H. Fiscal Position

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H. Fiscal Position

  1. 161. A critical enabler for Singapore’s continued success is sound and healthy public finances.
  2. 162. We achieve this by living within our means, and running a balanced budget over each term of government. This means spending prudently to meet our immediate and future needs, ensuring that our revenues cover expenditures, and keeping the tax burden as low as we can, while not burdening Singaporeans with debt.

Building A Fairer and More Resilient Tax System

  1. 163. In this term of government, we’ve made several significant changes to our tax system. These revenue moves give us the resources we need to meet our spending needs, and also make our fiscal system more progressive.
  2. 164. The GST rate increase ensures we have the revenues to look after our growing number of seniors, even with rising healthcare costs.
    1. a. Through the Assurance Package, we have cushioned and delayed the impact of the GST increase for the majority of Singaporean households.
    2. b. Importantly, we have designed our GST system with permanent GST vouchers. This ensures that lower-income households pay a far lower effective GST rate than higher-income households.
  3. 165. We also continue to ensure fairness and improve progressivity in our tax system. This means that those who are better off will pay more in taxes to help their fellow citizens.
  4. 166. That’s why we raised Property Tax rates for all non-owner-occupied residential properties, which are mainly investment properties, as well as for higher-value owner-occupied residential properties.
    1. a. The Property Tax rate changes coincided with a sharp increase in the Annual Values of properties, which arose because of Covid-19-related supply constraints in the property market.
    2. b. We have therefore revised and updated the Annual Value bands of owner-occupier Property Tax rates for residential properties. And that means that more homes now fall within bands with lower tax rates.
    3. c. To further cushion the impact, we provided Property Tax rebates. In November last year, we announced another rebate of up to 20% for owner-occupied residential properties in 2025, capped at $1,000.
    4. d. Taken together, all HDB owner-occupiers and over 90% of private residential property owner-occupiers will see lower Property Taxes this year.
  5. 167. The changes we made to our tax system this term have put us on a stronger fiscal footing. They provide us the resources we need to better meet our society’s needs – all while keeping our overall system of taxes and transfers fair and progressive.

FY2024 and FY2025 Fiscal Position

  1. 168. Let me turn to our latest fiscal position.
  2. 169. For Financial Year 2024, our revenue collections were better than expected.
  3. 170. A key reason is the upside in our Corporate Income Tax.
    1. a. In the past, our Corporate Income Tax collections were quite stable, at about 3.2% of GDP.
    2. b. But collections increased significantly in the last two years, and are projected to reach 4.1% of GDP in FY2024, which is quite significant.
    3. c. This is an unexpected change. Corporate Income Tax is now the single largest contributor to total revenue – larger than even the Net Investment Returns Contribution (or NIRC).
    4. d. There are several reasons for this higher Corporate Income Tax collection. Part of it is due to industry-specific cyclical factors, for example, in finance and wholesale trade. It could also be due to changes in the investment decisions of multinational enterprises, as they seek out stable and reliable centres like Singapore to put more of their high-end activities.
  4. 171. While our revenues have increased, we have also spent more on Singaporeans. For example, we provided $3 billion in MediSave top-ups in December last year, which will help to cushion the increase in MediShield Life premiums to fund better coverage and higher payouts.
  5. 172. We also earmarked resources for projects to boost economic competitiveness, including developing critical infrastructure like Changi Terminal 5, and for the energy transition.
  6. 173. Overall, I expect to end FY2024 with a surplus of $6.4 billion, or 0.9% of GDP.
  7. 174. For FY2025, I expect a similar fiscal position, with a surplus of $6.8 billion, or 0.9% of GDP.

Medium-Term Fiscal Outlook

  1. 175. We will continue to keep an eye on our medium-term fiscal projections.
  2. 176. In 2023, the Ministry of Finance released an Occasional Paper showing that we expect to keep our fiscal position roughly balanced until 2030. For now, this remains our assessment. And let me explain.
  3. 177. There is still considerable uncertainty about how Government revenues will unfold over the coming decades.
    1. a. At this juncture, it is too early to determine if the recent increase in Corporate Income Tax collections is temporary or a lasting trend.
    2. b. There could be some additional Corporate Income Tax revenue from FY2027 onwards, with the implementation of the Domestic Top-up Tax, which will raise the large MNEs’ effective tax rate to 15%. But how much revenue we will get from this change depends on whether these MNEs continue to find it attractive to remain in Singapore.
    3. c. Moreover, there is now great uncertainty about the global tax environment. The new US administration has withdrawn from the earlier consensus forged by the OECD and other countries. And it remains to be seen what further moves the US and other major economies will make in this new geopolitical environment.
    4. d. So we will assess our options as global tax developments unfold, and adjust our policies where necessary.
  4. 178. Meanwhile, we are certain that expenditure will continue to rise. Government spending has been rising steadily over the years from about 15% of GDP to about 18%.
    1. a. And based on historical trends, we can expect our spending to go up to 20% of GDP by around 2030.
    2. b. With growing global uncertainties, and the need to invest more in our workers, and better support our rapidly ageing population, there will be added pressure to raise spending – possibly at a pace that exceeds previous increases.
  5. 179. So we will continue to monitor fiscal trends closely, and update our medium-term projections. In the meantime, we will spend responsibly and ensure resources are allocated effectively. If and when there are near-term fiscal upsides, we will put the resources to good use, including for our social and economic needs. Ultimately, we will always ensure that all Singaporeans benefit from our nation’s progress.
G. Rallying As One United People I. Conclusion