Protecting social resilience, mobility and cohesion

The post-pandemic future has come: Singaporeans have rallied together to overcome COVID-19 and the Ministry of Health has adjusted the Dorscon level back to green. Business operations have started to normalise with the reopening of the economy, and Singapore's gross domestic product grew by 3.6 per cent in 2022.

Despite what appears to be the official end of the pandemic, its economic legacy persists. Higher inflation, supply chain disruptions, and the resultant pressures on cost of living remain. The geopolitical order is also increasingly fractured, and businesses are concerned about economic decoupling and are moving from efficient supply chains towards more resilient ones.

In this context, the Singapore Budget 2023, aptly titled "Moving Forward in a New Era", sets out the strategic policy decisions that Singapore is making to navigate these uncertain times.

Key impact for individuals

A clear objective of Budget 2023 is to address cost of living concerns. Singapore's core inflation in 2022 was 4.1 per cent, which is relatively low in contrast to global inflation of 9 per cent, but nevertheless keenly felt by Singaporeans. The scheduled GST hike to 9 per cent by 2024, while necessary to meet increased government spending, will add further pressure on Singaporeans and Singapore residents. As such, the enhancements to the GST Voucher (GSTV), Assurance Package, and Community Development Council (CDC) voucher schemes are welcome moves which will see lower-income households benefit the most. Hence, this is not just an economic response from the government, but also one with social impact and equity in mind.

Budget 2023 did not introduce any new types of wealth tax.

Instead, the Government will strengthen existing variations of wealth taxes in the form of additional registration fees for luxury cars and raising the Buyer's Stamp Duty rates for high-end real estate properties.

This move is unsurprising, given the difficulties laid out in the 2022 Budget announcement regarding a tax on the net wealth of individuals, and the need for careful calibration to avoid disrupting Singapore's ambitions as a wealth management hub.

Moving forward, further increases should be carefully considered, in view of preserving social mobility, and the next generation of aspiring asset owners.

No specific fiscal measures such as Additional Buyer's Stamp Duties were announced in view of cooling the private residential property sale prices (which rose by 8.6 per cent in 2022) or rental prices (which rose by 29.7 per cent last year). Based on this, it appears that the government is focusing its efforts on boosting the supply of homes, rather than intervening with market forces.

Budget 2023 announced Singapore's strategy in response to the upcoming revamp of international tax rules under BEPS 2.0.

This is key to Singapore's economic future, as the republic's historical use of tax incentives has encouraged multinational enterprises to place high-value functions in Singapore.

Under BEPS 2.0, certain Pillar 2 rules will introduce a global minimum effective tax rate of 15 per cent, mitigating the effectiveness of tax incentives.

The decision for the National Productivity Fund to be topped up by S$4 billion and expanded to cover investment promotion reflects Singapore's plan to respond in a strategic, but ultimately BEPS-compliant, manner.

We view this as a decisive move that will target cost concerns from multinationals towards making business investments into Singapore.

What was perhaps unforeseen was the Finance Minister's announcement that Pillar 2 rules will only be implemented in Singapore from 2025, and not 2024. This means that Singapore will adopt a later implementation timeline in contrast to the European Union, the United Kingdom, Hong Kong, and other jurisdictions.

What underlies this move is likely a desire to continue preserving a business-friendly environment within Singapore, while sending an indication that we are open to partnering with multinational enterprises through a period of global change.

Philanthropy

Finally, the upcoming changes to the philanthropic space should not be understated. First, the extension of tax deductions for donations to Institutions of a Public Character (IPC) is certainly welcome. However, what is perhaps more significant is the recently announced philanthropy tax incentive scheme for family offices. By specifically providing a tax deduction for overseas donations (which did not previously exist), the scheme is a key update to Singapore's tax regime that will support the city state's aspirations to be a regional philanthropic hub.

Budget 2023 reflects not merely an economic plan for the future, but also the government's emphasis on protecting social resilience, mobility, and cohesion. It builds upon the foundations from previous years, while making significant changes that aim to introduce meaningful change to Singapore's social compact.