SINGAPORE - Amid Singapore's strong position riding on a global upturn last year, Finance Minister Heng Swee Keat outlined in his Budget speech on Monday (Feb 19) three major shifts in the coming decade: a greater economic emphasis on Asia, the emergence of new technologies and an ageing population.
Budget 2018 is meant to be a strategic and integrated plan to help Singapore prepare for these changes.
GREATER EMPHASIS ON ASIA
With several advanced economies turning their attention inwards due to domestic pressures - such as Brexit in Britain and the United States' recent tax changes and review of trade pacts - Asia will play a larger role in global trade and investment flows, Mr Heng said.
China setting out a regional infrastructure bank for its bold plans under the Belt and Road initiative, and a rapidly growing middle-class population in Asean countries are just some of the significant opportunities for Singapore firms, Mr Heng added.
But he also warned about potential threats to the stability of the region, in the form of tensions in the Korean peninsula and the South China Sea, as well as terrorism concerns.
NEW TECHNOLOGIES
New technologies, such as robotics and digital innovations, are reshaping the economy and jobs, Mr Heng said.
Soon, firms will compete less on physical assets, but more on intangible ones such as intellectual property, data and user networks, said Mr Heng, adding that "first-mover advantage and time to market will be key".
AGEING POPULATION
With an ageing population, there will be more spent on healthcare and other social expenditure, which, in turn, places greater demands on families and the Government, said Mr Heng.
It also means that the resident workforce will shrink, tightening the labour market and slowing economic growth further, unless people change the way they work to be more productive, and supplement the workforce with a calibrated inflow of foreigners, Mr Heng added.
Noting that there are other forces that can also strain the social fabric, such as income inequality and social mobility, Mr Heng said the Government will continue to invest in education and skills upgrading, and promote sports, arts and volunteerism to build common interests and shared activities.
These three shifts will interact, to bring new opportunities - such as technology to help older workers stay productive - but also new challenges - such as the risk of cyber attacks and online radicalisation, said Mr Heng. But Singapore is in a good position to guard against such challenges and capture the opportunities, he added.
It will do so under four broad strokes:
1. Developing a vibrant and innovative economy
2. Building a smart, green and liveable city
3. Fostering a caring and cohesive society
4. Planning for a financially sustainable and secure future
DEVELOPING A VIBRANT AND INNOVATIVE ECONOMY
Singapore must become a technology hub connecting Asia to the rest of the world, said Mr Heng.
To do this, it must make “innovation pervasive in our economy”, develop deep capabilities in its workers, and establish strong partnerships abroad.
- Extending the Wage Credit Scheme, which subsidises wage increases for Singaporean employees earning up to $4,000 monthly, for another three years, though this will taper off over the years.
- Doubling the corporate tax rebate to 40 per cent of tax payable and capped at $15,000, up from $10,000 previously.
- Leaving levy rates for foreign workers unchanged for all sectors.
- Introducing the new Productive Solutions Grant, which will fund up to 70 per cent of qualifying costs for small and medium-sized enterprises seeking to adopt off-the-shelf technologies.
- Setting up a new Infrastructure Office to bring together local and international firms to develop, finance and execute infrastructure projects, and enable local companies to tap opportunities in the region.
BUILDING A SMART, GREEN AND LIVEABLE CITY
The authorities will continue to improve the living environment here by implementing Smart Nation initiatives, such as better adoption of e-payments, and developing next-generation grid architectures that can respond quickly and reliably to changes in energy demand and supply, said Mr Heng.
But one of the most pressing challenges is that of climate change, where Singapore is particularly vulnerable to rising sea levels.
To that end, the authorities are:
- Implementing a carbon tax of $5 per tonne of greenhouse gas emissions for facilities producing 25,000 tonnes or more from 2019 to 2023, with plans to increase this to between $10 and $15 per tonne by 2030.
