BUDGET STATEMENT 2007
Ready for the Future, Ready for the World
Mr
Speaker, Sir
I beg
to move that this Parliament approve the financial policy of the
Government for the Financial Year 1 April 2007 to 31 March 2008.
(1)
ECONOMIC PERFORMANCE AND OUTLOOK
Economic Performance and Fiscal
Position in 2006
1.1
Our economy has done well. It grew by
7.9% in 2006. Both our manufacturing and services sectors did
well. Asset management in financial services is booming. The
construction sector is seeing a resurgence.
1.2
Singaporeans have benefited from
this growth. An
unprecedented 173,300 new jobs were created last year, with more
than half of these taken up by our local workforce. The
unemployment rate went down to 2.7%. Our workers enjoyed good
wage increases and better bonuses, with average wages rising by
3.2%. Overall, it has been an exceptionally good year, following
two previous good years.
1.3
The fiscal position for Financial Year
(FY) 2006 improved on the back of these buoyant economic
conditions. I expect a budget deficit of $1.3 billion for FY
2006, much smaller than the deficit of $2.9 billion we projected
at the start of the year. Operating revenues and contributions
from Net Investment Income have come in higher than projected.
Global Backdrop
1.4
The outlook for 2007 is positive.
Globally, the major economies are doing well. The US economy has
kept its momentum. Consumer spending has been supported by more
stable oil prices, offsetting the effects of a slowdown in the US
housing market. Japan is continuing to recover from more than a
decade of deflation. The major European economies too, especially
Germany, are undertaking reforms and showing improvement after a
long period of sluggish growth.
1.5
In Asia, China and India continue to
power forward, pulling the rest of Asia with them. The Southeast
Asian economies are growing, although some of them face difficult
challenges. Vietnam in particular is stepping up its economic
reforms, tapping into the forces of globalisation, and growing
dramatically.
1.6
On
the whole, the external picture for 2007 is positive. But it is
not free of risks. A sharp slowdown in the US economy, which
could happen if there is a hard landing of the US housing market,
remains our biggest external risk. A disruption in global
currency and financial markets, in response to concerns over
America*s large external deficits, is another factor that could
slow down the global economy. Widening conflict in the Middle
East is a significant geopolitical risk we have to look out for,
which could disrupt energy supplies and force oil prices up
sharply.
We must continue to watch these potential threats,
and stay ready to respond quickly and decisively.
Outlook for 2007
1.7
Barring such shocks, I expect the Singapore economy
to continue to do well. Our investment pipeline is strong. Last
year, we attracted manufacturing and services investments that
will generate over $13 billion of value-added annually to our
economy and we expect similar good performance this year. Tourism,
which saw a record high of 9.7 million visitors last year, should
remain strong and benefit the retail as well as the hotels and
food and beverage sectors. The construction sector is set to
expand further, with $17 to $19 billion worth of contracts
expected to be awarded in 2007. There will be more jobs for
Singaporeans at all levels of the workforce, as employment expands
in the retail, healthcare and hospitality industries, financial
services and across the manufacturing, marine and construction
sectors.
1.8
Overall, I expect the Singapore
economy to grow by a healthy 4.5% to 6.5% this year, riding on the
momentum of strong growth in the last three years.
(2)
SECURING OUR FUTURE
Globalisation is
Working to
Singapore*s
Advantage
2.1
We are looking ahead to the next five
to 10 years for Singapore. Our prospects have never been better.
The key reason is globalisation. Capital, enterprise and talent
are flowing to countries where government can be trusted, where
the workforce is well-educated and skilled, and where the quality
of life is high. These are Singapore*s advantages. They explain
why globalisation is working in Singapore*s favour.
2.2
We are also well-placed at the heart
of a globalising Asia. China and India are the big stories, but
opportunities are also opening up across Asia, from the Middle
East to Northeast Asia. Competition from China and India has
galvanised ASEAN to accelerate integration and forge a
collaborative ASEAN Community by 2015.
2.3
Businesses large and small, home grown
and foreign, are taking advantage of Singapore*s strengths, and
using Singapore to ride the next wave of Asian growth.
The World is Coming to Singapore
2.4
We are not just getting more large
investments, but more &first-of-its-kind* investments. Take for
instance, the chip used in the latest PlayStation3 and Xbox. A
French semiconductor company, Soitec, is investing $700 million to
set up in Singapore its first offshore facility to make the wafer
for this chip. It is high precision, high technology. The wafers
involve alternating layers of silicon and insulator, unlike
conventional wafers which use silicon throughout. Soitec is
coming here because its technology has to be well-protected, and
we are the only country in Asia that they trust well enough to set
up their first manufacturing campus outside of France.
