Budget 2022: Wong's tax philosophy: Everyone must chip in, but those with more contribute more

SINGAPORE'S tax regime needs tweaks to keep up with structural changes in society that will see public spending climb over the next decade, Finance Minister Lawrence Wong indicated on Friday (Feb 18).

Rejecting a system of "comprehensive universal welfare and high taxes" like Europe's, he called instead for a model where "everyone chips in... but those with greater means contribute a larger share".

Since expenditure in areas such as welfare and the environment will be recurring and not temporary, tax revenues - rather than tapping past reserves - are key to funding the spending plans, he added.

The latest changes to the tax regime can thus "raise additional revenue and also contribute to a fairer revenue structure", Wong said.

The Budget raised the personal income tax rate for top earners, increased taxes on residential properties, and imposed a higher tax rate on luxury cars.

Wong noted that spending on healthcare, education, income top-ups and other such measures has jumped from S$17 billion to S$31 billion in the last decade.

Social spending now makes up nearly half the Budget, and "we will invest even more" in the next 10 years in response to "lasting, structural shifts in our society, as well as our new social and environmental aspirations", he said.

Government spending is projected to hit more than 20 per cent of gross domestic product (GDP) by 2030, against 18 per cent now.

Wong also called the level of public spending in Singapore "extremely lean" overall, and said that the tax burden on local workers is low.

He stressed that Singapore does not plan to adopt a "European model", where cradle-to-the-grave social spending can exceed 30 per cent of GDP and is funded by high income and consumption taxes.

But with about 80 per cent of Singapore's spending on public services paid by taxes, Wong flagged a looming constraint on tax revenues, as labour force growth slows.

Even though income from the net investment returns contribution, which funds the rest of expenditure, is tipped to keep pace with economic growth, "we will not have enough to cover the additional spending needs", he warned.

He added that "it would not be right to dip into our reserves" to meet upcoming spending needs, as those should be maintained for emergencies like the global financial crisis and Covid-19 pandemic.

"This is why we will make significant enhancements to our tax system," he said, while promising "a very comprehensive set of measures" to help households and businesses adjust to the tax increases.

Get the latest updates on Budget 2022 here: bt.sg/budget22