- Providing an additional U-Save rebate of $20 a year for three years, to help HDB households cover the expected increase in electricity and gas expenses.
FOSTERING A CARING AND COHESIVE SOCIETY
Mr Heng emphasised the need to have a united people with a common purpose, and said he will support individuals and families in preparing for the future and caring for one another, strengthen partnerships between the Government and the community to support the elderly and the needy, and encourage a spirit of giving.
Here are some of the measures:
- Extending the Proximity Housing Grant to singles who buy resale flats near their parents, and increasing the grant by 50 per cent for singles or families who buy resale flats to live in with their parents or married children.
- Giving another year of service and conservancy charge rebates ranging from 1½ to 3½ months, depending on the size of the HDB flat.
- Increasing foreign domestic worker levies, including raising the monthly levy for the first maid employed without a concession to $300 from the current $265 from April 1, 2019, to avoid an overdependence on such workers.
- Consolidating social and health-related services for seniors by transferring similar functions currently under the Ministry of Social and Family Development to the Health Ministry.
PLANNING FOR A FINANCIALLY SUSTAINABLE AND SECURE FUTURE
While Singapore has enough resources to meet its spending needs till 2020, thanks to careful and prudent planning, Mr Heng warned that there will not be enough revenue to meet its growing needs in the next decade if the authorities do not take steps early.
More spending on healthcare, infrastructure, security and education can be expected, he said.
For Financial Year 2018, the ministries are expected to spend $80 billion, 8.3 per cent higher than in FY2017.
On the whole, the Government expects a slight overall budget deficit of $600 million, or 0.1 per cent of gross domestic product (GDP), Mr Heng said.
To strengthen the country’s fiscal footing, the Government will:
- Raise the top marginal buyers’ stamp duty rate from 3 per cent to 4 per cent for residential properties worth more than $1 million.
- Implement a 10 per cent increase in tobacco excise duties.
- Further moderate the pace of ministries’ budget growth by reducing their growth rate from 0.4 times of GDP growth to 0.3 times.
- Save in preparation for “lumpy” infrastructure investments, such as through a new Rail Infrastructure Fund for major rail lines which will start with an injection of $5 billion.
- Consider providing guarantees to long-term borrowing by statutory boards and government-owned companies for critical national infrastructure.
- Raise the goods and services tax (GST) from 7 per cent to 9 per cent, some time between 2021 and 2025, to ensure there is enough for every generation to pay its share of social spending such as healthcare and security.
- Introduce GST on imported services such as consultancy and marketing, and digital goods such as apps and music, from Jan 1, 2020.
A range of tax increases, including a 2 percentage point increase to 9 percent in the goods and services levy, were unveiled by Singapore Finance Minister Heng Swee Keat in his budget speech to Parliament as among measures to financially equip the city state for financial pressures that will come with a rapidly aging population.
The government’s fiscal 2018 budget comes less than a week after data showed the island nation’s economy grew at a slower pace in the fourth quarter than previously estimated and the government forecast expansion will moderate this year as an export boom that began in 2017 eases.
Higher taxes were expected by all 12 economists in a Bloomberg News survey, with 11 anticipating the GST would be increased. Heng surprised, however, with a hike to 4 percent from 3 percent in the top marginal stamp duty on properties worth more than S$1 million ($762,000), with the change effective tomorrow.
Here are some of the biggest winners and losers of the Singapore budget.
WINNERS:
Rebate -- Corporate income tax rebate raised to 40% for 2018, and extended to 20% in 2019
Companies spending on research and development will benefit from a plan to increase tax deductions to 250%
Infrastructure -- The city-state raised spending on infrastructure to S$20 billion, and is looking at borrowing to finance Changi Airport’s new Terminal 5 and other projects as well as starting a new rail fund
borrowing to finance Changi Airport’s new Terminal 5 and other projects as well as starting a new rail fund Healthcare firms -- Stand to benefit from government focus on increased spending, especially for elderly care Raffles Medical Group Ltd., Talkmed Group Ltd., Singapore Medical Group Ltd., Healthway Medical Corp., Health Management International Ltd., Clearbridge Health Ltd.
