Since becoming independent in August 1965, Singapore’s economy has grown rapidly. Often called Southeast Asia’s tiger economy, the Lion City boasts one of the world’s highest per capita Gross Domestic Product (GDP).
The City State’s economic boom over the years is no accident – it is a result of meticulous ‘free-market’ economics and autocratic policies, spearheaded by then Prime Minister Lee Kuan Yew.
Despite its natural resources deficiency and undersized territory, Singapore owned a decisive advantage over other economies by focusing on exports and foreign direct investments. After promoting export-led industrialisation, and establishing a substantial industrial base by attracting global companies, the country attained its current status as a progressive, highly stable and business-friendly economy.
Singapore’s Economy at Present
According to Singapore’s Department of Statistics , the National Gross Domestic Product reached an impressive mark of 3.6% in the last quarter of 2017, up from a GDP of 2.4% in 2016. Economists are predicting that the positive momentum last year will likely get carried over in 2018, forecasting an annual growth of 3.0% in 2018 and 2.7% in 2019.
The economic prospects for 2018 are optimistic, with key growth indicators up as early as first quarter of this year: total merchandise trade up increased to 7.1%, industrial production for the manufacturing industry reached 17.9% and non-oil domestic exports rose to 13.0%.
Notwithstanding Singapore’s optimistic economic outlook, UOB economist Francis Tan suggests the need to be wary of risks that could slowdown economic success, among these factors are : weakening global trade due to China’s investment slowdown, higher interest rates imposed by the US Federal Reserve, geopolitical uncertainty due to US President Trump’s protectionist policy, and a sluggish domestic labor market. The biggest area of concern, however, comes from the administration itself, with its intended increase in government expenditures.
Prime Minister Lee Hsien Loong, speaking in a PAP convention held last November 2017, claimed that the rising governmental costs are imperative to Singapore’s long-term spending needs, particularly in transportation, infrastructure, healthcare and social services.
Why Singapore Should Heed the Path of Economic Transformation
How can Singapore become a resilient economy in the face of uncertainty? Finance Minister Heng Swee Keat stated in his round-up speech during the Budget debate last March 1 that the best option for the City State is to undergo economic transformation. To ensure strong revenues for a sustainable economy, Singapore has to learn how to adapt to the changes in status quo, in critical areas of global economy. To successfully transform existing economic conditions, the government is expected to explore the following:
Overhaul Tax Schemes
Since government spending will rise rapidly in the future, introduction of new taxes or higher tax rates, according to Prime Minister Lee Hsien Loong, is inevitable. The overhaul in Singapore’s tax regimes is likely to affect different areas of taxation, namely:
Digital Commerce Tax
Senior Minister of State for Law and Finance Indranee Rajah stated in a radio interview that the introduction of eCommerce taxes is needed to diversify Singapore’s existing tax base and ensure that online enterprises are similarly situated, in terms of tax liability, as that of brick-and-mortar retail stores. This comes as no surprise, considering that online shopping (via Lazada or Amazon) is expected to outpace conventional retail in a few years. In fact, BMI Research projected that Singapore’s e-commerce sales are estimated to reach S$10 billion by 2020, while e-commerce revenues for the entire Asia Pacific Region may amount to a staggering S$64.8 billion in 2021. Online shoppers in Singapore previously able to avoid tax liability for purchases not exceeding S$400 ($300) should expect this to change, now that taxing cross-border digital transactions and imported services like music and online video streaming, might be the new norm beginning 2020.
Goods and Services Tax
Goods and Services Tax (GST) was last changed (from 5 % to 7%) more than a decade ago in 2007. UOB economist Francis Tan theorized that a GST hike is a government priority, since it is one of Singapore’s largest revenue generators, second only to income and corporate taxes. A mere one point increase in GST rates could spell a huge difference, as it may yield millions of revenue increases for the government.
Finance Minister Heng Swee Keat thereafter confirmed the speculations around the GST hike, announcing in his Budget Speech that the government’s plan to increase GST rates from 7% to 9% will be implemented five years from now, possibly 2021 to 2025.
While the ecommerce and GST hikes were widely anticipated, property tax hike came as a surprise. According to Research Director Christine Li of Cushman & Wakefield Inc., the increased tax liability for home purchases is a consequence of heightened consumer interest in the residential market. Raising the home purchase tax from 3 % to 4% affects only high end and en bloc residential purchases and unlikely to hurt individual home buyers or the overall real estate market, since the imposition covers only properties purchased on February 20, 2018 and valued at an excess of S$1 million.
Pursuant to its international obligation under the Paris climate agreement, Singapore will start imposing a carbon tax to reduce carbon emissions and other earth-warming greenhouse gases that destroy the ozone layer. The tax will affect mostly large emitters or those companies from the chemicals, petroleum refining and semiconductor sectors, whose annual emissions exceed 25,000 tonnes of carbon dioxide. For emissions in 2019, the first payment shall be made in 2020.
Industry Information Maps
The policy behind industry transformation maps (ITMs) is to align the efforts of trade associations unions, chambers and the government to ensure various industries in Singapore remain attractive and competitive. Finance Minister Heng Swee Keat considers sectoral transformation roadmaps as a viable means to boost the economy, which can be achieved through key partnerships with industry players and investment in technology and research and development.
Traditional industries such as construction, wholesale trade and education sectors are currently innovating their operations to develop new capabilities and address manpower challenges. The government’s strategy to position the City State as a key hub for technology and innovation in South East Asia seems to be working, as Singapore recently climbed three places atop Bloomberg’s Innovation Index to earn the rank as the third most innovative economy globally.
Critics of Industry Information roadmaps, however, are noting that the ITMS are not suited for small and medium enterprises but ideal only for larger firms. Singapore Business Federation chief executive Ho Meng Kit claimed that ITM implementation is not in tune with the realities of setting up a business, which may be attributed to the fact that the programme is headed by a governmental agency, thereby lacking private sector involvement.
Invest in manpower
Finance Minister Heng Swee Keat also said that continuing investments in the labor force is a crucial aspect of maintaining a self-reliant economy. As the economy matures, Prime Minister Lee Hsien Loong reiterated the need to boost the jobs front through jobs creation, growing employee skill sets and placement of displaced employees in alternative jobs. Equipping laborers with relevant experience and honing their skill sets help them pursue more challenging opportunities.
A skills upgrade movement requires a steadfast tripartite partnership among the government, labor unions and the employers. Employers must invest in skill formation and let the workers adapt to technological changes, labor unions must carefully identify new job opportunities and the needed skill sets, while the Government, in tandem with trade associations and chambers, should show support through jobs generation and attraction of investments.
The Impact of Economic Transformation on Singapore as a Nation
How exactly can economic transformation impact Singapore as a nation? Finance Minister Heng Swee Keat claimed that undertaking a successful economic transformation will allow Singapore to enjoy a vibrant economy that is open and connected to the world, resilient enough to overcome even unforeseen challenges. It is designed to benefit Singaporeans in general, most specifically low to middle income households.
Prime Minister Lee Hsien Loong stated that the path to reinventing the Singaporean economy has been treaded before and it can be done again, this time, with greater success. As long as the vision of improving lives for all is shared by the stakeholders – the government, the business/private sector and the labor movement – a brighter future and an even better economy shall soon become a reality.