2.5
Soitec is like many other global companies which have come here
because
they know their investments will be protected, and
we have the pool of talent and skills for sophisticated
manufacturing. Like Sumitomo, which expanded its $500 million
complex in Singapore only last year to make the special kind of
plastic used in LCD screens and dentures. These are big votes of
confidence by global investors.
2.6
But it is not just MNCs that we are
drawing here. We are also attracting a whole new category of
small and mid-sized global players. Take Bob Chandran, for
example, who came from the US. He had listened to PM talk on TV
about Singapore being a place with &Asian values but Western
conveniences*. He explored further, and eventually decided to
move his family and his marine fuel company, Chem-oil, from the US
to Singapore. In fact he has now taken up Singapore citizenship.
Chem-oil is today listed on the SGX. Bob has just announced a
major investment in a new fuel terminal on Jurong Island.
2.7
Johan M Karlstedt relocated from
Finland to the US for several years, before deciding to set up
home in Singapore 〞 both for his company and his family. The
company that he founded, QXSystems, creates virtual offices for
businesses. As he puts it, with the Internet, it does not matter
if you are in a small country. QXSystems now owns five companies
around the world, and is headquartered in Singapore. Johan,
himself, doesn*t work from an office; he is based at home. I
asked him what that means, and he said that he actually sits and
works daily, for hours, in many places around Singapore. Thanks
to widespread WiFi, he can interact with anyone around the world
from any spot in Singapore he chooses, for the cost of almost
nothing.
2.8
Bob Chandran, Johan Karlstedt and the
many others like them are here because we are a compelling home
for enterprise and for families.
Singaporeans are Going Out to the
World
2.9
Not only is the world coming to
Singapore, Singaporeans are seizing opportunities abroad. Globalisation
is working to the advantage of Singapore companies.
2.10
Food Empire, based in Geylang, owns
MacCoffee, which has become immensely popular in Ukraine, Russia,
Poland, Bahrain, Iran and Turkey. Its advertising slogan in
Ukraine reads: ※Every other Ukrainian drinks MacCoffee.§ In fact,
even the advertisement won the most prestigious prize in the
Ukrainian advertising industry last year.
2.11
Rotary Engineering is another
example. It was founded by Chia Kim Piow in the 1970s. He was
like many others at the time who did not have an education beyond
secondary four 〞 no diploma, let alone a degree. Everything was
learnt on the job. Rotary began handling electrical installations
and sub-contracting for the big oil refineries. It now builds
them. Today, Rotary is presently one of Asia*s leading
engineering companies in oil and gas infrastructure. It is
active in China and India, and is moving into the Middle Eastern
market with Saudi Arabian partners.
2.12
It is
not just the larger Singapore players that are going abroad.
We
have many individual Singaporeans taking their chances and making
their presence felt in global markets. They are in demand all
over Asia, as trusted managers and engineers, and increasingly,
too, as creative professionals. Like our Singapore chefs. Justin
Quek is amongst our best known, having won several awards while he
was here, at Les Amis. He is now based in Taipei where he is
running his own restaurant, which is already regarded as serving
the finest French cuisine in the city.
2.13
Jek Tan, who trained at SHATEC, became
Executive Chef at the Shangri-la in Dalian a year ago. I had met
him there, and he mailed me last week to say that he had invited
over three fellow Singaporean chefs to host a Singapore Food
Festival over the last two months. The Chinese were wowed by the
menu. Among the compliments he received, was one about the beef
rendang. Unfortunately, in Chinese, &rendang* translates into
※people*s egg§. Some of his customers told him they were glad it
tasted better than it sounded.
2.14
This is what globalisation is about,
and why it is working for Singapore. Companies and enterprising
individuals from around the world coming to Singapore, using
Singapore to reach out to other parts of the world, and creating
jobs for Singaporeans; and Singapore companies and talents going
out to the world to compete and seize opportunities. It is why
the outlook for Singapore is bright.
The Challenge of the Widening Income
Gap
2.15
But globalisation brings with it
challenges for Singapore. We face a worsening of our income
distribution, and slow or no increases in wages at the lower end
of the workforce. Not just over the last few years or for now,
but in all likelihood for several years to come. It will be a key
challenge for us, just as it is in other developed countries.
