Photo by Joe Green, taken from Unsplash
On 16th February, Singapore’s Deputy Prime Minister and Finance Minister, Mr Lawrence Wong presented Singapore’s budget for the Financial Year 2024 (FY2024). DPM Wong presented a plethora of policies, with him increasing Singapore’s expenditure in this financial year by about 4.6 percent from 2023 (revised figure), up to $111.8 billion SGD. DPM Wong mentioned that the troubling events in the world and geopolitical conflicts have put pressures on Singapore to continue to increase its expenditure.
Nonetheless, Singapore is projected to have a budget surplus of $800 million, which is a major shift since Singapore has been running a budget deficit for the past 7 years. A surplus is expected since revenue collected from taxation is expected to increase, with the increase in goods and services tax and also corporate and personal income tax revenues. Yet, the surplus amount is expected to be minimal so Singapore is having a rather balanced fiscal policy, and it is important for Singapore as it has always prided itself in fiscal discipline and responsibility.
The plethora of policies are expected to impact Singapore socially and economically, impacting Singaporeans from all walks of life and all ages. Furthermore, SMEs are expected to benefit from the schemes implemented to elevate their standards and world standing. As for Multinational Enterprises (MNEs), they can stand to benefit from grants in Singapore, but they might suffer slightly from the changes in the corporate tax regime. In terms of climate change, measures were also announced for Singapore to explore alternative energy options. This essay will discuss both the economic and social impacts of Singapore’s fiscal policy for FY2024.
Economic Impacts
First, economically, for mid-career workers, the budget is expected to benefit them greatly through the enhancement of supply-side policies by the government to increase education opportunities for them and investing in human capital. For Singaporeans aged 40 and above, they are going to be given top-ups of $4,000 in Skillsfuture credits, giving them opportunities to pursue many courses to upgrade themselves. Aiding mid-career workers is the most important in a world where the demand for skills needed in the workplace is constantly changing. As DPM Wong mentioned, with the growth in technology and specifically Artificial Intelligence (AI), the definition of ‘expertise’ is expected to change and is probably in constant flux. Without effective upskilling courses, mid-career workers will find it difficult to find jobs when they are laid off, as the skills they possess might be obsolete. In addition to upskilling these workers, they are also given a training allowance while enrolling in the course. Such measures are important especially with the expectation that restructuring in many industries could lead to greater amounts of Singaporeans being retrenched. As such, with the outlook for workers not being bright, the Skillsfuture credit top-ups and training allowance will be impactful for mid-career Singaporean workers.
In the short-term, workers who are retrenched can also have some relief from this budget, as the government is already planning to implement some form of unemployment benefits and payouts after years of rejecting this idea. Now is a great time for this when considering the expectation that the amount of Singaporeans being retrenched could increase further. With unemployment benefits, the workers can use the time to re-train themselves before rushing into the next available job they can find, so they can be employed over a longer period of time. Though, the concern remains, unemployment benefits could slow down economic efficiency when workers prefer to remain unemployed and collect unemployment benefits. For Singaporeans to collect unemployment benefits, they will likely have to show proof that they have been looking for a job or enrolled into skillsfuture courses, which would reduce the chances of Singapore’s economy being inefficient. As such, for mid-career workers, both short and long-term policies were announced to ensure they will be taken care of in this uncertain financial year.
Apart from unemployment benefits, for all Singaporeans, short-term policies to tide through this period were introduced. Demand-side policies like transfer payments from the government were announced in this budget, such as the continuation of the Community Development Council (CDC) vouchers scheme, where a total of $600 worth of CDC vouchers were distributed to Singaporeans. These vouchers can be used in groceries and also at hawker centres and coffee shops, which would help in easing the burden of the heightened Goods and Services Tax (GST) and the rising cost of living.
For Multinational Enterprises (MNEs), they stand to benefit through the new Refundable Investment Credit. When they engage in desirable activities like innovation, green transition or expansion of manufacturing facilities, these firms can get up to 50% support for the expenditure involved in these activities. The expenditures that they can claim include expenditures in manpower and freight costs, material costs and other capital expenditures. Such a move will be appealing to firms, who want to set up operations in Singapore, knowing they can engage in desirable activities and be supported financially.
