Budget 2023: Progressive policies to take Singapore forward

AFTER weathering three years of a pandemic, Singapore now finds itself in an era of greater uncertainty and volatility. While global challenges are beyond a single country’s control, the Republic’s latest fiscal package suggests one approach that can help during the turbulence ahead: wealth redistribution.

In the immediate term, inflation has pushed up public expenditure on two levels. Firstly, the government must pay more in general – including for needs such as healthcare, which will only increase as the population ages. Secondly, the government is providing help to cope with the rising cost of living.

While cost pressures require caution in public spending, Singaporeans are naturally anxious about decade-high inflation. This makes enhancements to the Assurance Package and GST Voucher Scheme at Budget 2023 not only timely but necessary, particularly for the lower-income groups.

Yet on the revenue side, Singapore is expected to see positive but slower economic growth this year – with major uncertainties and downside risks, including the risk of a looming downturn in the United States and the eurozone, heightened geopolitical tensions and the possible emergence of a more dangerous Covid-19 variant.

Even as Finance Minister Lawrence Wong delivered this Valentine’s Day present on Tuesday (Feb 14), he said he hopes Singaporeans understand that “it is not fiscally sustainable to rely so heavily on government support year after year to cope with inflation”.

One issue, of course, is that the government has to find ways to pay for such special transfers. From an economic point of view, another issue is that increasing liquidity – in this case, spending power – runs the risk of boosting demand and thus prolonging inflation.

Taking a Robin Hood approach by increasing taxes to redistribute wealth could thus help to raise much-needed revenue for Singapore’s immediate and long-term challenges, while continuing to provide support for the most vulnerable in society.

The move towards greater progressivity was already evident last year, when Wong, who is also Deputy Prime Minister, announced higher personal income taxes – even if the marginal increases were relatively modest. He also stressed the use of property and vehicle taxes as, in effect, wealth taxes.

This year, Wong took things further with tax hikes for higher-value properties and higher-end luxury cars, which are expected to net the government an additional S$700 million in revenue.

One could argue that Wong could have gone even further. A more decisive marginal Buyer’s Stamp Duty, for example, would also have had a more compelling effect on cooling the overheated property market.

But the fact that top-end tax changes were made for a second straight year does signal the government’s commitment to a more progressive tax structure, which will hopefully cement the philosophical foundation for future policies: that those who are better off should bear a higher fiscal burden.

Beyond wealth and sin taxes, such as the higher tobacco excise duty, this idea of progressivity is also borne out within specific policies announced in Budget 2023.

What’s telling, for instance, is the change in the Working Mother’s Child Relief, which will now be a fixed-dollar relief, rather than a percentage of the mother’s earned income. This effectively raises the level of support for eligible lower- to middle-income working mothers.

It is also heartening to note that issues such as marriage, parenthood and ageing, which took an arguable backseat to the Covid-19 crisis, are back on the agenda, with the government taking steps to strengthen Singapore’s social safety net.

These are part of moves to strengthen Singapore’s social compact “to keep our social fabric strong and resilient”. Progressivity in Singapore’s tax system – that is, getting the well-off to help the less well-off – is also part of building such solidarity and trust.

Social resilience is one of five aspects of national resilience that Wong highlighted as necessary in a world characterised by greater uncertainty and volatility.

Building organisational capabilities is another – an important lesson learnt from the Severe Acute Respiratory Syndrome (Sars) outbreak and more recently, of course, the Covid-19 pandemic. There is also a need to build resilience in Singapore’s economy and supply chains, as well as building up the country’s reserves.

The fifth is safeguarding Singapore’s climate resilience. But even as Wong emphasised the importance of this, what was conspicuously missing from Budget 2023 were more incisive measures to fight what is arguably the biggest challenge of this generation: the climate crisis.

In recent years, the government has implemented sweeping policy changes that culminated in a surprisingly steep carbon tax hike during Budget 2022 to combat the climate crisis.

But there is surely more work to be done, such as helping more companies, particularly small and medium enterprises (SME), to decarbonise.

Much like the principle of wealth distribution, the government has said that carbon tax revenue would be channelled towards helping SMEs become greener. This, however, needs to happen much sooner given the urgency of the climate crisis.

Just as increasing the progressivity of Singapore’s tax system is an ongoing task, so too should climate efforts be maintained from one Budget to the next.