F. Our Fiscal Strategy
- F1. I have laid out the Government’s priorities in the coming years:
- a. First, to continue providing relief in the immediate term.
- b. Second, to invest strategically for growth and press on with our economic transformation in the medium term.
- c. Lastly, to lay the groundwork to position Singapore for the long term, and build a caring and sustainable home for all.
- F2. Our fiscal approach must strike a careful balance between addressing our immediate needs and meeting our longer-term structural needs in a responsible manner.
- a. In the immediate term, running a fiscal deficit to support targeted relief is warranted, considering the unprecedented impact of COVID-19.
- b. In the longer term, COVID-19 has not changed the fundamental drivers of our fiscal trends. With our ageing population and maturing society, our recurrent needs in areas like healthcare and other social spending will continue to rise. We must meet these structural needs in a disciplined and sustainable way.
- F3. Hence, beyond this crisis, we must return to running balanced budgets.
- a. It was fiscal prudence and discipline that allowed us to accumulate our national reserves, which has enabled us to respond decisively to this crisis.
- F4. Let me now explain our strategies to balance between our immediate and long-term needs.
Sustaining Relief in the Immediate Term
- F5. In the last financial year, FY2020, we were expecting to draw up to $52 billion from Past Reserves. With the effective response of our people and businesses in adapting to the changing situation, we have been able to bring the pandemic largely under control. Hence, our requirements for some areas such as public health turned out to be lower than what was provided for. Of the $52 billion, we expect to utilise $42.7 billion of Past Reserves. This means that $9.3 billion is not expected to be used in FY2020.
- F6. In FY2021, we are committing $11 billion for the COVID-19 Resilience Package, to tackle the immediate and extraordinary challenges that COVID-19 continues to pose. This package is needed to safeguard public health, and support our people and businesses.
- F7. Given the extraordinary and temporary nature of these measures, the Government proposes to fund the COVID-19 Resilience Package through a draw on our Past Reserves.
- a. Putting together the proposed draw of up to $11 billion in FY2021, and the $42.7 billion of Past Reserves that we now expect to draw in FY2020, the total expected draw on Past Reserves over FY2020 and FY2021 will be up to $53.7 billion. This is a net increase of $1.7 billion from what we expected to draw from Past Reserves to respond to the crisis.
- b. The President has given her in-principle support for the proposed draw of up to $11 billion on Past Reserves in FY2021, to continue the provision of public healthcare and relief measures in the coming Financial Year. Once again, I thank the President for her support.
- c. This is the second consecutive Financial Year where we will be drawing on our Past Reserves. This is necessary, given the exceptional circumstances we are in. We are extremely fortunate to be able to tap on our strategic assets and deploy the resources required to deal decisively with COVID-19 and the considerable uncertainties that lie ahead. We should never take our reserves for granted.
Meeting our Longer-Term Needs
- F8. In the coming years, our fiscal situation is expected to be tighter.
- F9. Prior to COVID-19, we were already expecting a structural increase in our recurrent spending needs, especially in areas such as healthcare.
- a. We have tripled our government spending on healthcare within a decade, from $3.7 billion in FY2010 to $11.3 billion in FY2019.
- b. Fellow Singaporeans have often expressed the desire to better care for our seniors, with quality yet affordable health and aged care services. This is possible only if we can muster the resources to do so.
- c. As our needs grow, we must plan for the resources to fund these, and target the spending in a fair and effective way.
- d. COVID-19 has also raised economic uncertainties for citizens and workers, which calls for stronger social safety nets to protect those who are disadvantaged or more vulnerable. This will mean higher recurrent spending going forward.
- F10. We have maintained the principle that recurrent expenditure should be funded by recurrent revenue. This ensures that we spend in a responsible way – one that is fair for current and future generations.
- F11. To finance our recurrent spending needs, I first announced in Budget 2018 that we would need to raise the GST rate sometime from 2021 to 2025. As announced in the Unity Budget in February 2020, in view of economic conditions then, the GST rate increase would not take effect in 2021. This remains our plan.
- F12. However, we will not be able to put off the increase for too long. We will have to make the move sometime during 2022 to 2025, and sooner rather than later,
subject to the economic outlook.
