146. Our ability to invest in our economy, our society, and our resilience has to be anchored on a strong fiscal position.
147. Fiscal responsibility has always been a key part of the Singapore DNA. We spend our resources wisely, and we take great care to provide for our children and grandchildren. This is why I made major revenue moves in the last two Budgets. These moves have put us on a stronger fiscal footing for the next decade, while ensuring that our overall system of public finances remains fair and progressive.
Tax Changes
148. This year, in light of concerns over cost of living, I will provide a Personal Income Tax Rebateof 50% for the Year of Assessment 2024.
a. This will be capped at $200 so that the benefits go mostly to our middle-income workers.
b. The rebate will cost the Government $350 million.
149. Currently, taxpayers may claim a range of dependant-related reliefs, if their dependants have an annual income of $4,000 or less. We have received feedback from members of public, tax practitioners, as well as Labour MPs, to consider increasing the dependant income threshold in view of rising cost of living and wage levels. So with effect from the Year of Assessment 2025, I will increase the annual income threshold for dependant-related reliefs from $4,000 to $8,000.
150. In Budget 2022, I announced a two-step increase in Property Tax rates for residential properties. This was meant as a wealth tax, targeted at all investment properties, as well as the higher-end segment of owner-occupied properties.
151. Prior to that Budget announcement, market rents had been relatively flat for the preceding five years. But from 2022 onwards, market rents increased significantly due to the combination of strong demand and Covid-related supply constraints. As a result, the Annual Values (or the AVs) also increased sharply. We had originally expected the Property Tax changes to impact mainly the top 7% of owner-occupied residential properties. But the AV increases resulted in the proportion of affected owner-occupied properties nearly doubling to 13%.
152. In light of these market trends, I will raise all the AV bands of the owner-occupier residential Property Tax rates with effect from 1 January 2025. Currently, Property Tax is charged on the bands of AV from $8,000 to over $100,000. I will raise the lower threshold from $8,000 to $12,000 and the highest band from over $100,000 to over $140,000, and corresponding adjustments will be made to the bands in between. This will still uphold the intent of the Property Tax changes, and ensure that those residing in higher-value properties continue to pay their fair share of taxes.
153. And the Government had provided a rebate to cushion the impact of the Property Tax changes this year. We will continue to closely monitor the property market, and will provide another rebate in 2025 if needed.
154. We recognise that there are retirees living in higher-end residential homes, who face cash flow issues when paying their Property Tax bills. To help them, IRAS will offer a 24-month instalment plan without any interest. They can apply for this via IRAS’ website or contact IRAS for more details.
155. Next, I will adjust the Additional Buyer’s Stamp Duty (or the ABSD) for the purchase of residential properties.
a. Today, married couples with an existing residential property can enjoy an ABSD refund on their replacement private property under the ABSD concession for Singaporean married couples.
b. To better support seniors who wish to right-size, I will extend the concession to single Singapore Citizens aged 55 and above. In other words, these seniors will be able to claim a refund of ABSD paid on their replacement private property, if they sell their first property within six months after purchasing a lower-value replacement private property. This extension will take effect from today.
156. I will also introduce some flexibility to the ABSD regime for housing developers.
a. Housing developers are now granted an ABSD remission, provided they sell all the units in their development within a prescribed sale timeline.
b. But despite their best efforts, the developers sometimes face difficulties in meeting this timeline requirement. They are then subject to a full clawback of the ABSD.
c. I will lower the ABSD clawback rate, should developers sell at least 90% of each development within the prescribed sale timeline. This ensures that housing supply continues to be released promptly, while providing some flexibility to the developers. The details of this change will be released in a statement later today.
BEPS 2.0
157. Next: Corporate Income Tax – I will make significant adjustments to our tax system to take into consideration the international Base Erosion and Profit Shifting (or BEPS) 2.0 initiative.
158. To recap, BEPS comprises two pillars:
a. Pillar One aims to reallocate taxing rights on profits to market jurisdictions. When implemented, it will result in revenue losses for Singapore.
b. Pillar One has been delayed for now, and the implementation date remains unclear.
c. Pillar Two will introduce a global minimum effective tax rate of 15% for large MNE groups.
d. Last Budget, I announced our intention to implement Pillar Two from 2025, and that we would monitor and adjust the timeline if needed.
e. Since then, several jurisdictions have moved. The EU, the UK, Switzerland, Japan, and Korea are implementing Pillar Two rules from 2024. Others, like Hong Kong and Malaysia, have announced their plans to do so from 2025.