At the same time though, it is important to ensure Singapore maintains its competitive edge as a hub for firms to set up their offices in. For Singapore to continue to attract top MNEs, it has to signal to countries its commitment to innovation and a knowledge-driven economy. To do so, the government will also invest an additional $3.5 billion SGD in the Research, Innovation and Enterprise (RIE) plan. To support MNEs, Singapore also pledged $1 billion SGD into AI development over the next 5 years, to secure access to advanced chips to sustain the infrastructure needed for more widespread use of AI. Also, there will be plans for the nation’s broadband network speeds to be increased to 10 Gigabytes Per Second (Gbps). Learly, Singapore is showing its ability and desire to keep up with the trends and that should benefit many MNEs who have already set up operations in Singapore or firms who are soon to establish themselves in Singapore.
Apart from firms, such moves could benefit Singapore's economy and improve employment outcomes for Singaporeans. As Singapore displays its commitment to sustainability and supporting firms financially to innovate and engage in R&D and harness AI, more firms might want to set up in Singapore. Additionally, the government’s efforts to top up the financial sector development fund by $2 billion SGD will also help the Monetary Authority of Singapore (MAS) elevate Singapore’s advantage in financial services in Fintech and green finance which serves to position Singapore as a leading financial hub for businesses. As they set up in Singapore, it is likely they would require services from local companies or locals to fill up certain roles in the company. For Singaporeans, these firms can open up many more opportunities and allow them to benefit.
Another key economic impact would be the upskilling of Small and Medium Enterprises (SMEs) in Singapore. For SMEs to fully reap the benefits of MNEs establishing themselves in Singapore, they must reach a certain standard. The budget effectively answers that with the Enterprise Financing Scheme which helps SMEs adopt more sustainable methods that would appeal to MNEs. The enhancement of the Partnerships for Capability Transformation (PACT) scheme in areas like capability training, corporate venturing and internationalisation will also uplift local SMEs which can allow them to compete globally and also become valuable partners to MNEs that establish themselves in Singapore. In doing so, SMEs will have a chance to thrive and that will be beneficial for Singapore’s growth.
However, MNEs are going to be affected negatively by the changes to Singapore’s corporate tax regime. In this budget, DPM Wong announced two changes, which is the introduction of the Income Inclusion Rule (IIR) and the Domestic Top-up Tax (DTT). With these two changes, MNEs in Singapore are expected to pay a minimum effective tax rate of 15%, while previously, some MNEs could pay an effective tax rate as low as 4% in Singapore. The IIR ensures that overseas profits from the subsidiaries of a parent firm based in Singapore are taxed while the DTT ensures profits earned locally are taxed. This is in line with the Organization for Economic Cooperation and Development (OECD)’s Base Erosion and Profit Sharing (BEPS) plan to streamline taxation processes and prevent tax avoidance. As such, Singapore’s tax revenue might increase, though, if firms do opt to move away from Singapore, it might not lead to an extensive increase in tax revenues. However, many other markets have also planned to adopt this like the European Union, Hong Kong and Malaysia. Additionally, Singapore’s pro-business policies such as its grants and support for MNEs could still outweigh such increases in taxes. Hence, while MNEs might suffer from increased taxation, it might not deter them from establishing themselves in Singapore owing to the fact that Singapore boasts a variety of services, support and grants for these MNEs.
Social Impacts
Socially, the budget did chart great solutions as well, first, dealing with special needs students. Maximum monthly fees at Special Education (SPED) are expected to be reduced from $150 to $90 and fee caps at special student care centres are also going to be reduced. This is crucial for families with children enrolling in SPED schools, especially since fees in SPED schools are considerably higher than fees in mainstream schools. Though, the government could have devoted more funds to further lower the fee caps for SPED schools to further reduce its gap with those going to mainstream schools. Certainly, it is worth noting that SPED education will be costly due to the cost of facilities, manpower expertise needed in these schools. However, the government should channel more funds so they can lower the fee caps, because families of SPED students are usually already burdened with other costs such as treatments or therapies for their child and lowered school fees would greatly benefit them. Additionally, funds can be channelled to enhancing the curriculum to allow students in SPED schools to learn more technical skills as well.