Real estate investment trusts -- Proposal to remove tax on exchange traded funds’ investments in the firms Ascendas Real Estate Investment Trust, Suntec Real Estate Investment Trust, CapitaLand Mall Trust, CapitaLand Commercial Trust, Frasers Logistics & Industrial Trust, Frasers Commercial Trust, Frasers Centrepoint Trust, Mapletree Commercial Trust, Keppel REIT
Proposal to remove tax on exchange traded funds’ investments in the firms Education and skills providers -- Increased spending on education and skills development aimed at reducing income inequality Raffles Education Corp., Overseas Education Ltd., MindChamps PreSchool Ltd.
Offshore and marine companies got a reprieve with the deferral of an increase in levies imposed on foreign workers Keppel Corp., SembCorp Marine Ltd., Yangzijiang Shipbuilding Holdings Ltd.
LOSERS:
Opening Statement
3:33pm: Minister Heng Swee Keat starts the budget off by recapping some of the challenges that Singapore will face in the global economy that we live in. These include 1) a shift in global economic weight towards Asia, 2) emergence of new technologies and 3) our ageing population.
Building A Vibrant And Innovative Economy
3:40pm: Firms remain concerned about business cost. One key concern is wage growth. Ironically, the problem here is that wage growth, while a concern for business owners, is good for Singaporeans.
> Wage Credit Scheme (WCS) to be extended for three more years. WCS helps co-fund wage increases of Singaporeans up to a salary $4,000. Co-funding will be 20% for 2018, 15% for 2019 and 10% for 2020.
> Corporate Income Tax rebate will be raised to 40%. Capped at 15% for YA2018.
Longer Term Transformation For The Economy
3:43pm: Strengthen the three enabler to build the Singapore economy: Innovation, Capability and Partnership.
3:46pm: Innovation – Support firms to become more innovative. Temasek and NRF to work together to help companies grow and develop their intellectual property. At least $100 million will be invested into this program.
3:51pm: Deepening Capabilities – Spring and IE Singapore to merge into Enterprise Singapore.
> “Every profitable company should pay taxes” – Minister Heng. Start-Ups and older firms will see their taxes go up slightly as tax exemptions are slightly reduced.
Clean & Green City
4:14pm: Singapore produces one of the least carbon emission compared to most countries. To encourage companies to further reduce carbon emission, Carbon tax will be introduced in 2019. This will be set at $5 per tonne of emission, and is expected to raise about $1 billion over a period of 5 years. For petrol and diesel, no additional taxes (for now). Carbon tax is unlikely to affect household by much. However, addition U-Save vouchers will be given to selected families to help them cope with this small increase in cost.
Increasing Support For Citizens
4:40pm: Support Singaporeans and their families by supporting education. Annual Edusave top-up from $200 to $230 for primary school students, and from $240 to $290 for secondary school students with effect from 2019. Additional support for students from lower income families by raising bursary from $750 to $900.
> Give our youth a good financial literacy head-start. Financial education curriculum to be introduced at Polytechnic and ITE.
> Premium subsidies for lower and middle income families for ElderShield Review
> Support families who live with and near each. Proximity Housing Grant (PHG) to increase from $20,000 to $30,000 for those buying a resale flat to live with their parents/ adult children. PHG criterion will also be expanded from within a 2km radius, to within a 4km radius.
> Foreign Domestic Work levies will be revised upwards.
> $190 million a year set aside to encourage volunteerism
Ensure Fiscal Sustainability In The Long-Term
5:00pm: Between 2021 to 2030, Singapore will not have enough based on current revenue. For example, healthcare spending have more than doubled. Spending is expected to continue increasing as our population becomes older. By 2030, we will have more than 900,000 elderly in Singapore. Healthcare expenditure is expected to be higher than education by the next decade.