159. We will therefore move ahead with two components of Pillar Two, as planned.
a. The first is the Income Inclusion Rule (or IIR). A jurisdiction that introduces this will subject the overseas profits of MNE groups parented in that jurisdiction to a minimum effective tax rate of 15%.
b. So we will implement the IIR.In other words, MNE groups that are parented in Singapore will have to pay a minimum effective tax rate of 15% on their groups’ overseas profits, regardless of where they operate.
c. The second component is the Domestic Top-up Tax (or the DTT). This applies to the Singapore profits of MNE groups operating here. Without this tax, these MNE groups would have had to pay their parent jurisdictions the effective tax rate of 15% on their Singapore profits. Therefore, it is in our interest to implement the DTT, so that we collect the tax, rather than have it go somewhere else.
d. The IIR and the DTT will take effect for businesses’ financial years starting on or after 1 January 2025, and will apply to large MNE groups with global revenue of at least 750 million euros annually.
160. There is another component of Pillar Two: the Undertaxed Profits Rule.
a. This is effectively a backstop, as it will allow Singapore to collect a share of the top-up tax on any MNE with operations here, if any portion of its income overseas has not been subject to the minimum tax.
b. We will consider this at a later stage. Because with the DTT and IIR, we are already making major changes to our corporate tax regime. So we will focus on implementing these changes first, and ensure a smooth rollout for the affected companies.
161. In the short term, the implementation of Pillar Two will provide additional revenues. But it is uncertain how much this will be or how long it will last. We may even see a reduction in our tax base, should MNEs shift some of their activities to other jurisdictions in response to the new business environment.
162. In any case, whatever additional revenues we obtain from Pillar Two will need to be reinvested for Singapore to stay competitive in a post-BEPS world.
a. MNEs are now re-evaluating their plans and strategies. Other governments are also enhancing and refreshing their investment promotion toolkits.
b. That is why we are introducing the Refundable Investment Credit, which I mentioned earlier. We will also have to spend more to support new investments, research and innovation activities, and sustain our economic competitiveness.
c. Overall, given the significant spending required to stay competitive, at this point, I do not expect the new moves to generate net revenue gains for Singapore on a sustained basis.
163. I will also make some further tax adjustments, to ensure our tax system remains fair and competitive. And details of the tax changes are in the Annex to the Budget. (See Annex H-1.)
Medium-Term Outlook
164. Sir, last year, the Ministry of Finance released a set of projections of our medium-term fiscal outlook.
a. These showed that Government spending has been rising steadily over the years.
b. Our spending in the late 2000s was around 15% of GDP. And over the span of ten years, it has grown by 3 percentage points of GDP, to around 18% of GDP.
c. We expect spending to continue rising in this decade. Healthcare is one key driver for the increase. But there are additional spending needs fuelling the increase.
d. We will have to spend more for the major moves to decarbonise our economy, as I explained earlier.
e. As part of Forward Singapore, we are making significant policy shifts to strengthen our social safety nets, and provide more assurance to Singaporeans. I have just introduced some of these measures in this year’s Budget. We will spend around $5 billion on Forward Singapore policy moves in FY2024, and close to $40 billion in total by the end of this decade.
165. In our projections, MOF had assessed that Government spending will increase to around 20% of GDP by 2030. For now, that remains our assessment. Assuming we stay within this range of spending increase, we should have sufficient revenues to maintain a balanced budget over the coming years.
166. But the medium-term fiscal position is tight. Because there are so many pressures for us to spend more, be it on healthcare, social needs, or the energy transition, and these are all big-ticket items. We will have to manage these expenditures carefully, or we will end up with a significant funding gap.
167. We can already see this happening in many other advanced economies where public finances are on an unsustainable path, and fiscal systems are at risk of breaking. We must never allow this to happen in Singapore. Instead, let us uphold the ethos of fiscal discipline and responsibility that has served us well, and ensure that our fiscal position always remains balanced, sound, and sustainable.
FY2023 and FY2024 Fiscal Position
168. Sir, let me now summarise our fiscal position for both FY2023 and FY2024.
169. For FY2023, our revenue collections were better than expected. And this was mainly due to higher Corporate Income Tax collections.
170. The additional revenue will allow us to pay for new spending, including the $7.5 billion injection to the Majulah Package Fund.
171. Accounting for both our revenue upside and higher spending, we expect to end FY2023 with a deficit of $3.6 billion, or 0.5% of GDP.
172. For FY2024, we are budgeting a small surplus of $0.8 billion, or 0.1% of GDP, which is essentially a balanced fiscal position. The overall stance is appropriate, as we are providing targeted support for households and businesses, even as the economy is projected to operate at around potential. (See Annex H-2.)