Singapore Budget 2021 Commentary has been saved
Singapore Budget 2021 Commentary
Powering up for the Reset Economy
Deputy Prime Minister and Minister for Finance, Mr Heng Swee Keat, delivered the Budget 2021 speech on 16 Feb 2021.
Each year, the Singapore government looks to balance the priorities of each Budget through an appropriate mix of short-term and long-term measures to support the economy. This year is no exception as the Government responds to the immediate short-term needs of businesses, workers, and families that have been hit hardest by the COVID-19 pandemic. There is also strong recognition that COVID-19 has disrupted global supply chains and business models, and accelerated digitalisation;and this in itself represents an opportunity for new areas of growth that Singaporemust appropriately respond to. Our Deloitte Budget theme is “Powering up forthe Reset Economy”—to meet both the short-term and long-term needs of the Singapore economy.
Singapore has incurred a rare budget deficit as the Government continues to support economic activity in the face of the prolonged downturn brought on by the COVID-19 pandemic. The Government typically begins a new term with a sizeable budget surplus, therefore making this an unusual year as Singapore continues to draw on past reserves for the second year running to pay for measures needed to fight the impact of COVID-19. Singapore is expected to record a budget deficit of $11B this year (2.2% of the Gross Domestic Product), and this is in addition to the $64.9B deficit for Fiscal Year 2020, the largest since Singapore’s independence.
Budget 2021 prioritises the need to channel more targeted support to the business sectors and segments of society that continue to struggle due to the pandemic. This is combined with a clear focus on Singapore’s longer term goals, such as a series of initiatives designed to encourage business innovation, global partnerships, and digital transformation among local businesses (all of which have been accelerated by the pandemic) to deepen Singapore’s position as a Global-Asia node. There is also an increasing focus on sustainability initiatives under the Singapore Green Plan 2030, which will chart Singapore’s path towards a more sustainable future.
Last year, the Singapore economy contracted by 5.4% in the worst recession on record. In response, the Minister delivered an unprecedented 5 budgets that deployed almost $100B to combat the COVID-19 crisis. This year, the economy is forecast to grow 4% to 6%. However, this recovery is expected to be highly uneven, with some sectors growing well and others remaining under stress.
In Budget 2021, the Minister announced an $11B COVID-19 Resilience Package to support the recovery process. This will primarily go towards safeguarding public health, including the provision of vaccinations as well as continued support for workers and businesses that is skewed towards the hardest hit sectors. As anticipated, this moves away from the broad-based support provided last year to a more targeted support for hard-hit sectors that remain most affected by the economic downturn.
More specifically, the Government continues to provide support to businesses and workers through an extension to the Jobs Support Scheme (JSS), which is targeted towards supporting the hardest hit sectors such as aviation, aerospace, and tourism. The Minister also announced financial support packages for specific sectors, including aviation, land transport, arts & culture, and sports. This is no surprise given the sensitivity of these sectors to global travel and social connectivity.
For families still coping with uncertainties brought on by COVID-19, the Minister announced a $900M Household Support Package, which includes one-off cash payments with lower to middle-income families receiving more. Looking ahead, the Minister also spoke about measures to strengthen social safety nets to support the more vulnerable members of society, including low-wage workers and lower income families.
The Minister confirmed that the proposed GST rate increase from 7% to 9% will take place sometime between 2022 and 2025, and this will be sooner rather than later subject to the economic outlook. The Minister reiterated that the $6B Assurance Package announced last year will help most Singaporean households cushion the impact of the GST increase when it comes.
Singapore will also introduce GST on the import of low-value goods via air or post that are bought online, as well as on Business-to-Consumer imported non-digital services from 1 Jan 2023. This is in line with the trend seen more broadly at the international level and is designed to ensure a level playing field for local businessesas compared with their overseas counterparts.
The Minister also touched on the Singapore Green Plan 2030, which was unveiled earlier this month. This includes a plan to tackle the climate crisis, efforts to increase solar capacity and research into other renewable energy sources, green infrastructure projects, and incentives to encourage wider adoption of low emission vehicles—all intended to build a more sustainable future for generations to come.
Budget 2021 was aptly titled “Emerging Stronger Together”. Last year’s budget was geared towards emergency support measures whereas Budget 2021 provides more targeted support towards the sections of business and society that continueto struggle amid the pandemic. This is coupled with a sharp eye towards the future with regard to business innovation and digital transformation, along with strengthening efforts to tackle the climate crisis and invest in renewable energy sources.
As the Minister aptly summarised his sentiments on the Ministry of Finance’s Facebook page, “To emerge stronger, we must find new ways to work together, innovate, and transform our economy”.
A snapshot of the Budget 2021 and a commentary on the tax changes are provided in the following pages—Happy reading!