SINGAPORE: Singapore will face structural budget deficits if it does not raise revenues in the next decade.
Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam gave this warning in Parliament on Wednesday.
He said the government will have to raise revenues while maintaining Singapore's economic competitiveness and keeping a low tax burden on the middle-income.
To support the elderly and low-income families, the government is spending more on healthcare and social services.
This is expected to result in a budget deficit of S$1.2 billion for 2014 -- the country's first deficit since fiscal year 2009.
Mr Tharman said: "Revenues are not going to increase as a percentage of GDP, but spending will go up as a percentage of GDP. So we will not have the current fiscal advantage that we have, in the future. And at some point, our revenues will fall short of expenditures."
He warned that Singapore will run into structural deficits, unless it raises revenues in the next decade.
The Singapore government knows it has to raise revenues in order to pay for increased social spending.
But how will it go about doing that, given that one of its objectives is to keep the tax burden low for the middle-income?
One tax expert said that one way the government can raise revenue -- without increasing direct taxes on corporates or individuals -- is to broaden the tax base.
PricewaterhouseCoopers Tax Partner, Abhijit Ghosh, said Singapore could look at broadening the tax base by taxing investment income or capital gains.
Mr Ghosh also said that it's unlikely for the government to raise revenue by raising corporate taxes.
Singapore's corporate income tax rate - at 17 per cent - is among the lowest in the region, but it has to contend with competing jurisdictions such as the UK and Taiwan, which have or are planning to lower rates.
In his speech on Wednesday, Mr Tharman also said that there is further room to enhance asset taxes, which refers to taxes on cars and property.
He added that it's important for Singapore's tax system to remain fair and equitable. - CNA
