Singapore Budget 2018: GST to rise to 9% and a packet of smokes up 10%

The 2017 budget surplus beat forecasts at $9.6b, a 10% hike in tobacco excise duties will be implemented, and a one-off bonus worth $700m has been declared.

A rise in the GST rate and higher stamp duties are among key measures in Singapore budget 2018. Below is a transcript of the key measures announced in the Singapore budget 2018. 

• Heng: This year’s budget lays the foundation for Singapore’s development into the next decade to preserve a fiscally sustainable future.
• Heng declares a one-off Singapore bonus worth $700m.
  • All Singaporeans aged 21 and above will enjoy a hong bao of $300, $200, and $100 depending on income.
• For 2017, the overall budget surplus hit $9.6b, 2.1% of GDP. This is higher than the forecast a year ago.
  • The increase of $7.7b is mainly due to contributions of $4.9b from MAS and the increase in stamp duty collections of $4.7b due to the recent property market pickup.
  • Heng said this is not a structural surplus. 
  • The government expects a budget deficit of about $0.6b in 2018.
• To discourage tobacco consumption, a 10% increase in tobacco excise duties across all tobacco products will be implemented starting today.

      PROPERTY TAX

• The Buyers' Stamp Duty (BSD) rate for residential properties will be raised from 3% up to 4%. The 4% will apply to residential property with values in excess of $1m.
  • This will be applied to all properties acquired starting tomorrow.
  • The BSD rates for non-residential properties will not be changed.
• "As an island nation with no natural resources, our reserves lend long-term stability to our economy."
  • During the 1997 financial crisis, the reserves kept the SGD stable even as other regional currencies were under attack. Singapore’s reserves also allowed the country to weather the 2008 financial crisis. During the recession in 2009, Singapore’s reserves worth $4b helped employers and employees tide over the difficult period.
• Net investment returns contribution (NIRC) is seen to double to $15.9b in 2018. It is now the largest source of government operating revenue

      GST INCREASES

• To support Singapore's recurrent needs, the government will raise the Goods and Services Tax (GST) rate by 2ppt to 9% some time between 2021 and 2025
  • The GST increase will be implemented in a progressive manner. The government expects a 0.7% boost in revenue after the GST hike.
  • Singapore will enhance the permanent GST voucher scheme when the GST is increased to provide more help to lower income households and seniors. 
  • It will also implement an offset package to help Singaporeans adjust.
  • The government will first review international discussions before introducing GST on imported goods on 1 January 2020.
  • Consultancy and marketing services, app and music downloads, will be subject to GST whilst its implementation on goods importation is still under review.  
• Heng said Singapore is saving to be able to meet future needs. The responsible way to pay for social needs is through taxation.
  • "We should not borrow because this will put the burden of spending on future generations."

      INFRASTRUCTURE AND EDUCATION

• The government will provide a guarantee to long-term bonds for critical national infrastructure to "enhance the confidence of investors."
• The government will set up a new rail infrastructure fund for the future building of rail lines. It will invest $5b in 2018.
• The pace of ministries' budget growth will be further moderated by cutting the growth of ministries’ block to 0.3 times of GDP growth.
• The government will sustain investments in education for 2018, with education spending estimated at $12.8b.
  • The government is investing more in preschool education to give quality education at a younger age. About $1.7b per year will be spent in Preschool by 2022, which is double of Singapore’s annual spending now.
  • Singapore will continue to upskill and reskill to prepare students for workforce entry.
• The third key area is more investments in security.
  • The government will enhance the operational readiness of officers, technology, to be well equipped to respond to emergencies.
  • The range of threats ranging from cybersecurity attacks to online self-radicalization.
• Another key area of expenditure increase will be infrastructure.
  • The government has increased infrastructure spending from $8.5b in 2011 to $20b in 2018.
  • Annual subsidies to keep buses running will be similar to the amount spent on training for polytechnic universities.
  • Singapore will expand its rail network by over 100km.
  • It will also build Changi Airport Terminal 5 to ready ourselves for long-term economic growth.

