Lawrence Wong
Singapore
“Sir, we will provide more information. I see the value of getting Ministries to put out more information, to share more about how their resources are being used and what outcomes they have achieved.”
“Sir, I agree fully with Mr Azhar that human capacity, human capital is critical. In fact, I would say the long-term potential of Singapore, how far we go really depends on us being able to maximise our human potential. That is key and that is why we have long invested in education. And it is not just about the investments.”
“Sir, we have been maintaining that commitment of 1% for some time now. I do not think it is about saying that we just have to do more and spend more. As many have highlighted, we want to ensure good outcomes from our R&D spending as well. So, we will continue if the outcomes are good.”
“This has never been the case. Temasek, when it started, was always very clear about its mandate from the very beginning – commercial, not doing national service, focused on commercial outcomes.”
“Sir, the MOF economists when they look at fiscal projections use Government's forecast of the economy, which is also published. We would typically use the mid-point of the range and then, of course, because these are in nominal terms, you have to factor for that. And the projections are done on those basis.”
“Sir, I was relieved that Mr Loh said he only has one question, but he asked the most difficult question. To answer the question, we will continue to monitor cost of living across all segments of society.”
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“And since January this year, the banks have been offering, as part of a pilot exercise, limited purpose bank accounts to persons whom banks have assessed may pose higher risks of being implicated in financial crimes. These include ex-offenders and those under investigations or pending charges for financial crimes. The pilot exercise will allow banks a chance to obtain feedback and refine the product before the accounts are officially launched in the second half of this year. The functionalities and safeguards for limited purpose bank accounts are designed to enable individuals to meet their basic banking needs, like receiving salaries and paying bills. To mitigate risks of abuse, the accounts are subjected to enhanced monitoring measures. For example, banks will check that individuals are only receiving funds from specified sources which had been agreed upon at account-opening, including salary payments from employers, Government disbursements and insurance payouts. These functionalities and safeguards will be adjusted, as necessary, after the current pilot. The limited purpose bank accounts will address the needs of most ex-offenders and persons under investigations or facing charges. However, there may be a small number of individuals whom banks have assessed to pose unacceptable risks. For example, this might include individuals who have committed serious crimes involving the violation of targeted financial sanctions. MAS will continue to work with the Singapore Police Force on further ways to enable financial inclusion for individuals who have been involved in financial crimes, while ensuring that the risks are properly managed.”
“In short, we are using improvements in payment technology and competition to achieve our objectives of cheap and fast payments for all, using existing forms of central bank-backed money. This does not mean that MAS has ruled out introducing a retail CBDC at some stage. The case for a CBDC could strengthen if foreign digital currencies become more widely used locally, although we are far away from that situation today. Innovative CBDC applications may also make them more attractive. MAS, therefore, continues to build up its technological and institutional capabilities in the CBDC space. MAS has embarked on Project Orchid to build the technical competencies necessary to issue a digital Singapore dollar, should we decide to do so in future. It also organised a Global CBDC Challenge last year to surface innovative technology solutions. Issuing a retail CBDC will not be a minor decision. There are important risks and uncertainties that come with creating a new form of money. MAS has set these out clearly in a paper that it published on the topic in November 2021. A digital Singapore dollar must be secure and robust once it is implemented. The banking system needs to be able to adapt to its introduction, and monetary and financial stability cannot be compromised. This is a complex undertaking and careful practical experimentation alongside industry players will be necessary, if we do decide to proceed with a retail CBDC at some stage. Overall, MAS will continue to prepare for the possibility of issuing a digital Singapore dollar, but does not see an immediate case for doing so. On the second cut by Mr Gerald Giam, last year, MAS engaged the major retail banks on initiatives to enhance financial inclusion for ex-offenders.”
“Mr Chairman, I thank Assoc Prof Jamus Lim for his interest and comments on a digital Singapore dollar. MAS has been among the central banks at the forefront of experiments with central bank digital currencies (CBDCs), especially wholesale CBDCs, starting over five years ago. It has been actively engaged in the international discourse on CBDCs among policymakers, industry and academia. At this point, MAS has assessed that the case for a retail CBDC in Singapore is not compelling. Several other central banks have taken the same view for now, such as the US Federal Reserve, Bank of Canada and the Reserve Bank of Australia. The reasons typically offered for issuing retail CBDCs are not very relevant to MAS and Singapore at this juncture. Some of the reasons usually offered are that CBDCs can ensure financial inclusion or enable cheaper and faster payments. Financial inclusion is not a significant problem in Singapore. And electronic payments in Singapore have also become pervasive, seamless and efficient. The roll-out of FAST, PayNow and SGQR in recent years means that cheap and fast payments are widely available domestically via bank-based payment systems. And we are also linking up this infrastructure with those abroad, which will open up more cross-border electronic payment solutions over time. Government transfers are disbursed efficiently through digital means, including through the last two years of the COVID-19 crisis. And the payments system is becoming even more innovative and competitive, as more payments service providers are being admitted through the Payment Services Act and the new digital banks begin operating.”
“Mr Speaker, yes, Ms Poa is right. When we talk about these Budget cuts, they are in the context of a budgetary framework that allows us to reduce – so, the cuts are real, mind you. The cuts are real and actually applied to Ministry expenditures. But Singapore also has new priorities. And, therefore, this allows us to reallocate expenditure from existing to new, without having to just top up more monies. In this way, we can moderate the increases in expenditures. On how or what are the areas these reallocated monies go to and whether the SPH Media Trust and F1 are part of it, I think we can discuss all these in the respective Ministries' Committee of Supply debates when they come up. Thank you, Sir. [(proc text) Question put, "That Parliament approves the financial policy of the Government for the financial year 1 April 2022 to 31 March 2023." (proc text)] Hon Members say "Aye".”
“That part, honestly, I cannot understand. It makes me wonder why. The Workers' Party cites that the GST will hurt the poor. It does not. I have explained it. And on that basis, they cannot support the Budget. Really? Do you know what you are saying then? You do not want to support all the things we have in this Budget? To uplift the wages of lower-income workers, Workfare, progressive wages, to help vulnerable families with KidSTART. You are rejecting all of that? I find it hard to understand, frankly, on the misguided view that GST hurts the poor, which it does not. I can only, therefore, ask whether you are taking things too lightly. Or whether you are raising opposition because of other reasons, political reasons? Or other things? As opposed to seriously looking at the facts and doing what is right for Singapore. The Workers' Party is entitled to their views and to not supporting the Budget. But it will not stop me as the Minister for Finance from doing what is right and it will not stop this Government from continuing with all our efforts to build a better Singapore. [Applause.]”
“The next two questions I will take them together – when is the next reasonable interval when we might review our reserves' rules and is there an optimal level of reserves? It is very hard to answer these questions, because I do not have a crystal ball. Really, who knows what will happen to the world in the next 30 years or more? Really. Can anybody predict? It is almost impossible. So, what would trigger us to change? I think it will have to be something really very disruptive. Not just once off, but on a permanent basis, and we will have to study the options very, very carefully at that point in time. Because there are deep, deep implications if we were to change anything on the reserves' rules. Deep implications for intergenerational equity, essentially, resulting in our next generation having to pay more taxes, as I have said, and having less to deal with any emergencies in the future. That is why I would say not something we will do today because we have other options. We have the GST, which we can implement in a fair way. We have other tax options. That is the reason why I ask, well, I wonder, maybe this is taking it a little bit too lightly. Because why turn to the Reserves when we have all these options and why make the GST into the last resort? But reserves – okay. Future generations – never mind, let us do it. But GST – cannot touch. Why? Why take that approach? Especially when the way we have implemented the GST is not the way the Workers' Party has characterised it. It is not, and you know it, too. I have shown the charts. I have explained it. We have explained it before multiple times and we have reiterated our explanation. So, if you understand this, then why are your proposals anything but GST increase? Even Reserves can be touched, but not GST increase.”
