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2007 Budget surplus expected to hit eight-year high

Figure forecast to reach between $4b and $5b on higher tax revenues

THE Government is widely expected to report its largest Budget surplus since the dot.com boom, after a robust economy boosted tax collections last year.

Good corporate profits, strong wage growth and a rip-roaring property market are likely to mean that public revenues exceeded expenditures by between $4 billion and $5 billion, say economists.

This would give the Government considerable leeway to be extra generous with one-off financial aid measures to help the elderly and poor cope with escalating living costs, the experts said.

‘It’s going to surprise on the upside,’ said DBS Bank economist Irvin Seah, who is expecting an overall surplus of $4.28 billion for the fiscal year ending March 31. ‘Due to strong economic growth, tax collections will be higher than expected.’

Finance Minister Tharman Shanmugaratnam will be presenting the Budget to Parliament on Friday. The expected bumper surplus follows economic growth last year, likely to come in at 7.5 per cent.

The final figures for gross domestic product, or economic output, for last year will be announced tomorrow and are expected to reflect estimates published last month.

The Government has recorded, at best, a small surplus in recent years. The last time it achieved a bulging surplus was in 2000 at $4 billion and in 1999 at $4.9 billion.

Standard Chartered Bank (Stanchart) economist Alvin Liew noted that when a fiscal deficit of $690,000 was estimated a year ago, the Government was forecasting growth at 4 per cent to 6 per cent.

‘But actual growth has exceeded their expectations by more than 2 percentage points,’ he said.

CIMB-GK economist Song Seng Wun said the Government’s operating revenues probably jumped by 25 per cent from the previous year, instead of the official 5 per cent forecast.

Economists said personal income tax receipts rose as the strong economy lifted wages and created jobs.

Average bonuses paid out to workers have hit a 17-year high, while the unemployment rate has come down to a 10-year low.

Businesses should also post much stronger earnings such that they will pay more taxes overall despite a cut in the corporate tax rate from 20 per cent to 18 per cent.

Citigroup economist Kit Wei Zheng estimates that combined income tax collections from companies and individuals, which make up almost half of all tax revenues, surged 20 per cent.

Stanchart’s Mr Liew said revenues from the goods and services tax (GST) probably exceeded government projections, too. He noted that the booming economy has allowed consumer prices to rise strongly, probably exceeding government forecasts, which will boost GST receipts.

The experts say the Government should distribute the bulging surplus mainly to individuals who face a slowing economy and rising inflation.

‘The key focus will likely be measures to address the widening income gap and help the lower-income group cope with high costs of living,’ said United Overseas Bank economist Ho Woei Chen. This will likely take the form of one-off help, such as rental and utility rebates for the poor.

Beyond addressing acute challenges, economists said the Government would likely keep an eye on the medium to long term also.

A cut in personal income tax rates to match last year’s reduction in company taxes is widely anticipated to help Singapore attract foreign talent to live and work here.

The Government may also look to further enhance public infrastructure to keep Singapore competitive.

 

Source: The Straits Times 13 Feb 08

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