stave off the expected slump in the economy.
When the government spending exceeds income, it results in a budget deficit. For Budget 2020, economists expect a deficit due to higher spending on items such as healthcare, infrastructure and training, as well as support for businesses impacted by the COVID-19 outbreak.
Reserves and their role
Any surplus accrued at the end of a Financial Year (FY) during a particular Government’s term is stored as Current Reserves. These funds can be used in subsequent FYs. With over $15 billion estimated to be in the government’s Current Reserves, it can finance a deficit in Budget 2020 if it needs to.
GST offset package
With a two-percentage point hike in the GST planned for some time between 2021 and 2025, the government is likely to announce measures to help especially low-income Singaporeans offset the higher tax. Economists from May Bank Kim Eng expect an offset package of at least $7 billion spread over five years to be announced in Budget 2020. This will likely outweigh the S$4 billion package over 5 years announced in 2007 when the government raised the GST rate to 7 per cent from 5 per cent.
Dependency ratio ceilings
Dependency Ratio Ceiling (DRC) refers to the maximum permitted ratio of foreign workers to the total workforce that a company in a particular industry is allowed to hire. The government has tightened the DRC over the years to reduce Singapore’s dependence on foreign labour. However, reducing access to foreign workers has hit local businesses hard. As such, there are hopes that some form assistance related to the DRC will be announced.
A fund established with an injection of government monies as principal, which is drawn down to finance specific programmes on an ongoing basis. Examples of government trust funds include the National Research Fund and the GST Voucher Fund.
Singapore government‘s financial year 2020 is from 1 April 2020 to 31 March 2021.
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