“Mr Speaker, on the three points. On the first, I recognise that the Workers' Party's suggestions for revenue alternatives could entail mix and matches as they have highlighted, a bit from here, a bit from there. But I still say, as I have highlighted, the sums will not add up. Why? Basically, you are asking to tax more from three possible groups as an alternative to GST: the wealthy and the better-off, large companies and future generations. So, that is what it comes down to. The future generations would mean land sales and NIRC, these sorts of changes. And I have explained why we do not think it is financially prudent to make those changes. Large companies, I have highlighted. This is contingent on the evolving rules around BEPS 2.0 and, even if we were to get some additional revenue, we are very likely to have to reinvest back to strengthen our competitiveness. This leaves me with the third group – the wealthy. And that means wealth taxes, which, I have explained, can be difficult to do, or property tax or personal income tax. And, if you were to home in on property tax, I have explained, if you want to get another billion dollars of revenue from property tax, you probably would have to double property tax rates across the board. That is just $1 billion. GST is $3.5 billion. So, where does the money come from? And that is why I highlighted the sums still do not add up. I appreciate and I take these in good faith that there are these different options that the Workers' Party has offered as alternatives. We have studied all of them before the Budget. During the Budget debate, when these options were raised, we went into them again with my team, but we still are not able to make the sums add up.”
“But what we have done is do it in a fair way by offsetting the impact. And because the GST Vouchers are permanent, they are conjoined with our GST system. It is together, permanent. Therefore, we have confidence to say that, on a continuing basis, the charts that I have described, how we can offset the impact on the low-income groups. That is something we can do, not just today and not just five years, but on a continuing basis.”
“Sir, I did not say that I was opposed to sin taxes or to tobacco taxes. I was simply highlighting that the Workers' Party made a big issue of regressivity in one case, but not in another case. So, I did not understand why there was inconsistency there. But we have never made a big issue of it and, in fact, we do not look at fiscal systems like that. As I have said, it is not appropriate to consider item by item. We look at the system as a whole. And where sin taxes are concerned, externality tax, we do it not for revenue-generating purposes. Yes, it generates some but not a lot. But really more for curbing consumption, which we think is necessary. And that is why we will continue to review these taxes from time to time, as we have been doing. On the second point, the burden of GST increase and how our system works, I think Mr Gerald Giam is saying, well, you want everyone to contribute, but, with GST, the low-income do not end up paying. Net-net, they do not have to pay. So, how do they contribute? But the point is this. With the GST, yes, they may get back something in terms of continuing offsets, but they do pay. There is a price. If there were no price to pay, we will not be having this debate. Everyone will happily say, "GST goes up and there is no opposition to it". But I think the Workers' Party and the PSP know that this is something not very popular on the ground and, therefore, they are objecting to it. But because people have to pay for it, then they feel that they are contributing to the system. Everyone contributes. With GST, we bring that about. It is a broad-based consumption tax which impacts everyone and everyone feels it, but it is also the way they can contribute and chip in to the system.”
“The so-called "net wealth tax" in Switzerland is not a wealth tax for the top-end only. Many middle-class, many middle-income people pay for that net wealth tax. This was our experience in estate duty, mind you. As I mentioned, the top-end, the very wealthy, knew how to plan it away. But the burden ended up falling on the middle-income and the upper middle-income. That is our bigger concern, on top of the concern that, yes, there will be some competitiveness reasons. That is also a relevant concern. And that is why we have to study this very carefully. We have to think through, look at the experiences of other jurisdictions. Not very many left to study because, as I have said, many of them have dropped the idea of doing a net wealth tax. We will have to consider what is suitable for Singapore. So, we will not rule it out. But at this stage, we do not have something that we are confident can be effectively implemented, suited to Singapore's circumstances. On land sales, the easy answer is, for these shorter duration leases, we have decided for flexibility and, because there are more transactions like that, there is no need to regard them as assets and, therefore, we take them in as current revenue. But for the ones with longer leases, we treat them as assets and then, therefore, we take them into our reserves framework and accord the treatment accordingly. It is a judgement call. We could have said everything, regardless of the duration of the lease. But we have worked out what we think is a reasonable balance and that has been decided and agreed with the President's Office.”
“Sir, on the three questions, first, on BEPS 2.0. We are, certainly, committed to implementing the spirit of BEPS 2.0. We will do so while ensuring that this is, indeed, implemented around the world. Because our bigger concern is that it must be a level playing field. It cannot be that some countries do it and others do not; and then, there are revenue leakages that will undermine Singapore. So, we are watching. Yes, countries have signed up to it. But countries have to go through their own domestic processes to roll out BEPS 2.0. It is not a certainty that this will get through their respective parliaments. Signing the declaration is one thing; 2023, but will it get through all the countries' parliaments, legislation and implemented in law? Not so sure yet. So, we do want to make sure that there is a level playing field and we will do our part as a signatory, as a responsible member of the international community, to likewise implement, when there is that global consensus and global implementation. On wealth taxes, I recognise a proposal from Assoc Prof Jamus Lim and the Workers' Party for a net wealth tax that will yield revenue of $1.2 billion. I have explained that, yes, in theory, you could design a scheme like that. You could. But in practice, it will be much more complicated and it is not just about the fears of people leaving, but the fact that there are so many ways for high net worth individuals to circumvent whatever taxation rules you have in place and to plan away the burden of the wealth tax on themselves. The ones who do, are usually the ones with better means and higher wealth. And this is why, even in Switzerland, for example, if you look at the net wealth tax they have there, the burden of tax falls on a much broader base of the population.”
“Mr Speaker, I have to differ with Mr Leong Mun Wai. I do not intend to get into a debate on figures with him. If he thinks that me and all my MOF officers know less about revenues than him, he is entitled to take that view. I do not wish to entertain or continue the debate further when we are not even able to — if the Member is unable to accept facts which I have put out and says that that is wrong, I do not know how to debate any further. Because then what are we debating about? The Member is unable even to accept an authoritative fact from the Minister for Finance and say it is wrong, so, what is the point of continuing the debate on facts and data if the Member does not accept the figures which I have put out on personal income tax? I have already explained that it does not yield that figure. Just look at the revenue generated from the tax change we have just introduced in this Budget. It is nowhere in the region of billions. Nowhere! So, I can only say the facts that the Member has are wrong and it should not form the basis for public policy. On the first question, I have, in fact, answered it. I did not say that there is no increase in burden. Please do not distort what I said. Listen to what I said carefully. I said the burden is borne by the upper-middle and top-end. And it is reflected in the chart and we will be able to circulate the chart after this, put it out on the website and Mr Leong Mun Wai can have all the time in the world to analyse the figures and internalise them. Thank you, Sir.”
“It is that group that will bear the burden of the GST increase, while the rest of the population pay the GST rate, but the impact of GST expenses is offset on a continuing basis. And that is why we can have the confidence of implementing a consumption tax in Singapore that is fair, effective and does not hurt the poor.”