> Another big area of spending is infrastructure. Over the next decade, Singapore will continue to spend more on infrastructure.
> Invest more in security to keep Singapore safe. These include both online and offline threats.
> Continue to sustain our investment in education. Singapore is spending more per child. Greater investment as well to be made in pre-school education. Singapore will also continue to invest in lifelong learning.
> A strong economy will provide Singapore with more resources to fund our future needs.
> To help lower financing cost, Government will consider guaranteeing long-term bonds that it issues. This allows it to leverage on the strength of its reserve, without actually needing to touch it.
Taxation
5:14pm: It’s official. GST will increase from 7% to 9%. This will happen between 2021 to 2025.
> GST to be introduced on imported digital services with effect from 2020. For example, local consumers do not currently pay tax when they purchase and download apps and music online. This will ensure fairness for both offline and online purchases of digital services and consultancy.
> Buyer Stamp Duty (BSD) to increase for private residential properties from 3% to 4%. This applies to all properties with a value of more than $1 million.
> Tobacco tax to increase by 10% with immediate effect. This will apply to all tobacco products.
> Good News: There will be a one-off SG Bonus (Hong Bao) of $300, $200 or $100. This will be for Singaporeans age 21 and above, and based on income. It will cost the government about $700 million.
Minister Heng Swee Keat ended his presentation at 5:30pm.
You can watch the full 2-hour long Budget Presentation here.
Pre-Budget Articles
Before the budget is announced, you can read up on some of the pre-budget related articles that we have written.
Singapore’s Ageing Population: The Financial Implications Of Our Country Growing Old
Singapore’s Healthcare Outcomes Are Among The Best In The World. Why Is The Government Still Planning To Spend More?
The National Budget: Spending Today vs Investing For The Future? Which Is More Important?
Guide To Understanding Taxes In Singapore, And Who Pays For Them
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The exact timing for the increase will depend on the state of the economy, growth in expenditure and the buoyancy of existing taxes.
SINGAPORE: The much-rumoured goods and services tax (GST) increase was confirmed by Finance Minister Heng Swee Keat during his Budget 2018 speech on Monday (Feb 19), and it will go up from 7 per cent currently to 9 per cent sometime in the period between 2021 and 2025.
The exact timing of when the GST increase will kick in depends on the “state of the economy, how much our expenditures grow and how buoyant our existing taxes are", said Mr Heng. "But I expect that we will need to do so earlier rather than later in the period," he stated.
That said, the minister added that the GST hike will be implemented in a “progressive manner”. This means the Government will continue to absorb GST on publicly subsidised education and healthcare, and enhance the permanent GST Voucher scheme when the hike kicks in. The enhanced GST Voucher scheme will provide more help to lower-income households and seniors, he added.
The Government will also implement an offset package for a period of time to help Singaporeans adjust to the GST increase, with lower- and middle-income households receiving more support, the minister said, with more details to come after the timing of the GST increase has been determined.
The GST was last raised in 2007, when it went up from 5 to 7 per cent. It was announced by then-Finance Minister Lee Hsien Loong during the Budget speech on Feb 15, 2007, and took effect a few months later on Jul 1.
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PLANNING AHEAD, RESPONSIBLY
The decision to increase GST was made to help fund expenditure in areas like healthcare, security and other social spending, Mr Heng explained, who added the increases in these areas will be recurrent, benefit Singaporeans broadly and directly benefit current generations.
Healthcare expenditure, for example, has been increasing over the years, with the Government spending S$3.9 billion in Financial Year (FY) 2011 and this figure jumping to S$10.2 billion in FY18, the minister highlighted.
In the next decade, an ageing population and increasing chronic diseases will mean building new healthcare capacity to meet rising demand and investing in new medical technologies to improve care quality – and these will lead to spending that will leapfrog expenditure on education within the next decade, he said.
