Speech on the Annual Budget Statement 2023

MP Louis Chua

Mr Chua Kheng Wee Louis (Sengkang): Mr Speaker, after more than three years of battling COVID-19, it appears we have finally seen the light at the end of the tunnel. However, while the acute phase of the COVID-19 pandemic is now over and we can all wave goodbye to the wearing of face masks, there remain many other challenges facing Singaporeans in the horizon. The one thing that is top of mind for many of my residents during our house visits, is the mounting cost of living pressure they face. Inflation, unfortunately, is not a phenomenon that Singaporeans can wave goodbye to in 2023.

The Monetary Authority of Singapore (MAS) expects inflation to stay high in 2023, with the Consumer Price Index for All Items (CPI-All Items) inflation projected to come in at between 5.5% and 6.5%, and even core inflation is expected to average 3.5% to 4.5%, both of which includes the effect of the 1% increase in GST rates this year and likely next year as well.

While the Government still expects economic growth in 2023, amid recessionary concerns globally, I believe the risks to the economic outlook remain to the downside. The MOM too has observed a recent uptick in retrenchments in Singapore and unemployment rates could trend higher. Just over the last weekend, even Google is reported to have retrenched 6% of their Singapore workforce.

Against this backdrop of continuing household vulnerabilities, my speech today will cover three broad areas. First, my observations on the Government’s fiscal position; second, suggestions on growing our recurrent revenue sources from those better able to contribute; and third, recommendations on truly strengthening our social compact.

Thankfully, it is not all doom and gloom when it comes to the Government’s finances. Over the past year, I shared in Parliament my observations on what appears to be the better-than-expected fiscal outturn in Financial Year 2021 (FY 2021) and FY 2022. It appears that against the spectre of COVID, operating revenues and the primary deficit in the last two years, have indeed, been much better than expected.

In FY 2021, actual operating revenues were about $5.9 billion higher, while the primary deficit was $13.4 billion smaller than initially estimated in Budget 2021. This meant that instead of a S$11 billion overall deficit that was expected, the Government’s fiscal position in FY2021 turned out to be a surplus of $1.9 billion instead!

Similarly, in FY 2022, operating revenues are now expected to be $8.5 billion higher than what was initially estimated in Budget 2022. Despite higher expenditure and special transfers, the overall fiscal position is still expected to improve by $1 billion. Had it not been for higher special transfers, the Budget would have similarly turned in a surplus instead of an estimated $3 billion deficit instead. But, do not get me wrong, it is not that I am against the idea of these transfers in 2022, as I recognise that the top-up to the GST Voucher Fund following the enhancement of the Assurance Package announced in November 2022, was a key source of the increase in special transfers from $6.2 billion as initially estimated to $9.2 billion, thus contributing to the deficit for the year. After all, even without raising the GST rate to 8%, GST collections rose $1.8 billion in 2022.

Looking into FY 2023, I note that the Government expects a modest deficit of $0.4 billion. Despite slowing growth, operating revenues are expected to see strong growth in the year, up S$6.4 billion compared to 2022. Corporate income tax, personal income tax and GST are expected to reach new record highs for the third consecutive year. Meanwhile, $185 billion is set to be transferred from the MAS to Government of Singapore Investment Corporation (GIC) in phases to reach the optimal reserves amount. With the deployment of these funds into a higher return seeking portfolio compared to that of the MAS, this would naturally mean higher potential returns to the Government and hence, higher NIRC contributions over time.

I thus hope that the Government will not hesitate to support the livelihoods of our fellow Singaporeans, should inflation pressures persist and not slow “more discernibly in the second half” as is expected by the Ministry of Trade and Industry (MTI) and if labour market conditions continue to deteriorate.

I do wonder though, what is the cumulative budget deficit from the start of the Government’s term to FY 2023, and would the need to maintain a balanced budget constrain the ability of the Government to activate the “drawer plans” that Deputy Prime Minister Lawrence Wong spoke about, should the need arise?

Moving into the second segment of my speech on suggestions on how best to grow our recurrent revenue sources and raise contributions from those segments that are better able to contribute. I agree with what Deputy Prime Minister Lawrence Wong shared about keeping “our overall system of taxes and benefits fair and progressive” and that “those who are better off contribute more”. However, I believe there is significant scope for us to do more to better achieve these stated objectives, such that the drive to have everyone contribute something does not risk morphing into common suffering for the man on the street.