“Mr Speaker, let me answer the second question first because it is quite straightforward. The sums do not add up, Mr Leong. The sums do not add up. A 2-percentage point to 3-percentage point increase in the top personal income tax rate will never get anywhere close to the revenue we get from a 2% increase in GST. It will not. So, there is no choice here. In fact, we are already raising the personal income tax rates in this Budget. We will get some money from it, but it is not enough and that is why the GST increase is needed. But as I have repeatedly said, the objections to GST on the basis that it hurts the poor are completely unfounded. You may disagree with the GST, fine. But do not use that as a reason for disagreeing with GST. There is no basis for that in Singapore. So, stop pretending that this is the reason. On the first question, impact on the middle class. I know what you are trying to do with your computations, but I have shown in my chart and in my speech a different way of showing it, which is the share of GST paid by the different groups. And you can see from that, the chart is self-explanatory, the middle 20%, the share burden that they pay for GST, the increase in GST comes down. Effectively, what it means is that the increase in GST, the $3.5 billion of revenues that the 2% of GST generates, will be borne by the upper-middle and the top income earners. That is what it comes down to. It shows in the effective rate chart, where you saw, when we stacked up the effective GST rates and we showed the increase in GST to 9%, that extra burden is all borne by the upper-income deciles. Upper-middle and top-end. And that is exactly how we have designed the system.”
“I would say it would range from neutral to perhaps some increase, but we will have to look at the figures. We will provide some figures, hopefully, to help everyone get a better sense of what it might be. What is more important, especially the point I mentioned, which is that even if Pillars 1 and 2, combined, yield us additional revenue, we will very likely have to reinvest that revenue back into ensuring we remain competitive and attract our fair share of investments. Why? Because the reality is competition for investments is not going to go away just because of BEPS 2.0. In fact, it will get even more intense, and it will intensify in other non-tax areas, which we will, therefore, have to fund and have resources ready for. So, even if there is a plus from BEPS 2.0, I am, in fact, not confident that that additional revenue will help us with our social spending needs, and, especially not for our healthcare spending needs, which will continue to rise very sharply.”
“But our economy, our needs, the complexity of our needs and the magnitude of the challenges we face are growing even faster. What is more important when you drill it down is, are we accumulating more than necessary? And the answer is no. How do we know that this is the case? Because our NIRC, as I mentioned before, we project will continue to grow at a rate that keeps pace with economic growth. That is how we know that we are not over-accumulating. Whatever we are getting from NIRC today at 3.5% of GDP, on average, over the past few years, we do not expect that to continue rising as a share of GDP. It will keep pace with economic growth. And as I mentioned in my speech, even that, we cannot be sure that we can achieve that. But if we are able to do so, it will already be a significant achievement because of all the headwinds that we are facing in the global investment environment. I think I have answered all the questions from Mr Singh, Sir. Oh, sorry. One more question – BEPS. For BEPS, again, this is one of those things. We have been studying this very carefully. And, as I mentioned just now on Pillar 1, the rules are still being finetuned. It is not over yet. It is still being discussed. Yes, there is the pronouncement of 2023, but I do not know for a fact that this will happen in 2023 because many details are still being worked out. So, that is one of the reasons why I mentioned I hesitate to put out any figures at this stage. But taking the earlier point about putting out more information for a more informed debate, we will go back and think about whether we might provide a range of estimates about what the impact of BEPS 2.0 might be for both Pillars 1 and 2.”
“And we, therefore, want to make sure that if we were to provide any figures, we do not inadvertently mislead people, cause people to have the wrong impression. And I seek the Leader of the Opposition's understanding, too, that, in putting out such figures in the future, we may very well get it wrong, because there is a lot of uncertainty when we project into the outer years. But he has my commitment that we will continue to see how we can improve the data and information that we put out. Third, on the reserves, I have explained our position and why changes in the rules, done hastily, we think, are not wise, are not prudent and will come at the detriment of the next generation. If we have to change any rules, we will have to seriously consider them very, very carefully. But if we make any tweaks in parameters – more land sales, more NIRC – what it basically means at the end of the day is that our future generations will be the ones to have to carry the burden. They will have to pay more in taxes in the future. That is what it comes down to. And they will have that much less to deal with any future emergencies, which we all know, will come at a more frequent rate in the coming years. So, all I say is, let us have a care about this. And I do not think it is prudent to make this change now, in place of raising the GST or other tax changes, which we can and should do. As for the quantum of reserves, I have actually mentioned that in my speech. I said that our reserves are growing. We would not be able to tell you what the actual figure is, for the reasons I have explained. It is not in our national interest. But as I have said in my speech, our reserves are growing.”
“Look at the significant help that is on the table today: household support package this year, plus Assurance Package and the GST Vouchers, both of which have been enhanced, combined together, and both being rolled out this year before the GST goes up. A lot of help, which will, for most households, delay the impact of the GST increase by five years or more. So, the two, taken together, I think should assure everyone that we are not doing this in a cavalier manner at all. We considered it very, very carefully before we decided to proceed. And making sure that we are taking all the necessary actions and steps and have contingency measures in place to take care of the concerns of every Singaporean. That is number one. Second, on projections, numbers and data, I accept Mr Singh's point. I was not attempting to characterise it unfairly. I was sharing my feelings about these repeated requests for information as perhaps distracting us from the real issues. But I accept Mr Singh's clarification and I assure him that he has my commitment that we will continue to put out more information, as much as possible, in order to provide for more informed debates. And I hope he also takes what he said seriously, that the Opposition will also exercise leeway in recognising that these projections in the outer years are inherently fraught with a great deal of uncertainty, especially for a small, little, open economy like Singapore, where so many external events can never be predicted with any degree of certainty. So, very often, we do not even project GDP beyond the year. So, when you talk about outer year projections for the economy, for fiscal projections, there will be a very high cone of uncertainty around these numbers.”
“Sir, I thank the Leader of the Opposition for these comments and questions. There are few of them and I will take them in turn. First, on the increase of GST. It was a very difficult decision for all the reasons I have explained: recognising, on the one hand, the concerns that Singaporeans have about higher prices but, on the other hand, the urgent and very pressing revenue needs we have to address. That is why I highlighted that I decided, eventually, to delay the GST and to stagger the increase over two years. I suppose Mr Singh's point is that even that is not enough. And I can understand that some people might feel and be concerned that even that delay and that staggering are not sufficient to address concerns, especially in light of the recent developments in the external environment. And that is why I mentioned just now that the best way to deal with this is: firstly, if, indeed, inflation turns out to be more persistent and higher than expected – which may happen – we will deal with that decisively and separately, and we have the tools and resources to do so. How? Well, we have monetary policy to deal with inflation; secondly, we are able to take a series of actions to better secure our energy supplies; and, thirdly, we can help households and businesses directly. We have the resources to do so. And, if the need arises, we will not hesitate to take all of these actions. So, that is the first assurance we have for everyone. The second assurance is that, even setting aside additional measures and actions, we have already done a lot. And I have been trying to explain that.”
“And Sir, as one united people, we can be confident in charting our new way forward together and in building a fairer, greener and more inclusive Singapore together. [Applause.]”
“Instead, keep a modest and unassuming approach and do your part to give back to society, so that wealth can be recycled and invested back into society to expand opportunities for others. Sir, I have confidence that Singaporeans can instinctively sense if any Budget is not worthy of them and fails to renew their trust in the Government, in one another and in the future. They can decipher whether the Budget reflects our shared vision of a fair and just society, whether this Government is one they can trust to manage our resources in a way that is in line with our values and whether this Government is keeping faith with them and their children. In the weekend immediately after the Budget, I had several engagement sessions. As someone shared with me, his wife asked him: "Why are you so happy to pay more taxes?" This is by no means a well-to-do individual, just an ordinary person. But his wife asked him: "Why are you so happy to pay more taxes?" His reply: "It's the right thing to do." In a dialogue organised by the CDCs, including their community and corporate partners, a participant said she did not need the cash payout from the Assurance Package and would like to donate it to families with greater needs. I was cheered by this and I am glad to share that we will have an online portal set up in the coming months, where Singaporeans can indicate their preferred charities for the Government to directly channel the payout to, if they wish. In the end, the Budget is about all of us as Singaporeans, driven by our compassion and our conviction to build a better society for all; strengthening our trust in one another and keeping faith with future generations, as our forefathers kept faith with us.”