Today, the average annual Government healthcare subsidies received by an elderly person is more than six times that of a younger person, or about S$4,500 more. Additionally, by 2030, the number of elderly will increase by about 450,000 to 900,000, the minister said.
Some of the planned investments in this area include building six more general and community hospitals, four new polyclinics and more nursing homes and eldercare centres within the next five years, Mr Heng said.
“All in all, we expect our average annual healthcare spending to rise from 2.2 per cent of Gross Domestic Product (GDP) today to almost 3 per cent of GDP over the next decade. This is an increase of nearly 0.8 percentage point of GDP, or about S$3.6 billion in today’s dollars,” the Finance Minister said.
Similarly, Mr Heng said spending on infrastructure projects has grown from S$8.5 billion in FY11 to S$20 billion in FY18, and this will only grow.
In the next decade, he said the country will need to spend more to develop new infrastructure such as expanding the rail network by more than 100km, rejuvenate ageing infrastructure and build Changi Airport Terminal 5, Tuas Port and the Kuala Lumpur-Singapore High Speed Rail network.
Different parts of the country will also be redeveloped, and these include Jurong Lake District, Punggol Digital District and Woodlands North Coast, the minister added.
He also painted similar scenarios for spending on security, including online attacks and radicalisation, and investing in education. The latter include spending an estimated S$12.8 billion in FY18, and on pre-school education, S$1.7 billion per year by 2022, he added.
With these in mind, Mr Heng said: “The responsible way to pay for them is through taxation so that every generation pays its share. We should not borrow for recurrent spending because this will put the burden of recurrent spending on future generations.”
Singapore's #GST - here's how we stack up against our Asia Pacific neighbours ahead of a planned tax hike #SGBudget2018 Details: https://t.co/Uf0kzh8Vni pic.twitter.com/ebizFsjoE5 — Channel NewsAsia (@ChannelNewsAsia) February 19, 2018
WHY NOT USE RESERVES?
The Finance Minister also addressed a question people may ask: Why not tap on the country’s financial reserves?
To this, Mr Heng said the Government has been doing so via the Net Investment Returns framework, which was introduced in 2008. This started out with the reserves managed by GIC and the Monetary Authority of Singapore (MAS), and later Temasek in 2015.
Over the last 10 years since its implementation, the NIR contribution has more than doubled from S$7 billion in FY2009 to an estimated S$15.9 billion in FY2018, and it is now the largest contributor to Singapore’s revenues – more than any single tax, he said.
The minister said the country currently spends up to 50 per cent of expected net investment returns, and the remainder goes to the reserves.
“If instead, we used 100 per cent of the returns, the principal sum of the reserves will stagnate over time, and the NIRC as a share of GDP will consequently fall as our economy grows,” Mr Heng said. “The impact of this will not be trivial given that our budget now relies on the NIRC as our largest source of revenue.”
If the Government spent more than the investment returns, it will eat into the country’s nest egg and, in time, the diminished reserves will generate a progressively smaller stream of income in the years that follow until eventually the reserves are exhausted, he cautioned.
“This is not the Singapore way,” Mr Heng said.
BORROWING FOR INFRASTRUCTURE
The finance minister also noted that for major infrastructure projects, hefty upfront investments are often needed.
To address this, the Government will do two things. Firstly, where possible it will save ahead in preparation for these investments. In 2015, the Changi Airport Development Fund was set up to start saving for the airport's 5th terminal.
In the same vein, the Government will set up a new Rail Infrastructure Fund to save for major rail lines. It will start with an injection of S$5 billion in FY2018, drawn from the surplus from the 2017 Budget.
Furthermore, the Government is looking at borrowing by statutory boards and Government-owned companies which build infrastructure, which will help spread the cost of certain larger investments over more years, Mr Heng noted.
"These infrastructure projects, once completed, will generate economic returns over many years. The borrowing arrangement for these projects will hence help distribute the share of funding more equitably across generations," he said.