- a. Without the GST rate increase, we will not be able to meet our rising recurrent needs, in particular healthcare spending. While we are fortunate to be able to tap on our reserves to respond to the COVID-19 crisis, it is not tenable for the Government to run persistent budget deficits outside periods of crisis.
- b. No finance minister likes to talk about tax increases, certainly not when the pandemic is still raging around the world. But we do this because we plan for the long-term and do not shy away from explaining to fellow citizens why we need to make tough but necessary decisions to ensure that we have enough to provide for our nation’s future.
- F13. Let me reiterate my commitment to all – that the Government will ensure that our overall taxes and transfers system remains fair and progressive.
- a. GST on publicly-subsidised education and healthcare will continue to be fully absorbed.
- b. And to help cushion the impact when the GST rate is raised, we have set aside $6 billion for an Assurance Package.
- i. This will effectively delay the effect of the GST rate increase for the majority of Singaporean households by at least five years.
- ii. For lower-income Singaporeans, the offset will be even higher, with those living in one- to three-room HDB flats receiving about 10 years’ worth of additional GST expenses incurred.
- c. Over and above the transitional support, we already have the permanent GST Voucher scheme to defray GST expenses for lower- and middle-income households.
- i. This is a permanent feature of our system, and will be enhanced when the GST rate increase takes place.
- ii. Through this scheme, we are able to provide targeted support for those who need help most.
- d. Based on past collections, foreigners residing in Singapore, tourists and the top 20% of resident households are estimated to account for over 60% of the net GST borne by households and individuals. This is after taking into account the GST Voucher scheme, and GST refunded under the Tourist Refund Scheme for goods bought locally for consumption abroad.
- e. If you consider our entire system of taxes and benefits, it is a progressive one. In 2020, the top 20% of Singaporean households paid 56% of the taxes and received 11% of the benefits; whereas the bottom 20% paid 9% of the taxes and received 27% of the benefits.
- F14. At the same time, our tax system must remain resilient to withstand shocks. We are mindful of international tax developments, and the downside risks to our revenues.
- a. There are ongoing discussions to revise international tax rules under the Base Erosion and Profit Shifting, or BEPS 2.0 project. These proposals will adversely impact our corporate income tax revenues. As I have mentioned in this House previously, we are actively involved in these talks.
- b. If and when these international tax rules are changed, we will consider if adjustments are required to our corporate tax system accordingly, in consultation with the industry.
- F15. One aspect of a fair and resilient tax system is ensuring a level playing field for our local businesses vis-à-vis their overseas counterparts. This is especially relevant as e-commerce
for sales of goods and services, is growing.
- a. In Budget 2018, I announced the extension of GST to imported services from 1 January 2020.
- b. I also shared that we would be reviewing international developments on how GST can apply on imported goods.
- c. Today, low-value goods imported via air or post are not subject to GST, to facilitate clearance at the border. In contrast, GST is paid on such goods purchased in Singapore.
- F16. Several jurisdictions, including Australia, New Zealand, and the European Union, have implemented or announced plans to implement the equivalent of GST on such goods.
- F17. I will hence extend GST to imported low-value goods with effect from 1 January 2023. (See Annex F-1.)
- a. This change, together with the change announced in Budget 2018, will ensure a level playing field for our local businesses to compete effectively. Overseas suppliers of goods and services will be subject to the same GST treatment as local suppliers. IRAS will continue to work with the industry to ensure smooth implementation for the change.
- F18. I will also make some tax adjustments to support businesses, and to maintain the competitiveness and resilience of our tax system. The details of these tax changes are in the Annex. (See Annex F-1.)
- F19. In addition to meeting our recurrent spending needs, we have also been making significant investments to build Singapore and transform our economy, even before COVID-19.
- F20. I had shared in previous Budgets that the Government is exploring the use of borrowing to finance major, long-term infrastructure that benefit current and future generations. This approach will allow us to spread out the lumpy costs of such infrastructure investments more equitably across generations.
- F21. Having studied this extensively, the Government intends to issue new bonds under a proposed Significant Infrastructure Government Loan Act,
or SINGA for short. The Government will table a Bill in Parliament later this year.
- a. These new bonds will allow for a fair and efficient way of distributing the fiscal responsibility.
