Singapore’s budget deficit will be significantly larger in the current fiscal year to help shield the economy from a global downturn that has already pushed the trade-reliant island into recession.

Finance minister Tharman Shanmugaratnam said in a parliament statement on Tuesday the budget deficit will possibly be more than three times bigger than the estimated S$800 million ($526.7 million), which analysts said could translate into tax cuts for individuals and companies.

Shanmugaratnam said the fiscal expansion was due to lower than expected economic growth this year and higher costs for infrastructure projects. It would be funded from a S$6.4 billion ($4.21 billion) surplus accumulated in the 2007 fiscal year to the end of last March.

“They recognise that the bigger deficit would be a stimulus for the economy — I think their focus is more on making Singapore an attractive place for financial activity, rather than actual injection of spending,” said David Cohen, an economist with consultancy Action Economics in Singapore.

The government is to make a final report on Friday on third-quarter gross domestic product, that analysts expect to confirm preliminary data showing the island entered a recession based on the popular definition of two consecutive quarters of economic contraction.

“We should therefore expect a significantly larger deficit in FY08, possibly more than three times larger than the initially estimated S$800 million,” Shanmugaratnam said in a parliament statement.

“The larger deficit is an appropriate fiscal stance in the context of an economy that has entered a slowdown,” he said, adding that the government would not seek to reduce the deficit by cutting spending or raising additional revenue.

Singapore is a regional financial centre but non-oil domestic exports were the equivalent of about 70 percent of its economy last year and these have been hit as demand weakens in its key trading partners such as the European Union and the United States .

Kit Wei Zheng, an economist with Citigroup, said cuts in the personal and corporate income tax rate may be on the cards for next year’s budget, which has been brought forward a month to January.

“A cut in the personal and corporate income tax rate is probably in order, the question is that of magnitude,” Kit said.

Singapore’s top personal income tax rate is 20 percent, five percentage points higher than in rival financial hub Hong Kong. Singapore’s corporate tax rate is 18 percent.

Singapore was the first in Asia to fall into a recession. Japan and Hong Kong have followed.

Neighbouring Malaysia also said on Tuesday it will be open to taking additional measures to boost the economy, days after the government waived import duties on raw materials and unfinished goods.

Source: http://www.afxnews.com

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