1. Deputy Prime Minister and Minister for Finance Lee Hsien Loong
reaffirmed the Government’s commitment to maintain Singapore’s
competitiveness and create jobs when he presented the Budget for
Financial Year 2004/05. He also spelt out the principles and key
considerations behind Singapore’s procreation policy.
2. The Government ran a $1.8 billion deficit in FY 2003 and expects
a budget deficit of $1.35 billion in FY 2004, after taking into
account the $826 million of tax savings for businesses and individuals
in this Budget. However, DPM Lee reaffirmed the Government’s
commitment to fiscal prudence and announced a target to balance
the budget by FY 2005. In view of the tight fiscal position, he
announced a permanent 2% cut in the budget allocations for all ministries,
except the Ministry of Defence, for FY 2004.
3. The 2004 Budget includes a comprehensive package of measures
to create a “best for business” environment that supports
creativity and enterprise, and attracts talent and investments to
Singapore.
A Competitive Tax Regime
4. The Government will lower the corporate tax rate to 20% from
Year of Assessment (YA) 2005. It has deferred lowering personal
income taxes, but remains committed to reducing the top personal
tax rate to 20% as soon as budgetary conditions permit.
5. To boost private wealth management activities, all foreign-sourced
income remitted by resident individuals will be exempt from tax.
Singapore-sourced investment income derived by individuals from
financial instruments will also be exempt from tax from YA 2005.
6. To continue to attract and root new activities in Singapore,
the maximum duration for the pioneer incentive will be extended
from 10 to 15 years, while the regional HQ incentive will be extended
from 3 to 5 years.
Encouraging Entrepreneurship
7. To encourage entrepreneurship, the first $100,000 of normal
chargeable income for new companies will be exempt from tax in each
of their first three years of assessment between YA 2005 and YA
2009. The current Technopreneur Investment Incentive will be expanded
in scope and renamed the Enterprise Investment Incentive (EII).
Investors in start-ups awarded the EII will enjoy tax deductions
for any losses they incur in these start-ups. To help SMEs make
greater use of intellectual property, the withholding tax on royalty
payments will be reduced from 15% to 10%.
Labour Market Reforms
8. A new category of work pass will be introduced to help businesses
get the skilled workers they need. The ‘S’ pass will
replace the current ‘Q2’ category. This will help employers
bring in middle-tier skilled workers, who are in short supply in
the healthcare, IT, aerospace and pharmaceutical industries. The
‘S’ pass will be subject to a levy, set initially at
$50. The Government will also raise the skilled foreign worker levy
from $30 to $50, come 1 July 2004.
9. To support increasing emphasis on workforce training, the Skills
Development Levy salary ceiling will be raised from the current
$1,500 to $1,800 from 1 July 2004.
Enhancing Competition
10. DPM Lee also set out the Government’s approach to competition.
He said that the Government generally strongly favoured competition,
and would be enacting a Competition Act this year. However, the
small domestic market means that in certain industries limited competition
or even a single operator may be the most efficient market structure.
Citing the container port business as an example, DPM Lee explained
that competition in this industry was not domestic, but took place
on a regional and global stage. PSA aims to strengthen its position
as a strong international player, and is building five more berths
at Pasir Panjang Terminal to support its growth in container traffic.
Jurong Port will continue to operate at its existing facilities
in Jurong, where it can handle one million containers a year. Given
the intense regional competition, Jurong Port will not for now expand
its container capacity by building additional berths at Pasir Panjang,
but will review this decision when conditions change.
11. Emphasising the importance of strong families and resilient
communities, DPM Lee said that the new economic environment required
Singaporeans to be more self-reliant, and that social safety nets
had to be carefully targeted at those who most need them.
Achieving Excellence in Higher Education
12. DPM Lee said that the Ministry of Education and the universities
will review the basis for setting university fees. He explained
that as most of the benefits of a university education accrue to
the student himself, it was only fair for undergraduates to bear
a larger share of the costs. Fees will not be adjusted this year,
but MOE is reviewing the current cost-sharing formula where the
Government funds all infrastructure costs plus 75% of operating
costs. However, DPM Lee promised that no deserving student will
miss out on a university education. As fees are increased in future,
scholarships will be extended to outstanding undergraduates, bursaries
provided to those from low-income homes, and student loans made
readily available to all who need them.
Keeping Healthcare Affordable
13. DPM Lee also outlined the growing demands on Singapore’s
healthcare system as the population ages. He said there was a need
to ensure that the self-employed are covered, by enforcing compulsory
Medisave contributions. The Ministry of Health will also study how
the MediShield coverage can be enhanced, and how to make more use
of health insurance to help Singaporeans meet large healthcare expenses.
At the same time, MOH is looking into extending means-testing to
general hospitals.
More Help for Families and Individuals
14. The Government will top up the Medisave Accounts of Singaporeans
aged 50 and above. The top-up, which ranges from $50 to $200, will
vary according to the age of the recipient and his existing Medisave
balances. An additional $100 million will also be injected into
Medifund to help needy patients.
15. The Government will raise the tax relief ceiling for individuals
making cash top-ups to their own CPF accounts and that of their
parents and grandparents. This tax relief will also be extended
to cash top-ups to non-working spouses.
Building the Next Generation
16. DPM Lee acknowledged that existing measures to support parenthood
have not stopped the decline in birth rates. Minister in the Prime
Minister’s Office Mr Lim Hng Kiang will oversee an inter-ministry
working committee to come up with specific proposals to improve
the existing measures by National Day. The measures will be targeted
at encouraging births of Singapore citizen babies. They will cover
all families, but must be effective for the better qualified women
who have fewer children. As it will be very difficult to raise fertility
back to replacement level, we will need to attract immigrants who
can contribute to Singapore and integrate into our society. The
Government also needs to create incentives for permanent residents
to take on the privileges and responsibilities of citizenship.
Other Tax Changes
17. DPM Lee also announced other tax changes that would benefit
individuals. These include the lowering of the Additional Registration
Fee (ARF) for new cars from 130% to 110% of Open Market Value (OMV)
and the streamlining of the estate duty process. He also rationalised
the duties on liquor and increased them on tobacco products.
18. For details, please refer to the official Budget 2004 website:
www.budget2004.gov.sg.
MINISTRY OF FINANCE
27 FEBRUARY 2004
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