“It means being honest and upfront with Singaporeans about what we need to do together; not sugar-coating realities or pretending that there are quick and painless remedies available. In this Budget, I have set out plainly the challenges and also the opportunities ahead of us and explained why we need to move on difficult measures like the GST increase. It is not the popular thing for me to do: certainly, not for my first Budget as Finance Minister. But I have a responsibility to do what is right and what is in the best interests of all Singaporeans; not what is politically expedient now but will store up problems for the future. I am convinced that the measures in the Budget are necessary and will put us in a stronger position to strengthen the self-reinforcing system of trust we now have and to ensure that every citizen contributes their fair share to building our common enterprise, which is Singapore. A lot has been said about the redistributive aspects of the Budget. But, in fact, to deepen the trust in one another, we must also engage the human spirit and involve every Singaporean. We must strengthen the culture of responsibility for one another, so we all feel a renewed sense of duty towards one another and not just a right to the benefits of citizenship. Singapore must always remain an open and egalitarian society, one without rigid hierarchies and class distinctions, but with a big heart and a generosity of spirit. We do not begrudge those who do well. Instead, we celebrate them and we take pride in their achievements. At the same time, for those who have succeeded, there is no need to flaunt one’s wealth or be ostentatious about it.”
“We must not only be fiscally prudent, but also plan for the future. This is how we ensure that Singapore’s wealth can pass down the generations. I believe the changes to the tax structure we introduced this Budget will help to strengthen our social compact and social cohesion because we are all chipping in and doing our part to tackle our challenges and build a better Singapore together. Ultimately, that is how we can build a fairer and more inclusive society, where no one gets left behind and all can enjoy the fruits of Singapore’s success. (In English): Mr Speaker, Sir, in every Budget, we discuss and debate the design of policy parameters or schemes in monetary terms. But the Budget is much more than that. It reflects something deeper: our ethos and our values. It is an expression of our shared compact to tackle our challenges together, to never stop thinking of tomorrow and to never cease building a better Singapore. All this boils down to trust, something the Prime Minister spoke about recently in this House – trust between the Government and the people; the trust we have in one another and trust across the generations. Trust is fragile and precious. It takes effort and time to build up, but it can be destroyed very quickly. When there is trust, we can achieve great things together, we can make the impossible possible. But when we lose faith in one another, even simple things become impossible. So, whatever views we may have about the Budget, whatever differences we may have on policy issues, let us always work to strengthen trust in our institutions and in one another. That means debating the issues based on facts and not biased soundbites, or worse, half-truths and lies.”
“Both will be implemented starting from later this year before the GST increase takes effect. Combining the two, households will receive significant benefits. For example, a family of four earning $2,500, living in a 3-room HDB flat, will receive around $2,400 a year over the next five years from both the AP and GSTV. This should more than cover their GST expenses during this period. We have also not forgotten the middle-income or "sandwich" group who are taking care of both old and young. They, too, will enjoy significant benefits from the AP and GSTV. The GST system that we have here in Singapore is unique. Low-income families pay less GST than high-income families. Besides the GST, we have also made other tax changes in this Budget, like the income and property taxes, so that those with higher incomes and who own properties with an annual value over $30,000 pay more taxes. These tax changes will generate additional revenue which we urgently need to fund our rising Government expenditures, especially in the area of healthcare, so that we can take better care of our seniors. But we are doing this in a way that is fair and progressive. That means everyone pays something in taxes. The less well-off contribute a smaller amount of taxes and receive much more in benefits. On the other hand, the well-to-do contribute more in taxes and receive less in benefits. Some Members of Parliament have suggested that we should draw more from our reserves to cover our funding gap. But that would mean leaving behind less and less for our children and grandchildren. If we keep doing this, one day, we will deplete our reserves. Like our forefathers, we must exercise stewardship and responsibility over our hard-earned money.”
“And that is what the team and I in MOF have worked very hard to do in this Budget – to ensure a balanced and fair package of measures, adjusting what is necessary to meet our evolving needs, while bearing in mind our economic and social imperatives and, above all, upholding the principles of fiscal prudence and sustainability. That is the approach we will continue to take in reviewing and updating our policies – never compromising on our principles and values, and always doing what is in the best interests of Singapore and Singaporeans. [Applause.] Sir, with your permission, let me say a few words in Mandarin. (In Mandarin): [Please refer to Vernacular Speech.] The Budget has something for everyone and will provide opportunities for all to succeed. I understand the concerns that Singaporeans have about rising prices and the cost of living. That is precisely why I had decided to defer the GST to 2023 and to stagger the increase over two steps. Meanwhile, we are extending significant help to Singaporeans through the Household Support Package – we will double the U-Save rebates this year for households, help them with their children’s education and also their daily essentials through the CDC vouchers. I know many are concerned about the impact of the Ukraine crisis. The Government is closely monitoring the situation. I assure you that we will do more to help Singaporeans and businesses cope with cost of living and business costs should the situation worsen. Some are worried that even with the delay and staggering of GST, there will still be an impact on prices. That is why we have the enhanced Assurance Package (AP) and the GST Vouchers (GSTV) to offset the GST expenses of households.”
“So, in that sense, I have been through many Budgets, even though this is my first time delivering one. Over the years, I have had the chance to study the fiscal systems of many other jurisdictions. I can confidently say that Singapore is unique in having such a highly progressive system of taxes and transfers, while keeping the overall tax burden low for everyone and especially for the middle-income. We have a system that is fair, progressive and effective. It reflects our values: what we stand for and who we are as a people, and it provides a strong foundation for us to build our economy and our society. That does not mean that we have a perfect system. We are continually reviewing and improving it. We are continually adapting and adjusting our approach, as circumstances change and as our society evolves. Typically, after a Budget, we get two types of responses: "too much" and "too little". On the one hand, some say that the Government is doing too much – making costs higher for SMEs and for consumers. On the other hand, there are voices that say we are doing too little – not enough taxes for certain groups, more is better. After 25 years of public service, I know it is almost impossible for the Government to do anything that pleases everyone all of the time. But I want to assure everyone that every move we make is considered very carefully. We weigh the costs and benefits and the implications. We discuss extensively with all stakeholders, especially our tripartite partners.”
“For the relatively low amount of taxes paid, they enjoy many benefits in Singapore: affordable public housing and healthcare, beautiful parks, excellent infrastructure, quality preschools, schools and tertiary institutions with highly-subsidised fees. So, when you put it altogether, this is how we have designed our fiscal system: one, a fair revenue structure with everyone contributing, but those with greater means contribute more; two, a fair system of subsidies and transfers where all benefit but those who are less well-off benefit more; three, a system where we keep taxes on middle-income households low by targeting our social safety nets at the more vulnerable households who really need the support, while ensuring universal access to high-quality public housing, education and healthcare. When you put all three together, we have a highly progressive system of taxes and transfers where the better-off contribute more and receive less in tax-funded benefits while the less well-off still contribute, but a smaller amount, and receive much more in benefits. This is reflected in our benefit-to-tax ratios, something which many Members are familiar with but which is worth reiterating. [Please refer to Annex 5.] The bottom 20% of Singaporean households receive about $4 in benefits for every tax dollar paid, the middle 20% of Singaporean households receive about $2 in benefits for every tax dollar paid and the top 20% of Singaporean households are net contributors receiving about $0.30 in benefits for every tax dollar paid. These ratios that we have achieved for the lower- and middle-income households are no mean feat at all. And we will have to continue working hard to maintain this in the coming years. Sir, I started work more than 25 years ago as an economist in MOF.”