In my Budget debate speech last year, I spoke extensively about BEPS 2.0. Not only has corporate income taxes been consistently the largest contributor to the Government’s operating revenues, in FY2023, it is now the single largest contributor to the Budget, higher than that of the NIRC. This is not surprising at all if we look at some of the largest companies here in Singapore, with DBS full-year net profit up 20% to a record $8.2 billion, while Sembcorp Industries’ net profit was up three times, supported by higher power prices and margins in Singapore and the UK.

BEPS 2.0 is one of the most significant reforms to international tax rules to ensure that Multinational Enterprises (MNEs) pay a fair share of tax wherever they operate. Their fair share of tax.

I note that in the Ministry of Finance (MOF)’s Occasional Paper on medium-term fiscal projections, the impact to our single largest contributor to the Budget from BEPS 2.0 is not taken into account, which makes the published medium-term revenue and fiscal projections a lot less meaningful. I recognise that there are uncertainties and the Government needs more time to study these issues thoroughly and will announce changes in the corporate tax system when ready. However, while BEPS 2.0 may have been delayed, the OECD has on 2 February released technical guidance to assist governments in implementing the global minimum tax. If all goes according to plan, this could happen in less than a year’s time, in the beginning of 2024.

While precise numbers may not be feasible, does the MOF have a range of blue sky and grey sky projections as to the impact of the implementation of a Domestic Top-up Tax? Is the MOF sufficiently prepared to implement this landmark tax reform from 2025 as what Deputy Prime Minister Lawrence Wong shared?

As I have shared in this House last year, I hope that the Government will view the global minimum tax reforms as an opportunity rather than a threat, given Singapore’s strong non-tax advantages and attractiveness to MNEs. If a global MNE is already operating in Singapore, what incentive would it have to incur additional relocation costs when the minimum corporate tax rates of 15% would be normalised globally? I hope it is not the case that over the past years, global MNEs’ decision to invest in Singapore boils down to mere tax incentives as the deal-breaker.

The Organisation for Economic Co-operation and Development (OECD) has shared with the Pillar Two solution, all economies will benefit from extra tax revenues. All economies. I hope the additional tax revenues from BEPS 2.0 will not simply be in substance returned to MNEs through other forms.

Next on wealth taxes, particularly, those relating to property which is the Government’s preferred way to tax wealth. As I have shared last year, while the increase in headline marginal property tax rates appears high, the actual impact on the households involved are unlikely to be material. I further shared about how, based on my analysis, high-end condos in Cairnhill and Nassim Road need only raise rents by 2% to 7% to offset the higher property taxes. As it turns out, private residential rents rose by 30% in 2022. So, while I agree with Deputy Prime Minister that $380 million more per year in property tax revenues is not an insignificant sum of money, I still believe that it may not be that significant to those who are impacted.

But I do recognise that the Government is doing more on the property front, with the higher marginal Buyers’ Stamp Duty (BSD) rates for higher-value residential and non-residential properties. In itself, again I do not believe the impact of the higher BSD rates to be that significant. To illustrate, for residential properties priced between $1.5 million and $5 million, the impact of the BSD rate increase only amounts to 0% to 1.1% of the purchase price of the property. Again, in the context of the near 9% rise in private property prices in 2022, the higher BSD may simply be an afterthought. I wonder though if more can be done for our property-related wealth taxes to be more targeted and progressive?

Despite hefty ABSD rates for foreigners, that did not stop an entire luxury condo project, EDEN, from being sold to a single family for $293 million, for a single buyer to purchase 20 units in Canninghill Piers for $87.6 million or for a single penthouse unit at Les Maison Nassim to be sold for $75 million last year.

In Budget 2009, Senior Minister Tharman as then Finance Minister removed the tax on Net Annual Value with effect from YA2010, for those who own higher-value homes or secondary residences. I hope the Government can consider re-introducing this tax, in which the AV threshold can be set at a high bar, for it to be effective as a wealth tax targeting on those who can afford the likes of our Good Class Bungalows (GCBs) and especially for those private residential properties that are not let out, given the situation we have today where private residential vacancies are near historical lows.