      HEALTHCARE

• Within the next decade, healthcare spending will overtake education spending.
• One of the key areas of expenditure growth will be healthcare: from $3.9b in 2011 to $10.2b in FY2018. This increase will go into building more hospitals and enhancing healthcare subsidies.
  • Finance Minister Heng Swee Keat said Singapore will spend more on healthcare.
  • Average annual healthcare spending is expected to rise from 2.2% today to almost 3% of GDP over the next decade. This represents an increase of over 0.8ppt of GDP or $3.6b in today’s dollars.
• "Singapore has sufficient resources to meet spending needs until 2020. This is a result of careful and prudent planning."
  • "In the next decade if we do not take measures early we will not have enough revenue to meet our growing needs."
  • Spending needs will continue growing from 2021.
• Singapore’s volunteerism rate has doubled from 17% to 35%. At the same time, total donations have increased from $2b in 2011 to $2.7b in 2015.
  • The government will implement a 250% tax deduction for donations to Institutions of a Public Character (IPCs) until 2021. 
  • The BIPS (Business and IPC Partnership Scheme) to be extended for three more years.
  • The SHARE as One scheme will be extended until 2021.
  • Singapore will set aside $190m to encourage philanthropy and volunteerism.
• Singapore will consolidate healthcare and social services under the Ministry of Health. The Agency for Integrated Care will act as the central implementation agency.
  • The Pioneer Generation Office (PGO) will be renamed to Silver Generation Office to reach out to seniors aged 65 and above. 
  • The government will provide $300m top up to the community silver trust.
  • The government will provide a $100m top up to the Seniors’ Mobility and Enabling Fund which provides subsidies for assistive devices and consumables to seniors.
  • Social Service officers (SSOs) will work with partners to harness community partners to improve service delivery and quicker assistance for citizens.
  • Over the next 5 years, the government will strengthen SSOs to better coordinate efforts of government and community partners to provide more holistic support to those in need. 
• The number of Foreign Domestic Workers (FDW) in Singapore has increased to 40% to over 240,000 in 2017.
  • The government will retain FDW levy of $60.
  • Adjustments to the FDW levy framework will take effect from 1 April 2019.
• Enhanced Proximity Housing Grant (PHG): For families living with parents/children, PHG will be raised from $20,000 to $30,000. For families living near parents/children, PHG will be maintained at $20,000.
  • Enhanced Proximity Housing Grant (PHG): For singles living with parents/children, PHG will be raised from $10,000 to $15,000. For singles living near parents/children, a new $10,000 PHG will be introduced.
  • The government will simplify the criteria for determining what is ‘near’, as currently it is defined as living in the same town or within 2km. The government will revise the criteria to within 4 km.
• Singapore will increase support for education.
  • It will add $200 to $230 for each primary school student and $240 to $290 for secondary school students. This will take effect in January 2019.
  • There will be more meals for secondary school students under the school meals programme.
  • Singapore will raise the annual bursary quantum for pre-university students from $750 to $900, under the MOE Financial Assistance Scheme. Singapore will update income eligibility criteria.
  • The government will pilot a new financial education curriculum for polytechnic universities.
• The government will continue to strengthen social safety nets for those in need. Budget 2018 will build on SG Cares.

      CARBON TAXES

• Eligible HDB households will receive $20 more per year from 2019 to 2021 to offset an increase of 1% on their utility bills from carbon taxes.
• Singapore will manage greenhouse gas emissions.
  • Singapore produces fewer carbon emissions per dollar of GDP than most countries.
  • Singapore intends to implement a carbon tax starting 2019. Facilities producing 25,000 tonnes of greenhouse gas in a year will be levied, and the first payment will be in 2020 based on emissions in 2019.
  • The government will increase carbon tax to $5/tonne and will review the tax rate by 2023. The government aims to increase to a rate of $10-15/tonne by 2030.
  • The carbon tax will be levied on major emitters which accounts for 80% of SG’s carbon emissions.
  • There will be no additional carbon tax or excise duties on petrol, diesel and petroleum gas.
  • The government expects to collect nearly $1b in carbon tax revenue for the first five years.
• Singapore's green and smart city initiatives:
  • The government is cleaning up the Singapore River and is promoting a green city along with clean air, clean water and green spaces.
  • Singapore will increase the adoption of e-payments island-wide for seamless and swift e-payments.
  • Singapore is developing a national digital ID system for secure authentication of identity when transacting online.
  • $250m will be allocated to an Energy Grid 2.0 project in 2018.
• "A strong economy is not an end but a means. It is a means to provide a better home and a better quality of life to its people."
• In the last two years, about $45m was committed to the Local Enterprise and Association Development (LEAD) programme.
• The government will set up an infrastructure office to bring together local and foreign firms to develop, finance, and execute projects. 
• Singapore will develop an ASEAN innovation network to spark new collaborations in the region.

