Singapore's budget deficit will be much larger in the current fiscal year as the government spends more to help shield the economy from a global downturn that has already pushed the trade-reliant island into recession.

Finance Minister Tharman Shanmugaratnam told parliament on Tuesday the deficit will possibly be more than three times bigger than the estimated S$800 million ($527 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 surplus accumulated in the fiscal year that ended 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 at 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 a recession with 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," Finance Minister Shanmugaratnam said.

"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.

TAXING TIMES

Kit Wei Zheng, an economist with Citigroup, said personal and corporate income tax cuts 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 that of rival financial centre Hong Kong. Singapore's corporate tax rate is 18 percent.