SINGAPORE - Singapore on Friday (Feb 18) unveiled a slew of progressive tax measures aimed not only at generating revenues to fund major programmes needed over the next few years, but also at addressing social inequalities.
The hike in goods and services tax (GST) to fund the recurring social and healthcare needs of a rapidly ageing population was further delayed to 2023 in response to concerns over rising prices.
The hike will be staggered over two steps - with GST rising from 7 per cent to 8 per cent on Jan 1 next year, and then to 9 per cent from Jan 1, 2024. The impact of the increase will be cushioned, especially for low-income households.
The wealthy will also pay more of other taxes.
"Those who earn more, contribute more," said Finance Minister Lawrence Wong in his first Budget since assuming the portfolio in May last year, as he outlined increases in personal income, property, vehicle and carbon taxes as part of an expansionary $109 billion Budget, including special transfers.
He also announced a $6 billion draw on the reserves as part of Singapore's continuing fight against Covid-19, and over $1 billion in support for businesses, households and individuals hard-hit by the pandemic.
With a view to future challenges and opportunities, Mr Wong said he would commit $900 million to spur companies to invest in new capabilities, while further tightening workforce policies to ensure foreign hires of the "right calibre".
This year's Budget will run up an expected overall deficit of $3 billion, amid a tone of cautious optimism sounded by Mr Wong as Singapore enters a period of transition and recovery after two years of grappling with the pandemic and its fallout.
"The global economy is still vulnerable to pandemic-related risks, and further supply chain disruptions. Geopolitical and security risks loom," he warned at the start of his speech, which was around two hours long. "We may also see a slowdown in external demand as the major economies scale back their pandemic support, and central banks tighten their accommodative monetary policies to deal with the threat of inflation."
But barring fresh disruptions, Mr Wong said he expects the Singapore economy to continue to do well, and grow by 3 per cent to 5 per cent this year.
Looking ahead, with government expenditures projected to increase significantly in the coming years - especially in healthcare - enhancements to Singapore's tax system would be needed to raise additional revenue, he added.
"That means everyone chips in and contributes to a vibrant economy and strengthened social compact, but those with greater means contribute a larger share," said Mr Wong, who also co-chairs a multi-ministry task force handling the pandemic.
To that end, personal income tax will be increased from 2024. The portion of chargeable income in excess of $500,000 up to $1 million, will be taxed at 23 per cent, up from 22 per cent currently. Chargeable income in excess of $1 million will be taxed at 24 per cent.
Property tax rates will also be increased, with more significant hikes for high-end properties, said Mr Wong.
For non-owner-occupied residential properties, including investment properties, tax rates will go up from the current 10 per cent to 20 per cent range, to 12 per cent to 36 per cent.
For owner-occupied ones, tax rates for the portion of annual value in excess of $30,000 will be increased from the present 4 per cent to 16 per cent, to 6 per cent to 32 per cent.
Luxury cars will be taxed at a higher rate, with an additional Additional Registration Fee tier for cars at a rate of 220 per cent for the portion of Open Market Value in excess of $80,000.
The GST hike, pushed back to 2023 and staggered over two steps, will be heavily cushioned.
A previously announced $6 billion package to help soften the blow of the GST hike will be topped up with $640 million.
To better support the daily needs of the lower-income and elderly, the permanent GST Voucher scheme - now comprising cash, utilities and medical rebates - has also been enhanced, with service and conservancy charge (S&CC) rebates becoming an additional permanent component.
Meanwhile, the projected $6 billion draw on the reserves "to maintain a multi-layered public health defence" against Covid-19 has received in-principle support from President Halimah Yacob.
This will be the third year in a row that the reserves are being tapped, bringing the total expected drawdown for the three financial years of 2020 to 2022 to $42.9 billion - less than the initial sum of $52 billion the Government earmarked in 2020.
This reflects Singapore's prudence in the use of past reserves, he said, explaining that Singapore's pandemic response had averted worse public health outcomes, and that the rebound in economy and businesses had been stronger than expected.
Still, in recognition that some segments of society continue to struggle, Mr Wong announced a $500 million Jobs and Business Support Package, which includes a Small Business Recovery Grant for those most affected by Covid-19 restrictions, such as food and beverage and hospitality enterprises.
They will receive a $1,000 payout per local employee, up to a cap of $10,000 per firm.
A $560 million Household Support Package will also help Singaporeans with utility bills, education and daily essentials. It includes GST Voucher-U-Save rebates for the rest of the year, and additional $100 in Community Development Council Vouchers for all.
To plan ahead for a post-pandemic world and the opportunities it offers, Singapore will also commit an additional $200 million over the next few years to schemes to build digital capabilities in business and workers; and around $600 million to expand the Productivity Solutions Grant for SMEs to implement automation efforts.
New initiatives such as the Singapore Global Enterprises and Singapore Global Executive Programme will help larger firms grow overseas and attract the next generation of leaders.
At the same time, to ensure that incoming employment pass holders are comparable in quality to the top third of the local professionals, managers, executives and technicians (PMET) workforce, from September this year their qualifying salary threshold will be raised from $4,500 to $5,000; and from $5,000 to $5,500 for the financial service sector.
Environmental sustainability was also on the Budget agenda, with Mr Wong revealing that Singapore will now target net zero emissions by or around 2050.
Its previous aim was to halve emissions by then, with a view to achieving net-zero "as soon as viable in the second half of the century".
To match these new ambitions, taxes on carbon emissions will be raised from the current $5 per tonne to $25 in 2024 and 2025, and $45 in 2026 and 2027, with a view to reaching $50 to $80 by 2030.
Another key plank of this year's Budget was renewing and strengthening Singapore's social compact.
For lower-wage workers, a new Progressive Wage Credit Scheme will see the Government helping businesses by co-funding wage increases between 2022 and 2026, for employees earning up to $2,500. For those earning above $2,500 and up to $3,000, co-funding support will be offered until 2024.
From Jan 1, 2023, the qualifying income cap for the Workfare Income Supplement will be raised from $2,300 to $2,500.
Mr Wong also sketched out other efforts in boosting retirement adequacy, investing in children, integrating social service delivery, preparing for future healthcare needs, and better supporting the charities sector; with more details to come when MPs debate the Budget and spending plans of various ministries in the coming weeks.
Prime Minister Lee Hsien Loong said in a Facebook post that this Budget will lay the basis for “sound and sustainable government finances, post-pandemic and beyond”.
“We are building a greener and more sustainable city, transforming our economy to create good jobs for Singaporeans, expanding our healthcare system for an ageing society, and strengthening social programmes so that no one is left behind,” he added.
This Budget is a first step in "realising our vision of a fairer, more sustainable, and more inclusive society", said Mr Wong.
"Looking back at what we have been through during these Covid-19 years, we have nothing to fear. We will always overcome. We will always prevail," he concluded.
"We will chart a new way forward together. We will see through the pandemic today, and build a better Singapore tomorrow."
Correction note: An earlier version of this story said the Government would commit up to $1 billion to spur companies to invest in new capabilities. It should be $900 million. We are sorry for the error. An earlier version of this story also said that the Government would co-fund wage increases between 2022 and 2026 for employees earning up to $3,000. For those earning above $2,500 and $3,000, support will be until 2024.