More importantly, for healthcare, the budget unveiled a couple of policies that could elevate the provision of healthcare services in Singapore. Healthcare will always be an important part of public policy in Singapore, considering the ageing population in Singapore. During this budget, DPM Wong announced a one time MediSave bonus of up-to $300 for those aged 21-50. Such a top-up could help in day to day medical expenses and also insurance premiums. Also, per capita household incomes thresholds for Community Health Assist Schemes (CHAS) subsidies and MediShield Life Premium subsidies will change, leading to about a million Singaporeans expected to benefit from the increase in subsidies. For older Singaporeans, benefits were also revealed, such as the investment of $3.5 billion SGD in the Age Well SG Initiative, a new national programme to help Singaporean Seniors remain active and maintain a healthy lifestyle. Such funds are going to be used to expand active-ageing centres, further community care and home care arrangements. Additionally, the funds can be used to enhance their lifestyles, like adding bus stops with senior-friendly features, more ramps, and more pedestrian friendly roads. Overall, in the field of education and healthcare, the budget did take steps to try and answer hardships that Singaporeans face in these areas.
Furthermore, for the issue of inequality and social mobility, the government is stepping up its measures through this budget. These measures are a part of Singapore’s ForwardSG plan which aims to uplift and equip Singaporeans for the more turbulent world we are going to see. One way inequality can be combated is through the investment in human capital and skills development, something done through the enhancement of the Skillsfuture programme. Another key policy was the enhancement of the Workfare Income Supplement Scheme, as the qualifying income caps were raised from S$2,500 to S$3,000, which ensures that even when wages of lower-waged workers rise, they can still qualify for benefits. In addition, the government is also increasing the annual payouts for lower-wage workers, from a maximum of $4,200 to $4,900. Yet, while ensuring workers have adequate wages, the government does not neglect firms, as it co-funds wages with firms under the Progressive Wage Credit Scheme (PWCS). In 2024, co funding levels will be raised from a maximum of 30% to 50%. In a post-pandemic Singapore, where inequalities have widened, it is critical for Singapore to implement these policies. What the Singapore government did well was to implement both short-term and long-term policies to combat inequality. In the short-term, from month to month, the progressive wage schemes will help to elevate the wages of these workers. In the long term, with enhancements to skillsfuture, these workers will be able to attain higher waged jobs and they might not have to receive and rely on the Workfare Income Supplement payouts.
In climate change, Singapore’s budget did not fail to answer this. In recent years, we have seen natural disasters caused by climate change and how it can negatively impact individuals. It is critical for Singapore to take action to prevent it from worsening and disrupting the world. Furthermore, as a first world country and a global hub for business and trade, Singapore has to put sustainability at the top of its priorities to continue attracting businesses and investments. As Singapore works to prevent the adverse effects of climate change, it will have to look at the future towards more renewable sources of energy. One form of renewable energy is utilising hydrogen for fuel, as it has some potential. Other forms include geothermal power and also nuclear technologies, which all require high amounts of funds to be invested, especially in the establishment of the infrastructure and also in the research done to ensure it is a viable source of energy. Thus, in this budget, the Future Energy Fund was announced, with about $5 billion SGD being injected into it. As of now, Singapore is simply relying on natural gas to lower its emissions. Though, it could be a security threat considering how Singapore imports its natural gas from Indonesia, Malaysia and other neighbouring countries. In addition, Singapore will not be able to achieve net-zero emissions with natural gas. Most importantly, Singapore does not have the natural resources needed to venture into alternative energy, unlike other countries, who have opportunities to utilise their own natural resources to explore alternative sources of renewable energy like solar energy. Hence, it is critical that Singapore establishes this fund to explore other options and invest in these options to achieve net zero emissions.
In conclusion, Budget 2024, saw Singapore projecting for a surplus, a first in recent years. Yet, Singapore continues to increase expenditure to ensure that the productivity and efficiency of the economy can increase and also increase aggregate demand through short-term payouts. To enhance Singapore’s growth, the government made an apt choice to elevate the country’s attractiveness and competitive advantage through grants, investments to the financial sector and SMEs to ensure MNEs continue to view Singapore as a viable business hub. This would probably counteract the change in tax regime and rise in corporate taxes. On the social front, continued spending in Healthcare and Education will definitely be beneficial for Singaporeans. More importantly, efforts were made to assist special needs individuals and seniors, groups that are disproportionately more affected by education and healthcare costs. Such assistance can help to elevate social mobility in Singapore. Lastly, as climate change looms, the government is taking the necessary steps to ensure Singapore can rely on alternative sources of energy. Overall, the budget was a well-planned budget, with Singapore being able to expect a surplus despite increasing its expenditure. Also, the government was able to maintain Singapore’s fiscal discipline. With the budget, many Singaporeans will stand to gain, benefitting from payouts to deal with the higher costs of living and the government’s investments in measures to pursue growth and yet combat inequality.
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