2.16
The reasons for the widening income
spread are by now well known. China, India, Russia and Eastern
Europe have doubled the global workforce, putting downward
pressure on wages everywhere. Companies have more choices on
where to invest, locating their plants where they can get the
lowest cost or best workers or latest technology. At the same
time, technology has continued to advance, relentlessly, in every
sector and industry. It is increasing the demand for workers with
high skills and knowledge. And technology is making many types of
workers redundant, especially those with low skills 〞 and also
making it easy for their jobs to be exported abroad to where wages
for the same skills are lower.
2.17
The result is widening income gaps
between the skilled and the low-skilled, between young and old,
between those who adapt quickly to the market and the rest.
Incomes are stretching out in the developed world, with the top
rising rapidly, the middle much slower, and the bottom stagnating
or even declining.
2.18
In the US, the income gap has been
widening for some time, especially in the last decade. In the
last five years, despite strong economic growth, wages of
non-management workers have grown by only 1.7% in real terms. The
same is happening in Europe and Japan 〞 incomes going up at the
top, but stagnating or declining at the bottom. Even in China,
with an economy growing at 9%, workers in the bottom 10% have seen
a decline in real incomes.
2.19
Singapore is facing similar pressures.
Because we are a much more open economy, we are in fact more
exposed to these pressures of globalisation. Over the last five
years, lower-income households have
seen little growth in their incomes. In fact, in real terms,
the lowest 20% of households has seen their incomes
per capita decline from 2000 to
2005. However, the strong pick-up in
employment within the lower-income group over the past year has
more than reversed the decline. Nonetheless, household
incomes at the top end are pulling away faster.
2.20
This is a key item on our agenda.
Although our economy is growing well, incomes are increasing only
slowly at the lower end, and income gaps are widening. This is a
problem for those at the bottom, but it is also a problem for the
rest of society if those at the bottom feel left out from growth.
2.21
The solution is not to grow more
slowly, or to focus less on growth and more on redistribution 〞
although some people think we should do this. If we do this, it
will only hurt the people we are trying to help. Slow growth will
make everybody worse off, but it will have greatest impact on
those at the bottom. Jobs will be lost and incomes will fall
through the floor for those at the lower end of the workforce,
while at the top end, talented Singaporeans and those with the
ability to seize opportunities elsewhere will up and go. Slow
growth will not assure us of a more equal society, as long as we
live in a globalised world.
Singapore*s Response 每 Growth with Opportunity for All
2.22
Our response must therefore be to
focus on growth and embrace globalisation, but manage its
downsides and make it work for everyone. We will do this by
maximising opportunities for all Singaporeans 〞 the opportunities
to get a good education, to work or grow a business, to retrain
yourself and upgrade, and to own your own home. We must maximise
opportunities for all, but we must also accept that doing so does
not result in equal rewards for all. We should never reduce the
incentive for Singaporeans to work and to make the most of their
skills and talents, so as to get higher reward for themselves.
That has to be the basis for our society, for how we keep our
economy growing, and for how living standards of Singaporeans can
rise over time.
2.23
Our first priority therefore is to
grow the economy. We must now build capabilities for the future.
We must attract new investments, grow new businesses, and create
new and better paying jobs to replace old ones. We must build on
our strengths and compete 〞 not just on efficiency and low cost,
but on trust and value.
2.24
As we grow the economy, we must ensure
that no one is left behind and that all Singaporeans have the
opportunity to succeed. Over the years, the Government has been
helping the lower-income groups through various assistance
measures. Since 2001, the Government has distributed more than
$7.5 billion through the Progress Package, U-Save and S&CC
rebates, CPF top-ups and New Singapore Shares, to share budget
surpluses with Singaporeans. In all these distributions, we have
made deliberate efforts to ensure that the lower-income groups get
the greatest benefits. But going forward, we have to do more to
help needy Singaporeans, and to do it more systematically. This
is why we are introducing Workfare. Workfare will give those at
the lower end of the workforce a stronger incentive to get a job,
stay employed, and save for their future.
2.25
We also have to prepare now for the
challenges of an ageing population. Healthcare spending will rise
over time, as our people grow older and medical science advances.
Our living environment and physical infrastructure will have to be
adapted to meet the needs of our growing ranks of senior
citizens. This is the generation that has helped to bring
Singapore up from Third World to First World. We must ensure
their well-being.