“Retirees, on average, receive $6,900 in net benefits per person. Among Singaporean employed households, the benefits, net of taxes, are significant, at $5,900 per member for the bottom decile. When you add that up for a typical household, the benefits work out to be about 90% of their household income. Put another way, Government benefits will nearly double the amount of resources for these households. It is a significant and tangible form of support. Of course, as incomes go up, the net benefits are correspondingly reduced. The higher-income are net contributors – they contribute more than they receive. But they, too, benefit. They benefit from the political stability, social cohesion and overall environment that we provide in Singapore. Some Members have asked if we are doing enough for the sandwich middle-income group. If you look at the chart, for those in the 40th to 60th percentiles of household income, they continue to receive more benefits than the taxes they pay. For those in the 60th to 90th percentiles of household incomes, they pay some taxes, after netting off the subsidies and transfers they receive. I understand the pressures faced by this group. Some are caregivers who bear a heavy burden financially and emotionally, even physically. This is why we have been mindful to make sure we expand our suite of broad-based support in areas like education and healthcare. We have also increased healthcare and caregiving-related subsidies and support to relieve the load on these families, especially for those who care for young ones and elderly parents. Importantly, we have taken extra care to keep the tax burden for this group low. In fact, their tax burden is significantly lower than what it is for their equivalent in most other cities.”
“I assure Members like Dr Shahira Binte Abdullah and Mr Abdul Samad that we will continue to review our eligibility criteria and schemes so that support is sufficient and targeted towards those in need. We are continuing with this emphasis in the Budget to provide, generally, for all but to tilt the support towards those who need them more. Over the last decade, our policy moves have helped to reduce income inequalities and steadily brought down the Gini coefficient. As Mr Mohd Fahmi Aliman and Mr Raj Joshua Thomas said, we are determined to continue reducing wage disparities despite the global economic pressures that are pulling incomes apart and making it harder to hold our society together. That is why we are setting aside significant resources in this Budget for both Progressive Wage and Workfare. This reflects our shared commitment for a fairer and more equal Singapore. I assure everyone that we are moving as fast as we can to uplift the wages of these lower-wage workers. The new Local Qualifying Salary (LQS) will take effect soon, from 1 April this year. [Please refer to “Clarification by Minister for Finance”, Official Report, 2 March 2022, Vol 95, Issue No 52, Correction by Written Statement section.] We will work with our tripartite partners to get the employers to come on board quickly, even before the mandatory progressive wage requirements kick in. Overall, our system of taxes and benefits continues to be fair and highly progressive. I will show a chart to reflect this. [Please refer to Annex 4.] It depicts the overall net benefits, including grants and subsidies, that Singaporeans receive in a year from the Government, after subtracting the taxes they pay. You can see here our seniors are well taken care of.”
“Some also set up philanthropic foundations, contributing to our charities and other worthy causes. Ms Foo Mee Har and Ms Denise Phua spoke about this, about enhancing our framework for philanthropy. And we will, certainly, do so. I want to make it very clear, too, that we have no issue with people doing well, earning more and achieving success in their careers. Our tax system must never discourage hard work, effort and enterprise. At the same time, we want to avoid in Singapore the emergence of stark income inequalities or social stratifications, which will undermine social cohesion and pull us apart. So, we will continually review and update our system of taxes and transfers to achieve this balance: to reward enterprise, innovation and work and to mitigate the pressures of social inequalities. We will continue to ensure a fairer and more resilient fiscal structure to underpin our social compact and to strengthen our social solidarity. Many Members in this House – Mr Liang Eng Hwa, Miss Rachel Ong, Mr Xie Yao Quan – have affirmed this and I thank everyone for your strong support. Finally, let me address the third major question: is the Budget fair to all Singaporeans? The Budget has something for everyone. It is designed to provide opportunities for all to succeed – the young and the old, the lower-income, the middle-income and even the higher-income. In fact, a significant part of our social spending goes towards ensuring broad access to affordable and quality housing, healthcare, education and lifelong learning. These are important social provisions and they support the aspirations of all Singaporeans. But we have also been careful to design our schemes so that those who come from less well-off backgrounds will get more support.”
“The bottom line is that we cannot sustain a tax system where the bulk or all of the burden is borne by a small group of people at the top end. It will not be possible to hold our society together if only a small group of people is required to pay more taxes all the time, while the rest simply get to piggy-back on their contributions to enjoy more benefits. That is why having a broad-based tax like the GST is so vital. It makes a direct link between our demands as voters and our responsibilities as citizens. Break that link and we encourage irresponsible lobbying and playing to the gallery. Someone else will pay for the good things in life. Why not demand more? That is how we have designed our system – on the principle of collective responsibility. Everyone contributes. Everyone contributes towards the cost of delivering services and everyone benefits from these services, but to different degrees. Those with greater means bear a higher burden and they draw less on Government support but they still enjoy some benefits from the Government. Those with fewer means carry a lighter share but they still contribute something and, in return, they receive more benefits from the Government – more than they put in and more than the better-off. In this way, we all do our part to help ourselves and one another and we strengthen the trust that binds us together as a society. This is a fair and inclusive system. [Applause.] We should also remember that the well-to-do contribute in many other ways and not just through income or wealth taxes. For example, many have set up businesses in Singapore, creating good jobs for Singaporeans and helping to develop new capabilities in our economy. While these individuals are here in Singapore, they consume more and pay more in GST.”
“As I have explained, there are limitations to all these different proposals and, in some cases, the sums just do not add up. Every tax move we make is carefully considered so that we have, in the end, a balanced, effective and fair set of tax measures in the Budget. More importantly, a progressive fiscal system does not and should not mean that each and every tax is progressive, let alone highly progressive. What ultimately matters is the overall system of taxes and transfers, to ensure that the overall system is progressive, and that is what we have done. If we were to take a revenue-by-revenue approach, we will end up with less revenues and you will also undermine the broader need for everyone to contribute, as part of a durable social compact. In this regard, I should say that there is a fundamental difference between the measures we have put forward in the Budget and the Workers' Party's alternative proposals or, for that matter, the position taken by the Progress Singapore Party. From what I have heard in this debate, the basic position of the Workers' Party and the Progress Singapore Party is that we can close the funding gap without having to raise the GST. How? By making various groups pay more. Make the wealthy pay more. Make large companies pay more. Let future generations pay more. Anything but GST increase – even though I have already explained the GST increase in Singapore does not hurt the poor. I can understand why they think these alternatives are politically more attractive options to offer, but I am afraid they are too simplistic and divisive and will end up creating more problems for our society. Let me explain.”
