© Reuters. FILE PHOTO: Singapore’s Deputy Prime Minister and Minister for Finance Lawrence Wong delivers the Singapore Energy Lecture during the 15th Singapore International Energy Week, in Singapore October 25, 2022. REUTERS/Isabel Kua/File Photo
By Xinghui Kok and Joe Brock
SINGAPORE (Reuters) – Singapore’s Finance Minister Lawrence Wong on Friday announced expanded government spending to help households battle inflationary pressures in the city-state, but promised a balanced budget in the years ahead.
The prime minister-in-waiting also told parliament the Asian financial hub would implement the 15% global minimum corporate tax rate spearheaded by the Organisation for Economic Cooperation and Development (OECD) to bring in additional revenue.
The government’s medium-term fiscal position is tight but its overall stance was “appropriate as we are providing targeted support”, Wong said.
Singapore expects a small surplus of S$0.8 billion or 0.1% of GDP for fiscal year 2024, “essentially a balanced fiscal position”, he said.
Support for households in one of the world’s most expensive countries would be topped up by another S$1.9 billion ($1.41 billion), while a S$1.3 billion support package would also be introduced for companies, including a corporate income tax rebate of up to S$40,000.
The population of 5.9 million is also dealing with hikes in sales tax that started last year, and an upcoming scheduled increase in water tariffs. Wong said vouchers worth a total S$6 billion would be handed out to help with the sales tax hike.
The government will also spend an additional S$300 million a year on healthcare support for its ageing population.
“The best way to deal with inflation is to ensure firms, workers are more productive and that real incomes rise,” he said.
Inflation in Singapore has fallen from its peak of 5.5% early last year but remains higher than pre-pandemic levels at 3.3% in December.
Wong also announced a new fund for the energy transition, with an initial inject of S$5 billion.
A new tax credit would be created to support high-value economic activities, manufacturing, research and development and green transition, and S$3 billion would be added to an R&D fund, as well as $$1 billion over five years for development of talent, industry and artificial intelligence.
TAX CHALLENGE
Wong said he would push ahead with implementing pillar 2 of BEPS 2.0, an OECD project under which more than 140 countries have agreed to bring the minimum effective tax rate of large corporates to 15%.
But it was uncertain how much additional revenues that would pull in and how long it would last in a country that has long been attractive to investors because of its low tax rates.
“We may even see a reduction in our tax base if MNE’s (multinational enterprises) shift some of their activities to other jurisdictions,” he said.
In Singapore, the current headline rate is 17%, but some investors pay an effective rate that is as low as 4%. Wong last year said BEPS 2.0 would give Singapore less scope to use tax incentives to attract new investments.
Singapore expects higher GDP growth at 1% to 3% this year after it plunged from 3.8% in 2022 to 1.1% in 2023.
But growth was not everything, he said, and the government would not push for economic expansion at all costs as there was a limit to how fast the country could grow due to financial constraints and issues over labour and land.
Singapore, he said, would be an “economy that benefits the many rather than the few”.
($1 = 1.3457 Singapore dollars)