To give credit where it is due, I welcome the Government’s recognition that there is scope to make our vehicle taxes more progressive. Last year, I highlighted that the Government’s move to introduce a new Additional Registration Fee (ARF) tier for cars is not meaningful in the grand scheme of things. So, I do welcome the Government’s move to further adjust the ARF and cap the Preferential ARF (PARF) rebates at $60,000. With the move, not only would a Ferrari Roma cost about 23% more as a result of the higher ARF, the capped PARF rebates would mean about 22% of the selling price would be lost as well, resulting in a more meaningful contribution of high-end vehicle-related taxes to Government revenues.

I hope the Government will continue to consider various options to tax wealth effectively and other forms of progressive taxes to raise revenues more equitably rather than via regressive taxes such as the GST.

Finally, on recommendations to truly strengthen our social compact, Mr Speaker, you would know that since I was elected as a Member of Parliament for Sengkang in 2020, strengthening our social compact and in particular fostering greater support for families is a topic which is very close to my heart.

Parenting is definitely a struggle, especially if one wants to be an involved parent. Hard choices and sacrifices must be made. But my wife and I have not and will not regret our decision to bring our two boys into this world, who are now about three-and-a-half and one-and-a-half years old today. As Parliamentarians and leaders of this country, how then can we continuously strive to make it easier for Singaporeans to start a family? How can we make the sacrifices and trade-offs less stark and make parents and would-be-parents feel that balancing family, work and life is not a zero-sum game?

I will be elaborating further on Flexible Work Arrangements (FWAs) and parental leave during the subsequent Committee of Supply debates, topics which I have been speaking on for the last two years. On FWAs in particular, I am increasingly anxious that whatever gains we have made as a country when it comes to workplace flexibility during COVID-19 are now rapidly being eroded and my worst fears of a return to pre-COVID-19 workplace norms are starting to come true.

Residents, family members and friends are increasingly sharing that they are pretty much back to working from the office and working from home is now a distant memory. One friend quipped that his boss said, and I paraphrase, “If you are not in the office, how do I know that you are actually working?” Work from home is just one form of flexible work arrangement, but I fear that if we do not put in place legislation on this matter soon, the hard-earned gains from FWAs in the last few years will soon be permanently lost.

On parental leave, I note that while unpaid infant care leave will be raised, there are no changes to maternity leave which was last changed 15 years ago in 2008. That said, the move to raise Government-Paid Paternity Leave from two weeks to four weeks is no doubt welcome, but I note that this is purely on a voluntary basis on the part of employers.

As it is, even though Paternity Leave is a mere two weeks, only more than half of our fathers take paternity leave. Will would-be fathers be in a position to take their full entitlement of the expanded paternity leave and feel comfortable doing so? So, I do wonder if Deputy Prime Minister’s message that “we want paternal involvement to be the norm in our society” could in practice turn out as being construed as “paternal involvement is voluntary”?

One of the most puzzling moves to me is the decision to worsen the Working Mother’s Child Relief (WMCR). While there could be a group of lower-income working mothers who would benefit from this change, the majority of would-be working mothers will be made worse off with the change in methodology. In the context of “building a Singapore Made for Families”, I find this move highly ironic and self-contradictory.

I did some calculations for WMCR for one child, assuming a working mother gets two months’ worth of bonuses which is the average in Singapore, while benefiting from other standard reliefs such as earned income relief, CPF, NSMan (Wife) relief and shares the qualifying child relief with her husband. Essentially, for mothers who earn less than $2,610 a month, they would not be better off as they would not have paid taxes at all even under the prior methodology, while mothers earning more than $3,810 a month and above will be worse off. The only group of mothers who would be better off are those earning between $2,610 and $3,810 a month, and the extent of their tax savings range from a grand $0 to $40 in total tax savings a year.

Based on my estimates of working mothers’ income within married couples in resident households, roughly 20% of mothers will benefit from the WMCR change to the tune of up to $40, while the remaining 80% of mothers will either be unaffected or worse off. I wonder if the WMCR truly seeks to reward families with children and encourage married women to remain in the workforce after having children, or does it have the unintended opposite effect?

If the aim is to benefit lower- to middle-income working mothers, why not just give a motherhood tax rebate to working mothers earning below a certain income? And I do not mean this as a motherhood statement as such a move can ensure that even a larger proportion of mothers will benefit as opposed to the design of the new WMCR. To further support lower-income working mothers, if the tax rebates granted exceed the tax payable, tax credits can be paid out in cash to ensure the reliefs are not lost.