      EMPLOYMENT & TRAINING

• Singapore will integrate various partnership measures into the Pact Scheme: up to 70% co-funding for projects will be undertaken in overseas partnerships, $800m will be set aside over the next the years for PACT, Productivity Solutions Grant and Enterprise Development Grant. 
• The government will unveil the Capability Transfer Programme (CTP) to support skills transfers from overseas trainers to Singaporeans.
• The re-employment age is raised to 67 to support older workers.
• The SBF and SMU will pilot new initiatives to help SME leaders transform their organisations.
• The government will expand Tech Skills Accelerator (TeSA) to train Singaporeans in digital skills.
  • The government will set aside additional $145m for TeSA funding over the next three years.
• Starting 2020, the tax deduction for the first $200,000 of chargeable income is exempted.
• On the Double Tax Deduction for Internationalisation, Singapore will raise qualifying expenses without prior approval from $100,000 to $250,000 for 2018.
• In April, Singapore will merge SPRING and IE Singapore into Enterprise Singapore.
  • The EDG will provide 70% of co-funding to firms to help them internationalise
• The WCS scheme will be extended for 3 more years. Singapore will also enhance and extend the CIT rebate - raised to 40% of tax payable capped at $15,000 in 2018; 20% in 2019 capped at $10,000.
• The government will launch an aviation transformation program and maritime transformation programme and expand the national robotics programme.
• At least $100m will go into the NRF-Temasek IP commercialisation vehicle.
• Foreign worker levy rates for marine shipyard and process sectors are deferred for another year. 
• Singapore will set R&D spending at 1% of GDP annually.
• Singapore will raise tax deduction on licensing payments, $100,000 for the commercial use of IP.
• "The Big 4 accounting firms have given us new suggestions - we will study and review them."
• The current work trial scheme will be upgraded into a career trial programme with higher funding support for workers.
• The government will strengthen three ITM enablers: innovation, capabilities, and partnership.
  • Innovation: encourage firms to co-innovate.
  • Support businesses to buy new solutions. Raise tax deduction for licensing payments.
  • Launch Open Innovation Platform to help firms find partners to co-create solutions.
• Firms must maintain productivity. We will support our firms by extending two measures:
  • Extend the rich credit scheme up to a gross monthly wage of $4,000.
  • Although the economy picked up last year, wage growth remains a concern.
• Budget 2018 will build on this strong position.
  • Singapore will continue to foster a caring and cohesive society.
  • Singapore will build a smart, green, and livable city. "This is what our Smart Nation seeks to achieve."
  • The country will welcome investments, talents in Singapore and be bold in venturing out into new markets.
• As an economy, we are open and free with free trade agreements to many economies.
• Singapore is well connected to the world with flights to over 460 cities and 250 Asian ports by sea.
• The risk of cyberattacks will also increase. Singapore is in a good position to guard against such challenges. Digitally we are connected to the world with over 500TB of connection.

      THE THREE SHIFTS

• "These shifts can bring new challenges. The rapid change of technological change can bring older workers feel more marginalized."
• The third shift is Singapore's ageing population.
  • "We continue to invest in education to give every Singaporean the best chance to realise his potential."
  • "In addition to an ageing population, there are other forces that will strain our social fabric."
  • There will be a "significant increase in healthcare and social expenditure facing greater demands on governments."
  • "We must also be prepared for the challenges of an ageing society."
  • Technology will help older workers to stay productive. 
• The second shift is the emergence of new technologies.
  • New technologies are reshaping the economy and jobs.
  • Intangible assets include intellectual property (IP) and data.
• The first is a shift in the global economy across Asia. Asia will play a larger role in global trade and investment roles.
  • China has set up a regional headquarter bank in the R&B initiative.
  • India is reforming its economy using restrictions in its economy.
  • ASEAN countries are moving up the value chain and the middle-class population is moving up rapidly.
  • “Our economy must be geared to ride on to contribute to Asia's growth.”
  • Potential threats include tensions on the Korean Peninsula and the South China Sea.
• “We must prepare for three major shifts in the coming decade.”
• Marine and offshore engineering sectors continue to face headwinds.
• There are two remaining ITMS to be launched by end of March.
• 21 out of 23 industry transformation maps have been launched in 2017.
• GDP grew by 3.6% in 2017.