G. Fortifying Our Fiscal Position
- 193. Sir, our efforts to grow the economy, strengthen social safety nets, and enhance national resilience will require the Government to spend more.
- 194. The Ministry of Finance recently published an Occasional Paper on our medium-term fiscal projections. Our expenditure projections have not taken into account additional policy moves that the Government may make in the future. If there are any such further increases in spending, they will need to be funded by additional revenues to ensure a balanced budget over the medium term.
- 195. But even if we have to look at ways to raise revenues in future, the Government will keep our overall system of taxes and benefits fair and progressive. Our system is based on collective responsibility. Every citizen has a part to play in nation building. Everyone contributes something, but those who are better off contribute more. Likewise, everyone benefits from the State’s spending, with the vulnerable benefiting more. This is a fair and inclusive approach.
- 196. Last year, besides the GST rate increase, I made major changes to strengthen our tax structure, including raising the Personal Income Tax rates for top income-earners, as well as the property tax rates for higher-value owner-occupied residential properties and all non-owner-occupied residential properties.
- 197. This year, I will make further adjustments to our tax system.
- 198. I will adjust the Buyer’s Stamp Duty regime, which applies to all purchases or receipt of gifts of immovable properties in Singapore.
- 199. I will introduce higher marginal Buyer Stamp Duty rates for higher-value residential and non-residential properties.
- 200. For residential properties,
- a. The portion of the value of the property in excess of $1.5 million and up to $3 million will be taxed at 5%, while that in excess of $3 million will be taxed at 6%; up from the current rate of 4%.
- b. The changes are expected to affect 15% of residential properties.
- 201. The Additional Conveyance Duties regime will also be adjusted accordingly.
- 202. For non-residential properties,
- a. The portion of the value of the property in excess of $1 million and up to $1.5 million will be taxed at 4%, while that in excess of $1.5 million will be taxed at 5%; up from the current rate of 3%.
- b. And these changes are expected to affect 60% of non-residential properties.
- 203. The changes to the Buyer’s Stamp Duty regime will apply to all properties acquired from tomorrow. This is expected to generate an additional $500 million in revenue per year. But the actual amount will depend on the state of the property market. (See Annex G-1.)
- 204. I had adjusted vehicle taxes last year, but there is still scope to make them more progressive.
- a. I will adjust the Additional Registration Fee, or ARF, rates to better differentiate between the higher-end cars, and also tax luxury cars at a higher rate. Buyers of cars with Open Market Value, or OMV, of more than $40,000 will pay higher marginal ARF rates than they do today. And in particular, for the highest OMV tier, the revised ARF rates will be 320%, up from 220% today.
- b. Currently, the Preferential ARF rebates are sized as a percentage of the payable ARF. I will cap the Preferential ARF rebates at $60,000 to avoid providing excessive rebates to more expensive cars when they are deregistered.
- 205. These changes are expected to affect the top one-third of cars by OMV. Buyers of cars with an OMV of $40,000 or less will be not be affected.
- 206. The new ARF structure and the Preferential ARF cap will apply to all cars registered with COEs obtained from the next round of COE bidding. The ARF change is expected to generate about $200 million in additional revenue per year, but again the actual amount will depend on the state of the vehicle market. (See Annex G-2.)
- 207. To discourage the consumption of tobacco products, I will implement a 15% increase in tobacco excise duty across all tobacco products with effect from today. The increase is expected to generate about $100 million in additional revenue per year. (See Annex G-1.)
- 208. I will also make some tax adjustments to support businesses and strengthen our competitiveness, as well as to enhance the fairness and resilience of our tax system. And the details of these tax changes are in the Annex to the Budget. (See Annex G-1.)
- 209. Our corporate tax system will be affected by BEPS 2.0. Pillar 2 of BEPS will introduce a global minimum effective tax rate of 15% for large MNE groups. However, many jurisdictions have not announced their implementation plans. Some key parameters of Pillar 2 have only been finalised this year while others remain under discussion at the international level.
- 210. The EU recently announced its plans to implement Pillar 2 in phases starting effectively from 2024. Other jurisdictions like the UK and Switzerland have announced their intention to do the same. As the rules will be implemented progressively, the full effects will only be felt in 2025 or later.
- 211. Given these developments, I intend to implement Pillar 2 from 2025, as part of the broader international move to align minimum global corporate tax rates for large MNE groups. When we do so, we will implement a Domestic Top-up Tax, which will top up the MNE groups’ effective tax rate in Singapore to 15%. At the same time, we will review and update our broader suite of industry development schemes to ensure that Singapore remains competitive in attracting and retaining investments.
- 212. That said, the developments on BEPS 2.0 are fluid, and we will continue to monitor international developments. If there are additional delays, we will adjust our implementation timeline. We will continue to engage companies and give them sufficient notice, well ahead of any changes to our tax rules or schemes. (See Annex G-1.)
FY2023 Fiscal Position
- 213. Sir, let me now summarise our overall fiscal position. For FY2022, as I mentioned just now, I expect an overall deficit of $2 billion, or 0.3% of GDP.
- 214. For FY2023, I expect an overall slight deficit of $0.4 billion, or 0.1% of GDP. This is appropriate for the projected economic conditions this year. Nonetheless, we will have drawer plans in place to take swift action, should downside economic scenarios materialise. (See Annex A-2.)
- 215. For the last three financial years, we have had to draw on the Past Reserves to cope with the unexpected shocks and disruptions of the pandemic. As things return to normal, we will not need to make any draw on the Past Reserves in this year’s Budget.
- 216. In May 2020, the Government raised the Contingencies Funds balance from $3 billion to $16 billion to ensure we could respond quickly to urgent and unforeseen cashflow needs arising from the fast-evolving pandemic. With the return to normalcy, I will reduce the balance of the Contingencies Funds from $16 billion to $6 billion. This will ensure adequate resources for unforeseen circumstances, while retaining discipline in how we manage our finances.
- 217. Today, we can increase the balances in the Contingencies Funds, but there is no legal mechanism to make a reduction. We will hence amend the Constitution for this purpose. The Government will be tabling a Bill for its First Reading later this month.