Singapore Finance Minister, Heng Swee Keat, announced a range of tax increases in his budget, including a surprise hike in property levies, as he seeks to shore up savings to cope with a rapidly aging population.
The stamp duty on residential properties in excess of S$1 million ($761,600) was increased to 4 percent from 3 percent, effective from Tuesday, Heng said in a speech in Parliament. The government also plans to raise the goods and services tax by 2 percentage points to 9 per cent sometime from 2021 to 2025, he said.
Heng said that there is a need to strengthen our fiscal footing. In the next decade, between 2021 to 2030, if people do not take measures early, they will not have enough revenues to meet their growing needs.
Policy makers had warned of higher taxes to balance a budget that they see as too reliant on investment returns, and that will see new strains in the years to come. Spending on health and retirement benefits are set to grow over the years as the elderly population climbs, while the government is also planning on higher expenditure on infrastructure, security and education.
Irvin Seah, an economist at DBS Group Holdings Ltd said that the message is that the economy is maturing, the population is aging. In order to cater to the needs to various segments of the society going forward — corporations, individuals young and old — this budget is about re-balancing.
While Singapore has substantial reserves that it draws on to help fund the budget, Heng said the government must act prudently as the economy matures and the population ages. Income from reserves and investments managed by GIC Pte, Temasek Holdings Pte and the Monetary Authority of Singapore is already the largest contributor to the government’s overall revenue, estimated at almost S$16 billion in the fiscal year beginning April 1.
The hike in GST is set to boost revenue by almost 0.7 per cent of GDP a year. Heng said the timing of the increase will depend on the state of the economy, how much expenditures grow and how buoyant the existing taxes are, but added that he expects they will need to do so earlier rather than later in the period.
The minister said that the GST increase is necessary because even after exploring various options to manage the future expenditures through prudent spending, saving and borrowing for infrastructure, there is still a gap. This boost in revenues will be vital in closing this gap.
The budget includes planned offsets to cushion the blow to lower-income consumers from higher taxes, while the delayed implementation of the tax increases will allow residents to ease into the changes.
Singapore is facing a severe aging crisis. The share of the population that’s 65 years and older is set this year to match those younger than 15 for the first time. The fertility rate remains half the global average, at 1.2 births per woman in 2015, according to World Bank data. And the government has maintained fairly strict immigration policies to ensure locals have enough job opportunities.
For now, Singapore’s economic outlook for 2018 remains bright. The boom in global trade last year that’s helped spur manufacturing, especially in semiconductors, is spreading to other sectors of the economy. The government sees growth at slightly above the middle of its forecast range of 1.5 to 3.5 per cent this year, moderating from last year’s expansion of 3.6 per cent.
Heng also said that as a small and open economy, they will always be vulnerable to fluctuations in the global economy and financial markets. They can never predict where or when the next crisis will come. But they know, when the next crisis hits, they will be able to face the storm because they have their reserves.