“So, it is not true that the GST increase hurts the poor. Not in the way we have designed it. Even for the middle-income, you can see they continue to pay an effective rate which is well below the headline 9% rate. There is another effect of the GST which causes it to bear more heavily on the well-off. A consumption tax also allows us to tax those who may not be earning income in Singapore but are, in fact, well-off. They may be investors or persons of means. They may not be paying much in income tax today even though they have the means to contribute because their income is not easily ascertained. That could be, for example, if they are self-employed. But they will certainly be consuming more and the GST ensures that such people, those with greater means, will contribute their fair share of taxes. Mr Leong Mun Wai had made some calculations and he concluded that the middle-income will bear a disproportionate burden of the GST increase. But that is not so. After the GST rate increase, it is the top 20% of citizen households who will pay a greater share of GST and that is after GST Vouchers and the absorbed GST, netted off. You can see from the chart. Top 20%, the share goes up from 40% to 42%. For the middle 20% of households, they will pay a slightly smaller share of GST. [Please refer to Annex 3.] Sir, I have covered the issues around GST and the various revenue options. I would like to assure Members that we have studied and carefully considered every tax option. I appreciate that the Workers' Party offered suggestions on alternatives to the GST. In fact, we have studied every tax option even before the Budget in order to design what we have put together as part of a package of tax changes in this Budget. We have looked at all the options again.”
“This chart shows the existing effective GST rate, across different income deciles, after subtracting the GST-V and the GST that is absorbed for publicly-subsidised healthcare and education. [Please refer to Annex 1.] And you can see that the lower-income households pay a much lower effective GST rate than the higher-income households. In fact, on average, the households at the bottom 10% do not pay any GST at all, after offsets. This includes many retiree households without income. For the second decile, the effective rate is very low. Even for the middle-income households, the effective rate is well below the headline 7% rate, because of how their GST expenses are being offset on a continuing basis. Essentially, we already have a highly-tiered GST system in Singapore. But it is not tiered by the different types of goods or services, which Ms He Ting Ru had asked for. Instead, it is tiered by the impact of our GST, such that the well-to-do pay more GST and the lower-income are impacted the least. That is a fairer and far more effective way of taxing consumption. Many Members of the Opposition – in fact, both the Workers' Party and the Progress Singapore Party – object to the very idea of raising GST, claiming that the payouts are temporary and that the GST is regressive and disproportionately impacts the poor. But, again, such misguided claims ignore the way we have implemented GST in Singapore. What happens when the GST rate is raised to 9%? Together with the enhanced permanent GST Voucher scheme, you can see from this chart, the effective GST rate for the first three deciles remains unchanged. [Please refer to Annex 2.] So, for them, the enhanced permanent GST Voucher neutralises the impact of the increase in GST.”
“We looked at four categories of items: uncooked food; basic food serving services that include hawker centres, food courts and coffee shops; telecommunication services; and utilities. If we were to exempt these four categories from GST, we expect to lose about $1.2 billion in tax revenue, of which only $185 million, or 15% of GST not collected, will benefit the bottom 20% of resident households. That is it. So, this is ineffective as a redistributive tool to make our system fairer. This is not just MOF's conclusion, mind you. This conclusion has also been reached by studies by numerous governments as well as organisations like the OECD. This is why, in fact, it is fairer and more effective for us to have a single GST rate across the board and to directly help lower-income and middle-income Singaporean families through the GST Voucher scheme, which is what we are doing. Mr Speaker, Sir, with your permission, let me explain this with some slides on the screen.”
“We will continue to review and see if there are better criteria for our schemes. Meanwhile, where there are challenging or unique circumstances, we will carefully consider the appeals. Ms He Ting Ru asked if we can make the GST less regressive, such as through a multi-tiered GST system for different items, or if we can exempt certain essential items from GST. From the outset, the Government has always cushioned the impact of the GST on the less well-off Singaporean families. This is how we have been implementing the GST since 1994, with offset packages and, eventually, the permanent GST Voucher scheme. The question is: what is the fairest and most effective way to achieve this objective? Exempting or lowering the GST on a basket of essential goods sounds like a good idea. But there are two problems with this. The first is that a multi-rated GST system leads, in practice, to highly arbitrary distinctions between products and lots of creative effort by businesses to get their products classified into the lower tiers. It is administratively costly and onerous to implement. Ms He Ting Ru said that these costs can be easily overcomed. But that has not been the experience of other jurisdictions. If we were to go down this path, it will significantly and unnecessarily complicate the GST system. That is the first reason. But the second and bigger problem with this suggestion is that, in fact, it does not effectively target support to those with greater needs. So, aside from the administration of it, it is not effective. In fact, such an exemption for a basket of goods tends to benefit the well-to-do, because they spend more on everything, not just luxury items, but basic necessities as well. We did an exercise.”
“But for now, take the example of a family with two young children, earning about $2,500 a month and living in a 3-room flat. Over the next five years, they will receive, on average, around $1,000 per year from the enhanced Assurance Package and around $1,400 per year from the enhanced GST Voucher – altogether, $2,400 per year of benefits over the next five years. This is more than their annual total GST expenses – not the increase – more than their total annual GST expenses of around $2,000 per year over this same period. In fact, over the next five years, most low-income families will receive more benefits than what they will pay in GST. Middle-income families have not been left out and will also enjoy significant benefits from the Assurance Package and the GST Voucher. We know that some are caring for both elderly and young dependents. That is why we have designed our measures to help them. Again, take the example of a household of five persons living in a 5-room flat, but, this time, with two young children and a retired grandparent, and they have a combined monthly income of $9,000. Over the next five years, they will receive, on average, around $1,300 per year from the enhanced Assurance Package and around $1,100 per year from the enhanced GST Voucher scheme. Again, altogether, $2,400 per year of benefits over the five-year period. Not a small sum at all, and this is for a three-generation household with a combined income of $9,000 a month. Ms Jessica Tan, Mr Chong Kee Hiong, Dr Shahira Abdullah and Mr Dennis Tan have commented on the criteria we use for our GST Voucher scheme. We have used Assessable Income combined with Annual Value as a measure of an individual’s means and access to family support. They are not perfect, but I think they are quite reasonable.”
“If inflation turns out to be persistent and higher than expected, we will deal with this separately through other tools, like I mentioned at the start of my speech. Besides managing inflation, we also share the concerns raised by Mr Chong Kee Hiong and Mr Saktiandi Supaat, which is that we want to see local wages rising faster than prices. In fact, we have done well on this front in the last 10 years. Median Singaporean wages, in real terms, have risen by about 3% per year, faster than many other developed jurisdictions, such as the US, the UK, Japan and Hong Kong. We will continue to work hard to ensure such real wage increases are sustained in the coming years across all segments of our workforce. Meanwhile, we are helping Singaporeans with the Household Support Package this year and we are cushioning the impact of the GST through the enhanced Assurance Package and the permanent GST Voucher scheme. The Household Support Package will provide a household with two children up to $785 of assistance this year. The enhanced Assurance Package and GST Voucher will be rolled out together, starting from this year, even before the GST rate goes up. Combining the two, households will receive a very significant package of benefits. Let me illustrate this with an example. But before I proceed, I should say that I have noted Ms Sylvia Lim's suggestions on our household archetypes. We do, in fact, take into account different household formations in studying the effects of our policies and we adjust our policies where necessary. And I am conscious, personally, that there are other kinds of household formations besides the traditional, and we will bear Ms Sylvia Lim's points in mind in our future illustrations.”