- i. Fair, because these payments are borne by the generations who will directly benefit from the improved infrastructure.
- ii. Efficient, because they allow us to benefit from the current low interest rate environment.
- b. Prior to this, the Government has been issuing bonds to develop the domestic debt market and meet the investment needs of the CPF for Singaporeans’ retirement.
- c. With the proposed SINGA legislation, the Government will now issue bonds for an additional purpose of financing major, long-term infrastructure.
- a. These new bonds will allow for a fair and efficient way of distributing the fiscal responsibility.
- F22. The Government will use SINGA borrowing proceeds in a prudent and transparent manner.
- a. These proceeds will be used to finance assets that are crucial to Singapore’s long-term development and sustainability. These will include new MRT lines, and infrastructure to protect ourselves against rising sea levels.
- b. As a safeguard, we will set a limit of $90 billion for borrowing under SINGA. This is based on the expected pipeline of major, long-term infrastructure projects over the next 15 years.
- c. We will also include other safeguards in legislation, which will be open to Parliamentary and public scrutiny.
- d. We have briefed the President and obtained her in-principle support for the use of Government borrowing to finance major, long-term infrastructure.
- e. More details will be provided when the Bill is presented in Parliament later this year.
- F23. I have spoken about our approach for the immediate COVID-19 Resilience Package, and our differentiated approach to address recurrent needs through recurrent revenues and borrowing to finance major, long-term infrastructure.
- F24. How we recover from COVID-19 in the next few years is critical. It will determine our nation’s long-term success. Beyond dealing with its immediate impact, we are making significant
investments to position Singapore for our next bound of growth in the post-COVID-19 world.
- a. COVID-19 has disrupted business models and global supply chains, and accelerated trends such as digitalisation. To secure our future, it is crucial for us to seize opportunities in new growth engines, respond to structural trends, and transform our economy.
- b. We will invest strategically in these areas over the next few years, so as to emerge stronger. I have announced some of these measures in this Budget, while others are being developed by the Emerging Stronger Taskforce, the various Alliances for Action, and our agencies.
- F25. Based on the current outlook, we expect that as the economy recovers, we will be able to balance our budgets, and our revenues will be able to support projected expenditure for these
- a. This assessment assumes that the global COVID-19 situation comes under control by next year, enabling economic recovery.
- b. However, if the global public health and economic outlook worsen, we may not be able to do so.
- F26. We have carefully thought through the different scenarios. While we expect economic recovery in Singapore and globally, there is a wide cone of uncertainty. Even if the economic and fiscal situation turns out to be worse than expected, we must still press on to invest in new areas, so as to ride on the structural changes, transform and emerge stronger as an economy, and as a people.
- F27. Should the public health and economic situation deteriorate, and the need arise, the Government will seek the President’s consideration for the use of Past Reserves to support these economic investments to ensure Singapore emerges stronger from this crisis.
- a. We have briefed the President on the Government’s strategy and contingency plan, in the event of a prolonged impact of the pandemic on the economy.
- b. The President has expressed her understanding towards the Government’s approach, and will consider the Government’s specific proposals, should there be a need to draw on Past Reserves.
Financing our Recurrent Spending Needs with Recurrent Revenue
Maintaining a Resilient Tax System
Updating our Tax Regime as the Digital Economy Grows
Other Tax Changes
Significant Infrastructure Government Loan Act
Sustaining Investments in our Future Economy
FY2020 Budget Position
- F28. Let me now summarise our overall budget position.
- F29. For FY2020, we expect an overall budget deficit of $64.9 billion, or 13.9% of GDP. This is the largest budget deficit since our nation’s independence. The deficit is driven by lower revenues due to dampened economic activity, and the significant expenditures needed to mount a decisive response to COVID-19.
FY2021 Budget Position
- F30. For FY2021, our budget position remains expansionary as we continue to tide Singaporeans and our businesses over this crisis with the COVID-19 Resilience Package. I have also explained our plans to emerge stronger by pressing on with economic and workforce transformation, strengthening our social compact and building a sustainable future for all. These measures will impart a considerable fiscal boost to the economy, and we expect an overall deficit of $11.0 billion, or 2.2% of GDP. (See Annex F-2.)