On February 14, Deputy Prime Minister and Minister for Finance Lawrence Wong delivered Singapore’s Budget statement in Parliament for fiscal year beginning 1 April 2023 to 31 March 2024. The SGD 104 billion (~ USD 78.4 billion) spending plan outlined comprehensive measures to help Singapore’s citizens and businesses manage and adapt to the socio-economic post-pandemic challenges. Minister Wong remarked that setting this year’s budget was a very delicate balancing act, responding to competing demands and pressures. At a glance, the 2023 budget addressed specific concerns in rising costs of living, heightening business expenses, and growing manpower woes. However, no new green and sustainability-related policies were introduced.
Economic Performance and Outlook
Amidst a very challenging external backdrop, Singapore’s economy grew by 3.6% in 2022, while resident unemployment rate reached below pre-pandemic levels at 2.8%. Some industries that were hit hard by the pandemic, such as the F&B, retail, construction, and the air travel industry are now seeing signs of continued recovery. However, the Ministry of Finance (MOF) expects slower GDP growth of 0.5% to 2.5%, and an overall deficit of SGD 0.4 billion (~ USD 299 million).
This is expected to account for 0.1% of Singapore’s GDP in 2023.
Dealing with External Uncertainties
Uncertainties and downside risks such as the prolonged Russia-Ukraine war, threats of new coronavirus variants, and inflation, which rose to 5.1% in December 2022, are likely to remain concerning for Singapore as it moves into the new fiscal year. The country’s fiscal position continues to be tight despite anticipated momentum for economic recovery.
Support Measures for Singaporeans
With Singapore’s headline inflation forecasted to remain high, at least for the first half of this year, the government will extend and enhance the following measures: Enterprise Financing Scheme, Energy Efficiency Grant, GSTV Scheme, and the Assurance Package. These additional benefits allow businesses to weather the immediate challenges of tighter financial conditions and higher energy prices as well as cushion the impact of the higher goods and services tax (GST) rates among retirees and lower to middle income Singaporeans.
Growing the Economy and Equipping Workers
As companies adjust their supply chains due to geopolitical risks, Singapore plans to continue to invest in initiatives to support restructuring its economy, raising business productivity, and upgrading workers’ skills. Greater contestation and fragmentation in the global economy requires Singapore to double down its efforts to attract high-quality investments by enhancing overall productivity and workforce quality. To support businesses, the government will enhance the Singapore Global Enterprises initiative, the SME Co-Investment Fund, and the National Productivity Fund as well as introduce the Enterprise Innovation Scheme. To support workers, the government will also pilot Job-Skills Integrators, top-up the Progressive Wage Credit Scheme, extend the Senior Employment Credit and the Part-Time Re-employment Grant, enhance Enabling Employment Credit, and introduce the Uplifting Employment Credit.
Strengthening Social Compact
The government is also allocating significant resources to strengthen families, tackle inequality and social mobility issues, and provide better care for a rapidly ageing population. Families with young children, lower-income families, married couples, babies, and senior citizens are among those expected to get more support from government. These budget measures reflect Singapore’s overall assurances to strengthen its social compact and build a fairer and more inclusive society.
Building a Resilient Nation
A small country operating in a globally uncertain environment, Singapore continues to make collective economic resilience its priority. The key thrusts to enhance its ability to absorb shocks include building organizational capabilities, ensuring economic and infrastructure resilience (e.g., diversification, stockpiling, and multi-use facilities), safeguarding its climate resilience (e.g., accelerate low-carbon transition), and updating its policies to keep its social fabric strong (e.g., tax deduction for donations, enhance Corporate Volunteer Scheme, and top up Community Silver Trust).
Tax Adjustments
Increases in spending will be funded by additional revenues to ensure a balanced budget over the medium term. The government will increase the following taxes and duties: corporate income tax through the Base Erosion and Profit Shifting Initiative (BEPS 2.0), vehicle taxes, Buyer’s Stamp Duty, Additional Conveyance Duties for Buyers, and Tobacco Excise Duty. As Singapore is taking steps to align itself with international frameworks for tax rules, higher costs when purchasing high-end houses and cars are anticipated.
Impact on Businesses
The budget reflects the government’s efforts to balance urgent social policy needs, while making sure that the country remains in a good position to weather economic shocks. Consumer-linked stocks together with the healthcare, manpower, and SME sectors are expected to gain from the 2023 budget allocations. For example, the enhancements to existing innovation schemes such as the Enterprise Innovation Scheme, Energy Efficient Grants, and SME Co-Investment Fund will drive productivity and new capabilities for enterprises and the workforce, which will then help safeguard Singapore’s competitive positioning. Similarly, the tax benefits accorded under the Corporate Volunteer Scheme will encourage businesses to contribute to Singapore’s social compact. On the other hand, raised taxes will have disadvantages on the real estate sector, car dealers, and multinationals. With the proposed implementation of BEPS 2.0 in January 2025, MNCs operating in Singapore will need to critically assess their tax positioning in line with existing incentives, resources, and future investment strategies as a result of a global minimum effective tax rate of 15%. This may likewise impact large companies looking to invest in Singapore because of its attractive corporate tax structure. The reform is designed to ensure that large MNCs pay a minimum level of tax on income earned in each jurisdiction they operate, reducing competition among jurisdictions.
Under the proposed 2023 budget, businesses in Singapore can anticipate (i) the extension of existing grants and subsidies, (ii) additional enterprise financing, (iv) enhanced tax deduction for innovation activities, (v) implementation of higher taxes for MNCs, and (vi) additional employee benefits. The government ensured that companies impacted by this will be given sufficient time to prepare.
As part of the next steps, Parliament is expected to sit as a Committee of Supply to examine each ministry’s plans, beginning with the on-going debate. Following the conclusion of the Committee of Supply, the Minister of Finance will deliver the second and third reading of the Supply Bill. Parliament will then vote on the bill (titled “Supply Act”).
Reactions to the Budget
Provisions related to employment
Singapore Budget 2023: Impact for Employees (Asean Briefing, March 1)
Budget 2023: Employment law updates (JD Supra, February 24)
Defense
Singapore boosts 2023 defence budget by nearly 6% (Janes, February 27)
Singapore to buy eight more F-35B jets (DefenseNews, Febrary 27)
Consumption
Budget 2023: Smokers to pay more for all tabacco producuts as 15% tax hike kicks in (The Straits Times, February 14)
Investment
Singapore extends investment promotion tax incentives; raises quantum for Global Investor Programme (The Business Times, February 28)