“We also welcome feedback on how to make a suggested net wealth tax work in practice in our context, when almost all our competitors in this region and worldwide do not levy such a tax. Then, what about the so-called “externalities taxes”, such as sin taxes and carbon tax, as suggested by Assoc Prof Jamus Lim? I am surprised that he raised this, in the first place, as a means of generating revenue. Tobacco taxes, for example, are a regressive tax – the lower-income groups pay a bigger share of it. The Workers' Party had expressed such strong concerns about the regressivity of the GST, but does not appear to be the least concerned about regressivity here. Why the double standards? In any case, we do not levy sin taxes for purposes of generating revenue, but for deterring consumption, and we will review and adjust these taxes from time to time. For carbon tax, as I have already highlighted, we will channel the revenue to help with the green transition. So, this will not help to meet our structural funding gap. I have explained how we cannot rely on reserves or these different revenue options to close the funding gap. But let me now address the key issues pertaining to GST. First, the timing of the GST increase. I had considered this matter very carefully, before deciding to start on 1 January 2023, to delay the start and to stagger the increase over two steps. Some ask: what happens if inflation turns out to be more persistent or higher? Would it not be better to wait until we are sure that inflation has come down before raising GST? As I have mentioned before, I fully understand the concerns about inflation and cost of living, but we cannot keep delaying the GST increase, given our pressing revenue needs.”
“To raise another $1 billion from just property tax alone, property tax rates may very well need to be doubled across the board. I suppose that is what the Workers' Party is proposing. There were other suggestions for wealth-related taxes. For example, Mr Saktiandi Supaat suggested estate duty. We did away with this in 2008 because it did not achieve the social equity outcomes we had hoped for. In the end, middle- and upper-middle-income individuals were disproportionately affected by estate duties, compared to the wealthy, who were able to find ways to avoid through tax planning. Besides us, the jurisdictions that have repealed their estate duties, like Hong Kong, Malaysia and New Zealand, have not reinstated it either. There were also suggestions to tax capital gains or dividend income. But remember, jurisdictions in the region do not tax capital gains or dividends. And if we were to do so, that can very easily hurt our competitiveness. It will impact jobs and Singaporeans. Assoc Prof Jamus Lim and Mr Louis Chua suggested we introduce a net wealth tax; and they estimated that it could yield about $1.2 billion annually. As much as we would like to tax the net wealth of individuals in theory, I have explained, it is very challenging to do this in practice. What happened with estate duties could very well happen here. Many forms of wealth are mobile. And as long as there are differences in wealth taxes across jurisdictions, wealth can and will move. That is why many jurisdictions have already abolished their net wealth taxes. In fact, only three OECD jurisdictions now have a net wealth tax. We will continue to study the experiences of other jurisdictions and explore other options to tax wealth effectively.”
“For the owner-occupied residential properties, the increased tax rates affect only those with Annual Value (AV) above $30,000. That means that all owner-occupied HDB flats are not affected. Two-thirds of private residential properties, like condominiums in the suburban areas and lower-value landed properties, are also not affected. The remaining one-third of private residential properties which are affected are higher-end condominiums, as well as most landed properties. And then, all non-owner-occupied residential properties will also face higher property taxes. The tax rates for these are higher because these properties include second homes and those held for investment. And the increases are also more significant for the higher-end non-owner-occupied residential properties. If we want to raise enough tax revenue from property tax to eliminate the need for a GST rate increase, what would we have to do? Well, we would have to tax all non-owner-occupied residential properties at a significantly higher rate. Let us, say, we taxed all non-owner-occupied residential properties at a flat 36%. This would still not be enough, because the number of non-owner-occupied residential properties is considerably less than that of owner-occupied residential properties. So, we would need to raise property tax rates significantly for owner-occupied residential properties, including for HDB flats. In fact, I am somewhat surprised that Mr Louis Chua characterised our moves on property tax rates as tokenism. Three hundred and eighty million dollars more per year; and he says it is tokenism. Currently, our total property tax revenue from all residential properties is about $1 billion.”
“And that would apply to everyone with chargeable income of at least $320,000 or more. And that is assuming the tax base remains unchanged. But we all know this sharp increase is untenable and will badly damage our competitiveness. Investments and jobs for everyone, including lower- and middle-income earners, will be impacted, not just taxes. So, to raise the same amount as a GST increase through higher PIT, in reality, we would have to raise the PIT rates for a broader group of income earners, including the middle- and upper-middle income earners. And that was what Dr Tan See Leng was trying to explain yesterday. In fact, Prof Hoon Hian Teck had correctly observed that as our economy matures and population ages, a bigger share of the population will become economically inactive. This will, in turn, shrink the tax base for income-based taxation. So, we cannot rely only on income-based taxes alone, if we want to maintain a resilient and future-proof revenue base. So, I have covered corporate and personal income taxes. Next, wealth taxes. Mr Louis Chua also said we should do more on this front, especially on property taxes. On the other hand, several Members, like Mr Chong Kee Hiong, raised concerns that increased property taxes will impact many retirees and senior owners of private residential properties. So, again, we have to find the balance. In fact, the changes we have made to property taxes this time around, are not insignificant at all. But we have structured it in a highly progressive manner. Together, our property tax moves raise $380 million more per year from a base of only 7% of all owner-occupied residential properties and all non-owner-occupied residential properties.”
“Hitherto, smaller economies like us could rely on tax incentives, not just non-tax factors, to make up for our inherent disadvantages, like limited land and labour force. But this is no longer as effective, post-BEPS 2.0. Companies will review their existing and new investments. Governments will also seek to compete via non-tax investment promotion in order to recover from the pandemic and to make up for what they can no longer do through tax incentives. Our engagement with investors is already revealing this. So, likewise, Singapore will need to find other ways to stay competitive, from investing even more in our workers to building new infrastructure and incentivising R&D. All these will mean more Government spending. So, even if we can generate additional revenue from Pillars 1 and 2, these will have to be reinvested towards ensuring Singapore remains competitive and attracts our fair share of investments to create good jobs for our people. I would, therefore, caution against jumping to conclusions or believing wild guesses on how much more revenue we can get from changes in global tax rules and use that as a reason to avoid raising the GST. Next, personal income tax or PIT. Currently, the top 10% of taxpayers who pay PIT already account for about 80% of our total PIT revenue. With the top marginal personal income tax rate at 24%, we will be higher than the 17% top tax rate of Hong Kong and closer to the Asian average top marginal personal income tax rate of 28%. There is a limit to how much we can increase PIT rates for the top income brackets, without touching the PIT rates for the income brackets below it. If we were to keep the GST at 7% and raise the same amount of revenue through PIT, the top marginal rate would have to go up from 22% to 42%.”
“But before we have reached an agreement, Mr Louis Chua has already concluded that the impact of Pillar 1 will be limited, because it only covers 100 multinational enterprise groups, or MNE groups. I think that is premature. I must clarify that although the number of in-scope MNEs affected is small, these are the largest and most profitable MNEs. Any reallocation of profits away from Singapore will have a significant impact. Mr Louis Chua then projected that the CIT revenue could be as high as $71.5 billion. Mr Louis Chua should have paused at this huge number for a reality check. He says it is "purely hypothetical". But he should have said it is wishful thinking. Seventy-one-and-a-half billion dollars, that is the total amount of revenue we collect from all taxes. Does Mr Chua really believe that CIT revenue from the profitable non-SMEs, the larger companies, will jump by seven times, from $10 billion to $70 billion? Really? Will the implementation of the Minimum Effective Tax Rate, or METR, bring us more tax revenue? Yes, the short answer is yes. Mathematically, it has to be so, if nothing else changes. In other words, if we have the same volume of investments and business activities in Singapore, even as taxes go up with the METR, yes, we will collect. But that is a very big "if". It is hard to estimate with any confidence whether or how much more net tax revenue we can collect from both Pillars 1 and 2. The eventual impact cannot be ascertained by a simple static analysis, as it also depends on how governments and companies will respond, post-BEPS 2.0. BEPS 2.0 represents a fundamental change in the competitive environment for Singapore.”
