Singapore's budget for fiscal 2007:

The highlights are a hike in the goods and services tax (GST), from 5% to 7% from July 1st

announcement of a cut in the rate of corporate income tax, from 20% to 18%

to reduce direct taxes in order to make the city-state more attractive to foreign businesses, while somehow also providing (politically necessary) financial support for lower-income earners.


The cut in corporate income tax reflects the government's strategic thrust to enact policies that can maintain the heavily export-oriented economy's competitiveness in the face of globalisation

The hike in GST is potentially controversial. This type of tax, in theory, hits the less well-off hardest. But raising personal income tax (the rates for which were lowered in the 2005 budget) would be even more politically unpalatable, while alternative sources of revenue are thin on the ground.

The openness of the economy, for instance, limits the extra customs revenue that could be raised despite the very large volumes of trade Singapore conducts. Expanding the revenue base is also essential to meet future development and social-security spending needs (the latter of which are set to increase as the population ages). Public spending in Singapore is exceptionally low as a percentage of GDP—at about 15%, it is far below the levels of most developed economies—and although the government has no intention of creating a high-tax Scandinavian-style welfare system, it recognises that its own model of ultra-low public spending has its limits.

Hence the GST hike. The government claims this will provide about S$1.5bn (US$975m) in revenue a year, although the government will also spend about S$4bn over five years on a GST offset package, including cash rebates, to soften the impact of the tax hike on Singaporeans, particularly the poor.

Singapore's principal exports and imports:

Main origins of GDP 2005: