New taxes or higher rates needed to fund growing needs

SINGAPORE — The Government will need to introduce new taxes or raise tax rates to boost its coffers to fund growing needs in healthcare and infrastructure in the long term, said Finance Minister Heng Swee Keat.

Without giving specifics, he said these must be decided on “in good time”, citing a Chinese idiom on the importance of thatching the roof before it rains.

“We are studying the options carefully. We must make these decisions in good time, to ensure that our future generations remain on a sustainable fiscal footing,” Mr Heng said, noting that sound planning by previous generations was how savings were set aside during good times, benefitting the country now.

While growing the economy is the “first and most important step” to growing Singapore’s revenues sustainably, “we need to strengthen our revenue base in a pro-growth and progressive manner”, he added.

“Like all finance ministers before me, it is my duty to take the long view. Our domestic needs will grow over time, and the global environment will shift. We must study the implications and prepare our options early.”

For now, one way is for the Government to “do better, and more, with less”, he noted. Budget caps of all ministries and organs of state will therefore be cut by 2 per cent permanently from FY2017. Four ministries — Home Affairs, Defence, Health and Transport — will phase in the adjustment over two financial years, as they are either serving security needs or “significantly expanding” their services, he added. This adjustment will “emphasise the need to stay prudent and effective”, said Mr Heng. The last time budget caps were cut across all ministries except Mindef was in 2004 and 2005.

Funds resulting from the lowered budgets will be channelled to cross-agency projects, such as initiatives by the Municipal Services Office.

Over the past five years, Singapore’s annual healthcare spending has more than doubled to around S$10 billion as subsidies were enhanced. This will continue to rise as the Republic’s population ages, Mr Heng said.

Expanding the public transport infrastructure — including doubling the MRT network by 2030, at a cost of more than S$20 billion over the next five years — is another big-ticket item, he added. For instance, the Changi Airport Terminal 5 will cost “tens of billions of dollars”.

Mr Heng stressed that the Government must plan ahead to prepare for Singapore’s needs in the future. Apart from managing resources prudently, revenues have to grow, he reiterated. He cited how countries big and small have been reviewing their corporate tax regimes to keep them competitive, while some are adjusting their Goods and Services Tax systems to “ensure a level playing field” between local and foreign businesses in view of increasing digital transactions and cross-border trade.

“We are studying how we can do likewise,” said Mr Heng.

Taiwan’s Finance Ministry, for instance, proposed amendments to its Business Tax Act last September to require foreign e-commerce operators providing services to Taiwanese consumers to register with its tax authority and pay business tax to the government.

Since October 2015, digital services and content provided by foreign companies to customers in Japan are also subject to the national consumption tax.

CLARIFICATION: In an earlier version of this report, we wrote that the last time budget caps were cut across all ministries was in 2004. The Ministry of Finance has clarified that the last time budget caps were cut across all ministries, except Mindef, was in 2004 and 2005.