By Simon Poh
SINGAPORE — On 16 February, Deputy Prime Minister and Minister for Finance Heng Swee Keat delivered an expansionary “Recovery” Budget aimed at rallying all stakeholders to work together so that we can “emerge stronger together”. Unlike Budget 2020, the focus seems to shift from near-term measures to long-term plans to help Singapore thrive in a post-COVID era.
To me, the following observations deserve special mention:
The need to tap on our reserves again
After a drawdown of $42.7 billion in fiscal year (FY) 2020, a further drawdown of $11 billion is planned for FY2021. By coincidence, this amount is also the quantum for the COVID-19 Resilience Package as well as the projected overall budget deficit for the FY2021. Taken together, this means that the government could have operated a balanced budget for the FY2021 had there been no need to spend this sum, the bulk of which is channelled to support workers and businesses in sectors severely impacted by the pandemic mainly in the form of Jobs Support Scheme (JSS) grants and public health and safe re-opening measures, including vaccination. This successive drawdown on past reserves is justifiable given the unprecedented and temporary nature of the measures. This bodes well for the fiscal position of the government as it prepares for recovery.
Emerging stronger with skilled workers and innovative businesses
We started on the transformation journey way before the pandemic and this put us in a pole position to capitalise on opportunities presented by the new normal. Looking beyond COVID-19, a $24 billion war chest will help to build a vibrant business sector, facilitate access to capital to innovate, transform, scale up and redesign jobs, as well as create new job opportunities. Employees and enterprises should take heed and capitalise on these opportunities.
Sustainability is fast emerging as one of the government’s long-term goals. Hiking the petrol duty to discourage car usage and encourage drivers to switch to electric cars helps to promote a green environment. This is in line with Singapore’s intention to cooperate with other countries in combating climate change. While there is no immediate announcement on any increases in carbon tax, this may happen beyond 2023 although the main driving factor is not to generate tax revenue. Green bonds are also gaining popularity and here the government is taking the lead by issuing green bonds on selected public infrastructure projects.
Fiscal position and GST measures
Singapore has always strived to have a competitive tax regime that is fair and sustainable. Without a resilient tax system, we will face difficulty in funding our recurrent expenditures such as healthcare costs. Already, the pandemic has resulted in the collection of lower tax revenues. This contributed further to a projected deficit in our fiscal position, which will only worsen if we cannot find new tax revenues. Hiking the GST sooner than later then becomes a more urgent task. But in view that the global pandemic situation is far from over, the public should be temporarily relieved that the timing of the hike has not been announced yet. However, we can expect the Finance Minister to announce the impending hike as soon as the global pandemic situation improves significantly. This is projected to happen towards the second half of the year with the successful rollouts of the vaccines.
Meanwhile, the government has decided to implement GST on low-value imported goods but only from 2023 onwards, once the implementation details are finalised pending further consultations with the industry. This announcement did not come as a surprise as the government has been studying this issue for a while now. Although this move is driven mainly by the need to level the playing field for our local suppliers to compete with their overseas counterparts, the extra tax revenue generated will play a part in improving our fiscal position.
In planning this budget, the Finance Minister struck a good balance between managing the near term issues with the long term objectives of transforming the economy, and positioning Singapore to emerge stronger and compete in a post-COVID era. Not surprisingly, the emphasis in this year’s budget is geared more to achieving the latter compared to Budget 2020.
Temporary tax measures to support businesses
Tax loss carry-back relief was enhanced in Budget 2020 to allow businesses to carry back qualifying deductions incurred in Year of Assessment (YA) 2020 to the three YAs immediately preceding YA2020. The extension of this enhanced scheme in Budget 2021 to similarly apply to qualifying deductions incurred in YA2021 should be welcome news. This is a good policy as it helps viable businesses temporarily affected by COVID-19 to qualify for income tax refunds previously paid when they were profitable, thereby improving their cashflow positions which could have deteriorated otherwise.
On the same vein, the extension of the option to accelerate the write-off of acquiring plant and machinery for capital expenditure incurred during the fiscal year 2021 also help businesses to pay less tax by claiming allowance over two years, instead of three.
Similarly, giving businesses the option to claim deduction on qualifying renovation expenses incurred in the fiscal year over one year instead of three helps them to pay lower taxes.
No new taxes nor major increases in tax rates
Apart from an increase in petrol duties, this year’s budget also stands out in terms of the absence of new taxes. There are no increase in tax rates for corporate income tax, individual income tax, GST, stamp duty, property tax and even carbon tax. There are also notably no personal or corporate income tax rebates in this year’s Budget.
Simon Poh is Associate Professor (Practice) of Accounting at NUS Business School. The opinions expressed are those of the writer and do not represent the views and opinions of NUS.