Commentary: Budget 2023 will have to walk a tightrope of immediate cost of living issues and fiscal prudence
Budget 2023 will have to walk a tightrope between helping households manage the rising cost of living and sustainable spending. Singapore must grow the economic pie to make the vision of a new social compact reality, says OCBC chief economist Selena Ling.
Budget 2023 to be announced on Tuesday (Feb 14), how much of a “Valentine’s Day present” - as Deputy Prime Minister and Finance Minister Lawrence Wong called it - should we be expecting?
Pandemic-induced woes have blurred into economic shocks of war, soaring inflation and rising costs of living. But dark clouds seem to be lifting somewhat.
The expert consensus seems to be that inflation has likely peaked and will subside in 2023, though how significantly and how quickly remains to be seen. Singapore’s core inflation has held steady at 5.1 per cent for the third consecutive month in December 2022.
Analysts are hopeful about the impact of China’s reopening on the global economy, and that major central banks (like the United States Federal Reserve and the European Central Bank) are easing aggressive monetary policy tightening.
The International Monetary Fund (IMF) also upgraded its 2023 global growth forecast for the first time in more than a year. The outlook came with warnings that a recession could still happen, though its chief economist said that the risk has generally subsided.
What do all these developments mean for Singapore’s upcoming Budget 2023?
BALANCING IMMEDIATE HELP WITH FISCAL PRUDENCE
Singapore is likely to see an overall budget surplus of about S$2.8 billion in FY2022 instead of the originally expected deficit of S$3 billion (or 0.5 per cent of gross domestic product).
Notably, corporate and personal income tax receipts as well as Goods and Services Tax (GST) collection and betting taxes have surpassed expectations so far, as Singapore eased COVID-19 restrictions with more workers returning to the office and consumers unleashing their spending on food, entertainment and travel.
This would mark the first overall budget surplus since 2019 before the COVID-19 pandemic, implying some normalisation of fiscal finances. Given the need to balance the budget over the current term of government, this is an encouraging sign that the COVID-19-related emergency spending is indeed over.
At this juncture, it is probably prudent to keep some fiscal powder dry just in case the macroeconomic environment deteriorates further, given growing economic headwinds.
Budget 2023 will have to walk a tightrope - providing immediate help to households to manage the rising cost of living and help for small- and medium-sized enterprises (SMEs) still struggling with higher costs and manpower shortages, but also rolling back more of the COVID-19 era support schemes.
The overarching principle of fiscal prudence cannot be ignored - even if there is some short-term pain perceived - since that underpins the need for the recent 1 percentage point GST hike in January to support public spending on healthcare for the ageing population.
The next 1 percentage point GST hike - from the current 8 per cent to 9 per cent - in 2024 is thus unlikely to be deferred, unless there is a protracted deterioration in the growth trajectory. Moreover, the projected revenue growth is not expected to be sufficient to cover the increasing spending needs over the coming years.
STAYING ATTRACTIVE AMID GLOBAL COMPETITION
With the Government’s emphasis on strengthening the social compact to ensure that no one is left behind, we can expect Budget 2023 to lean into the following priority areas: Strengthening Singapore’s competitive position in the global economy; and helping the population achieve aspirations of home ownership, managing social inequality and addressing the needs of the ageing population.
In particular, as countries strive for post-pandemic economic recovery, there is increasing global competition for talent and investment. Singapore will have to stay attractive if it is to grow the economic pie and make the vision of a new social compact reality.
Through upgrading skills, capabilities, R&D, innovation and internationalisation, Singapore can expand the pool of skilled workers and sustainable and vibrant local businesses.
The labour market remains tight at this juncture. The overall unemployment rate improved to 2.0 per cent in the fourth quarter of 2022, overtaking the pre-pandemic 2019 average of 2.2 per cent. With a record 231,700 more workers employed last year, this has also surpassed pre-pandemic 2019 levels, fuelled partly by foreign workers in the construction sector.
However, the Ministry of Manpower tips hiring sentiments to soften but generally remain positive, as 64.6 per cent of firms surveyed in December 2022 still plan to hire in the next three months.
A Singapore Business Federation survey saw companies citing wages as their top cost challenge. Their manpower challenges included rising manpower costs, attracting and retaining younger workers, new foreign manpower policies raising costs and a limited pool of local high-skilled labour. Still, 40 per cent of respondents planned to raise salaries.
UPSKILLING AND INNOVATION
But local workers cannot be complacent and need to press on with upskilling.
The skills demand will evolve with the new growth areas in the digital economy (such as cybersecurity, software design and customer experience management), the green economy (such as green financing and carbon footprint management), and the care economy (such as human resource advisory, career coaching, health and wellness), according to the second edition of the Skills Demand for the Future Economy Report.
In particular, mid-career workers aged 40 to 59 years who make up half of Singapore’s resident workforce need to stay relevant and employable with transferable skills. This would ensure lifetime employability, career longevity and competitive firms.
Singapore’s 2022 GDP growth is expected to reach 3.8 per cent year-on-year, within range of the official forecast. For 2023, OCBC’s GDP growth forecast is around 2 per cent, in line with authorities’ official forecast between 0.5 per cent and 2.5 per cent.
Budget 2023 is likely to mark the end of the unprecedented COVID-19 pandemic spending and switch back to a more fiscally prudent mode to prepare the Singapore economy for the medium-term challenges.
Ling, S. (2023, February 13). Commentary: Budget 2023 will have to walk a tightrope of immediate cost of living issues and fiscal prudence. CNA. https://www.channelnewsasia.com/commentary/singapore-budget-2023-balance-inflation-economy-social-compact-3271336