“Sir, despite our small size, we can face the challenges ahead of us with confidence, in large part, because of our fiscal strength. Very few countries are in the same position as us. In fact, intergenerational equity is better preserved in our system than in other places. But we must never take what we have for granted, for it can unravel very quickly. So, I strongly appeal to all Members in this House, let us all do our part to uphold the ethos of fiscal responsibility, discipline and stewardship that is so vital to our success. Next, let me turn to other revenue options. Several Members touched on this. They asked if we could do more on other revenue options, especially income and wealth taxes. And, in particular, the Workers' Party offered a range of revenue options as alternatives to the GST increase. The short answer is we cannot just ignore consumption taxes and put the entire burden on income and wealth taxes. We need a good mix of all three types of taxes: income-based, asset-based and consumption-based. This is how we ensure that our revenue base remains diversified and resilient, while achieving its objectives of being fair and progressive. In fact, all jurisdictions rely on these three forms of taxation and the OECD jurisdictions have much higher VAT rates or, our GST, than Singapore. Much higher, all in double digits. But let me go through the revenue options one by one. Let me touch first on corporate income taxes, or CIT. As I Have said in the Budget speech, it is hard to be definitive at this juncture about the overall tax revenue impact from both Pillars 1 and 2 of BEPS 2.0. International discussions are still ongoing on the reallocation formula for Pillar 1.”
“We will always be at the mercy of these external forces and we must ensure we have sufficient resources to defend and protect ourselves. And in the years to come, we will need to deal with many other major and pressing challenges, including global warming and rising sea levels, as well as future public health emergencies, which public health experts are predicting will happen with increasing frequency. We are all thankful that our forefathers did not take the easy way out. Instead, they were disciplined, they considered our needs and chose to keep faith with future generations, meaning us today. So, we benefit from the reserves that they have built up painstakingly. They cared for their future generations, which is us. So, what about us now? What should our attitude be? I say we continue to husband our reserves, keep faith with the generations after us and ensure that they, too, will always have access to this "rainy days" fund to meet any emergencies and, importantly, a steady stream of income for their future needs. My biggest concern with these requests to use more of the reserves is that it reflects a certain cavalier mindset, one of spending whatever we can today and not caring sufficiently about tomorrow. And we see this happening throughout history and around the world. As countries become more affluent, they feel they have arrived and they get tempted by easy money. It begins with something small – allow standards to slide a little; just tweak the parameters a little. What harm does it do? But, over time, these small things add up. Then, it becomes politically very challenging to roll back any benefit and to raise taxes, or even to talk about it, and the country ends up quickly in a downward fiscal spiral.”
“Our fiscal policy, including our Reserves Protection Framework, keeps faith with all generations – current and future. We have drawn on Past Reserves to protect the lives and livelihoods of the current generation, throughout crises. We are also tapping on the NIRC to fund many programmes for the current generation, from the young to the old and, especially for the Merdeka and Pioneer Generations. At the same time, we need to consider the needs of the future generation. Do we really want to leave our next generation with fewer resources in a more uncertain and volatile world? To illustrate, if we were to have just 20% less NIRC than today's levels – which could easily have happened if our predecessors had focused on their own spending and did not think it necessary to have a carefully designed Reserves Protection Framework – our GST would now need to increase to 11% instead of 9%, to make up for the funding gap. So, drawing more NIRC now means that our children and the next generation will end up paying more taxes. Furthermore, no one can tell what the world will be like in 30 years' time. But it is very likely to be a more dangerous world. Our children and the generations after them will have more, not fewer, emergencies to contend with. The recent conflict in Ukraine reminds us that we are living in an increasingly divided and troubled world. We will encounter more episodes, where size matters, where might is assumed to be right even though that is not a stand we can accept, and where international rules are blatantly ignored by major powers. Let us be very clear. This is a world that will be less hospitable for small countries, let alone a small city-state like Singapore.”
“Second, once a government gets used to relying on land sales to fund spending, it will have a vested interest to keep land prices high to maximise revenues. This will, ultimately, hurt the economy and will hurt Singaporeans. Why would we want to do that? So, the more prudent approach is to treat our land as a finite asset, as what we have done today. We sell the land that we need for urban development and invest the proceeds, as we are doing, to generate a steady income over time. This is a sound approach and it has served us well. Members need to understand that the risks for our reserves are tilted on the downside. We have already drawn about $37 billion in Past Reserves over the past two years and are continuing to draw on them this year to keep up our public health defences. Dr Lim Wee Kiak and Ms Tin Pei Ling asked about returning the sums drawn from our reserves. While we are in a better position now, but we are not out of the woods yet. And, I would say, we will not be able to put back what we have drawn down from the Past Reserves anytime soon. Ms Foo Mee Har also asked whether we would be able to get back to a balanced Budget position. We are, certainly, committed to doing so, as we exit the crisis. This is the basis of our planning. But if there continues to be an extraordinary need, we will have to go through the due process of seeking the President's agreement to a Budget that results in a draw on Past Reserves. This is an appropriate move for managing shocks, as Prof Hoon Hian Teck has noted, and that is how our framework is designed. Ms He Ting Ru suggested that by saving for the future, we are discounting the needs of the current generation. This is not so.”
“And that going forward, we expect this NIRC stream to continue to keep pace with economic growth. Even to achieve that is, by no means, a sure thing. We would have done very well if we can do so, given that our investment returns are subject to significant headwinds in the global investment environment, for example, due to ageing populations in the developed countries, lacklustre productivity growth, rising government debt levels and geopolitical tensions. Both the WP and PSP have also suggested different ways to spend from our land sale proceeds. These are variations of what they have put out before and they still do not recognise that land is a scarce asset that is protected as Past Reserves. We have said it before and we will say it again, when we sell land, we are not creating new wealth. We are merely converting the land from a physical to a financial asset. Therefore, we invest the land sale proceeds back with the rest of the reserves and we spend 50% of the expected long-term real return through the NIR framework. In this way, our land sale proceeds provide a stable and sustainable stream of income for our Budget over time. So, to be clear, that means we are already spending from our land sale proceeds. We are doing so. But our approach avoids the pitfalls that we will face if we were to spend on land sale proceeds more directly. What are some of these pitfalls? First, land prices will move in cycles and can be volatile. We know that, for a fact, there are property market cycles. It will not be a static "$100", as Ms Hazel Poa has assumed in her proposal. And we do not want Government revenues to fluctuate with the market because it makes Government spending itself procyclical and creates too much uncertainty for the Government to plan long term.”
“Where fiscal projections are concerned, the Government will continue to put out as much information as possible. We have released data on our key expenditure drivers, I have mentioned several times our demographic projections and explained why our healthcare and social spending will increase in the coming years as a percentage of GDP and included the expenditure growth figures. On taxes, we expect them to keep pace broadly with GDP, so, there is clearly a structural funding gap as our spending needs rise. We have shared extensively about our needs and plans and will continue to put out more information, where necessary. But I cannot help but feel that the persistent requests for more information are red herrings – they are distractions from the key problem at hand. At some point, we need to make decisions, including difficult and critical ones, like what we have done in this Budget, to better prepare Singapore for the future. So, the question is whether all Members are prepared to come back to the real issue – on the need to strengthen our revenues through our various tax measures, to meet the structural growth in our expenditure in the coming years. Unfortunately, both the WP and PSP paint a false, distorted and misleading picture about our reserves, that these are being accumulated at the expense of the current generation. That is not so. They have assumed that the present rules result in an accumulation of more reserves than is necessary, but that is not the case. Our reserves are growing, but the size of our economy, the challenges we face and the complexity of needs are growing even faster. I have already explained that the NIRC has provided about 3.5% of GDP to the annual Budget, on average, in the last five years.”