Moreover, unwed single mothers are ineligible for this relief. Single mothers already face significant challenges in singlehandedly raising their children and more often than not are working mothers. Even if we cannot raise their children on their behalf, the least we can do is to ensure that our tax policies do not discriminate against them. I strongly urge the Government to reconsider the changes to the WMCR.

Finally, I welcome the move to raise the CPF salary ceiling from $6,000 a month to $8,000 a month. From those within this monthly income band, the lower monthly take-home salary could be a challenge given the pressures of being in a sandwiched class, with high monthly household expenses and relatively lower grants and support compared to the lower income. However, I do recognise that the benefits from a higher employers’ CPF contribution over time can contribute meaningfully to retirement savings.

Yet, where I think the move falls short is in keeping the annual salary ceiling intact at $102,000. Can the Government raise the CPF annual salary ceiling in tandem with the monthly salary ceiling move to benefit this expanded group of workers?

I did some calculations for a worker who earns $7,000 a month with a three-month bonus. When fully implemented in 2026, he or she could benefit from $1,530 worth of additional employers’ CPF contributions with the raised monthly salary ceiling. However, should the annual salary ceiling be raised in tandem, this would rise to $2,040 implying that the same worker will benefit from an increased CPF contribution of $510 a year.

In the case of a worker who earns $8,000 a month and has a four-month bonus, whether through his or her exceptional work performance or otherwise, the worker would not benefit from the raised monthly salary ceiling at all. Yet, if the annual salary ceiling was raised in tandem, his or her CPF balances will be higher by $4,420 a year.

When the Government says that it will review the annual salary ceiling periodically, what is the Government looking out for before deciding to make the move or rather what is stopping the Government from doing so immediately as it has done in the past? In Budget 2015, it was said that the higher salary ceiling will cover wages up to the 80th percentile of resident incomes. What is the coverage of the current CPF salary ceiling moves and what could it be if the annual salary ceiling was raised correspondingly today?

Already, the higher monthly salary ceiling will be increased in four steps all the way to 2026 to allow employers and employees to adjust to the changes. I am sure everyone in this Chamber agrees that businesses value certainty and visibility on when exactly the annual salary ceiling move is going to take place, and this will be much appreciated by employers and employees alike.

Before I conclude, Mr Speaker, let me just say a few words in Mandarin.

(In Mandarin): Looking into FY2023, I note that the Government expects a modest deficit of S$0.4 billion. Despite slowing growth, operating revenues are expected to see strong growth in the year, up S$6.4 billion compared to 2022. Corporate income tax, personal income tax and GST are expected to reach new record highs for the third consecutive year. 

I thus hope that the Government will not hesitate to support the livelihoods of our fellow Singaporeans if the need arises. This is crucial, because inflation pressures will persist and are unlikely to slow down discernibly and labour market conditions might continue to deteriorate.

One of the most puzzling moves to me is the change to the Working Mother’s Child Relief (WMCR). While there could be a group of lower income working mothers who would benefit from this change, the majority of would-be working mothers will be worse off with the change. In the context of “Building a Singapore Made for Families”, I find this move self-contradictory.

Based on my estimates of working mothers’ income within married couples, roughly 20% of mothers will benefit from the WMCR change while the remaining 80% of mothers will either be unaffected or worse off. I wonder if the WMCR truly seeks to encourage married women to remain in the workforce after having children, or does it have the unintended opposite effect? I hope the Government can reconsider the change to WMCR. 

(In English): Mr Speaker, to conclude, I would like to share some final thoughts on Budget 2023. Recently, I read about the Cost-of-Thriving Index in America, which suggests that while many economists argue that America’s working families are more prosperous than ever before, families themselves feel that they have come under increasing economic pressure. The report suggests that the families are right.

As the Government strategises on how to move forward in a new era, I hope the future Singapore will not be one where we worry about not being able to attract the rich and famous or the largest and most profitable corporations and hence, have the average Singaporean shoulder a higher tax burden. I hope it will not be one where we have a shrinking middle class owing to income inequalities and I hope it will be one where every Singaporean family can thrive.

22 February 2023


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