Budget PreviewSingapre Market Focus

Generous pro-individual budget expected


Managing rising inflation. The key thrust in this year's budget will not
be
significantly different from previous years. Amidst a backdrop of
growing
downside risks to growth and escalating inflation, the forthcoming
budget
will focus on sharing the fruits of growth, helping the lower income
group
cope with the escalating costs of living and enhancing the
competitiveness
of the economy so as to provide the platform for stronger growth in the
years ahead.

Fat surplus, generous budget for the individual: The key measures to be
announced would probably be cuts in the personal income tax. Top tier
personal income tax rate, presently at 20% could be aligned more closely
to
the existing corporate tax rate of 18% in order to make Singapore a more
attractive location for top foreign talents. To alleviate burden of
rising
costs of living on the lower income group, the budget is expected to be
"spiced" substantially with inflation offset measures.

Corporate tax cut unlikely. Following last years' 2pct cut in corporate
tax
rate to 18%, we do not expect another cut in corporate income tax rate
this year. However, the budget is expected to include measures which are
targeted at enhancing the competitiveness of businesses. With that in
mind,
further increase in the employers' share of the CPF contribution is
unlikely given that such a measure will increase the wage costs and
depress
margin at a time when growth is most likely to slow further.

No cheer for the stockmarket. Unlike 2007, we do not expect the budget
to
have any impact on the stockmarket, given the remote possibility of a
corporate tax cut. The upcoming budget is likely to be pro-individual,
given ongoing concerns of rising inflation and the fact that
pro-business
measures had been employed over the past few years. Focus will be on the
4Q
and final GDP growth rate for 2007, as well as the government's forecast
for 2008, to be released this Thursday. With the deteriorating growth
environment, there's downside risk to our current growth forecasts of
6.5%
for 2008, vs 7.5% for 2007(preliminary estimate).