Budget 2022 highlights: Tax reforms to support ambitious transformation plans
BEEFING up the tax system to support longer-term spending was a key and hotly anticipated theme in Finance Minister Lawrence Wong's maiden Budget speech on Friday (Feb 18).
Wong - who took up the Finance Ministry portfolio in a Cabinet reshuffle in 2021 - outlined spending measures that are directed at both structural societal and economic changes, as well as more immediate needs in the third year of the Covid-19 pandemic.
The need to boost revenues comes as government spending is tipped to bust 20 per cent of gross domestic product (GDP) by 2030 - mainly because of healthcare needs.
Wong noted that while income from the net investment returns contribution should keep up with economic growth, Singapore's looming labour force slowdown will crimp tax revenues.
As such, "these tax adjustments will help to raise additional revenue and also contribute to a fairer revenue structure", he said.
The planned increase in the Goods and Services Tax (GST) is now scheduled to take place in 2 steps: from 7 per cent to 8 per cent on Jan 1, 2023, and then to 9 per cent on Jan 1, 2024.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Separately, the top marginal personal income tax will be increased from the 2024 year of assessment onwards - affecting top earners with chargeable annual income above S$500,000.
Luxury cars will be taxed at a higher rate from this month, while property tax rates for residential properties - including non-owner-occupied investment properties - will go up from 2023.
And, to keep up with the global Base Erosion and Profit Shifting initiative, the government is exploring a Minimum Effective Tax Rate (METR) to top-up the effective tax rate of multinational corporations groups in Singapore to 15 per cent, though it will monitor international developments and consult the industry before making a decision.
Despite economic risks such as supply chain disruptions, geopolitical tensions, and a slowdown in external demand, Wong noted that the immediate overall outlook remains positive.
But "there are still segments of the economy that are still struggling", he said, as he unveiled near-term support for businesses in sectors still affected by Covid-19, and help for resident households.
The S$500 million Jobs and Business Support Package will include a Small Business Recovery Grant for small and medium-sized enterprises in industries such as food and beverage, retail and hospitality, as well as an extension of the Jobs Growth Incentive that co-funds local hires.
The aviation sector is set to receive further targeted support to preserve and enhance Singapore's status as an international hub, with more details to come during the Budget debates.
The latest Budget also extended business financing schemes, expanded support of industry-led skills training for workers, and tightened the regulations on the in-flow of foreign workers.
But Wong stressed in his Budget speech that Singapore "will continue to stay open and welcome talent from around the world".
"The adjustments in our foreign worker policies apply mainly to the broad middle of the workforce.
"This is where we have Singaporeans doing the jobs, but we need to continually adjust our rules to ensure better complementarity between our foreign and local workforce," he said.
"At the higher end of the workforce, where there are acute skill shortages, we will continue to bring in professionals with the right abilities to be part of Team Singapore."
Other relief measures in the Budget include a S$560 million Household Support Package, which includes vouchers, rebates, and top-ups for families with children.
"As our economy reopens, the harder-hit sectors should progressively see improved prospects. Meanwhile, these support measures will provide temporary relief for our businesses and workers," the minister said.
On plans for the longer run, Wong added that the path to Singapore's goal of net-zero carbon emissions by or around 2050 "will entail significant economic restructuring and changes in how we live and work".
Among other measures, the government now plans to issue up to S$35 billion of green bonds by 2030 to fund public infrastructure projects - up from an earlier target of S$19 billion by 2025.
Singapore will also raise the carbon tax in phases from 2024 onwards, to between S$50 and S$80 per tonne by 2030 - up from S$5 a tonne now.
The government does not expect to draw more revenue from the carbon tax increase. Instead, it will use the revenue to cushion the impact on households and businesses, as well as invest in low-carbon and energy-efficient solutions to lower emissions.
Meanwhile, social support is expected to be strengthened through moves that enhance retirement savings, home ownership, healthcare, social assistance, and wages.
The government will partially cover salary increases for lower-wage workers until 2026, expand the eligibility criteria for the Workfare Income Supplement, and require all eligible suppliers to be accredited as paying progressive wages from March 2023 to qualify for public contracts.
Wong called the Budget "a first step in renewing and strengthening our social compact for a post-pandemic world" and in building a "fairer, more sustainable, and more inclusive society".
He estimated an overall fiscal deficit of S$3 billion in FY2022, or 0.5 per cent of gross domestic product (GDP) - down from S$5 billion, or 0.9 per cent of GDP, in the year prior. The government is setting aside S$6 billion for Covid-19 public health spending, drawn from past reserves.
The Business Times brings you some highlights from Budget 2022:
- Singapore sees third straight deficit in FY2022, narrowing to S$3b: Although operating revenue is expected to rise, this will be more than offset by a rise in spending, due in part to pandemic-related spending in economic support and healthcare.
- Singapore's GST to be raised in 2 steps, to 8% in 2023 and 9% in 2024: The increase is expected to raise about S$3.5 billion in additional revenue, or about 0.7 per cent of GDP, which will go towards supporting expenditure on healthcare and seniors.
- Additional S$640m top-up to S$6b GST Assurance Package: The enhanced package should help to offset at least 5 years of additional GST expenses for most households, and about 10 years of additional expenses for lower-income households.
- Higher taxes for top earners with chargeable income above S$500,000: Changes to personal income tax could raise S$170 million more in tax revenue each year.
- Minimum salaries for Employment Pass, S-Pass holders to increase from September: Higher qualifying salaries and other tweaks aim to ensure that EP and S-Pass holders are comparable in quality to the top third of the local skilled workforce.
- S$560m support package to help families with bills, daily essentials: The package, which is meant to help families defray daily expenses and rising utility costs, includes Community Development Council vouchers and GST Voucher - U-Save rebates.
Get the latest updates on Budget 2022 here: bt.sg/budget22
Copyright SPH Media. All rights reserved.