2.26
Building capabilities for the future,
strengthening our social security system and providing for the
needs of older Singaporeans will require Government to spend more
in future. This means we will need additional revenues. We
cannot raise direct taxes. Countries the world over are reducing
corporate and personal income taxes. To continue to attract
talent and investments, and maintain strong incentives for our
people to excel, we will in fact have to lower our direct taxes
further over time.
2.27
We will therefore raise additional
revenues by extracting more income from our reserves and
increasing the GST. Because we are doing this now when the
economy is doing well, we are able to provide a very comprehensive
set of measures to help Singaporeans cope with the GST increase.
2.28
This Budget is therefore about
preparing Singapore for the future and for the world. It ensures
that we retain our dynamism as an economy while we take
significant steps forward to preserve an inclusive society. It
sets out the key changes we must make to:
(a)
Build capabilities for the future;
(b)
Strengthen our social security system;
(c)
Reduce direct taxes and raise
additional revenues, including GST;
(d)
Provide Singaporeans with an offset
package for the GST increase.
(3)
BUILDING
CAPABILITIES FOR THE FUTURE
3.1
To build new capabilities for the
future,
(a)
We will invest in our people to
maximise their potential.
(b)
We will invest in R&D to move our
economy up the value curve.
(c)
We will make Singapore the best place
to start and grow a business.
(d)
We will make Singapore a centre for
※high trust§ services.
(e)
We will invest in economic
infrastructure to meet the business needs of tomorrow.
(f)
We will transform our city and living
environment to build the best home for Singaporeans.
Investing in our People
3.2
Central to our strategy is our people.
Every Singaporean plays a crucial role in an innovation-driven
economy. Education and continuous learning will thus remain a top
priority of the Government.
A First-rate Education
3.3
We will give every child access to a
first-rate education. In every school, we have been focusing on
quality. More teachers are being deployed, leading to more time
to plan for quality and innovate in their teaching. Ideas are
bubbling up in our schools and transforming the learning
environment for our children. At Hougang Primary for example,
Primary Two students are using iPods to create podcasts of
talkshows, which they then showcase on the Internet for all to
hear. Having a real audience means this is not just for fun, but
the kids are taking their lessons seriously!
Post-Secondary Education Accounts
3.4
Getting a top-rate school education
provides a critical foundation for every Singaporean. We will
keep improving, keep helping our children to learn better. But
good schools are not the end of the story. That is why we have
also made our ITEs, polytechnics and universities world class.
They are widely recognised as being in the top tier,
internationally.
3.5
We want as many Singaporeans as
possible to obtain a post-secondary education, whether it be to
obtain a certificate, diploma, or degree. This is absolutely
essential in the new, innovation-driven economy. To help
Singaporeans pursue their tertiary education, we will create a
Post-Secondary Education Account (PSEA) for every Singaporean aged
seven to 20. Students can use the PSEA at our publicly-funded
universities, polytechnics, ITEs, NAFA and LaSalle.
3.6
We recognise, however, that some
Singaporeans may have missed out on an opportunity for
post-secondary education. I will therefore allow the PSEA to also
be used for UniSIM, which provides for an open-style university
education for adult learners, and WDA-accredited lead training
providers. Unused monies in an individual*s PSEA will be
transferred to his CPF Ordinary Account when he turns 30. I will
announce later the amount of top-ups that the Government will make
into PSEA as part of this Budget.
Supporting Lifelong Learning
3.7
We are also extending our focus beyond
the post-secondary stage 〞 beyond what we learn in school and at
our post-secondary institutions. Adult workers need to keep pace
with a constantly changing employment landscape. Lower-skilled
workers are especially vulnerable to becoming displaced if they do
not upgrade or pick up new skills. No matter what useful skills
or qualifications we attain in school, they will become less
relevant over time.
3.8
Many more workers are now going for
retraining, some upgrading themselves against the odds. Like
Madam Sabariah Bte Ahmad, who was retrenched as a production
operator from Maxtor 18 months ago. Unfortunately, at age 48, and
having suffered from cancer, she had difficulty getting
re-employed. But she persevered, and last year, she got onto
NTUC*s STPT (Screen, Train, Place and Train) scheme, which put her
on a job as a cashier at Kopitiam at Tan Tock Seng Hospital. She
earns $900 a month, and is happy to be self-reliant, despite her
illness.
3.9
Therefore, the Government will also
increase its support for lifelong learning to all Singaporeans.
We already spend up to $170 million per year on adult worker
training, drawn from the Skills Development Fund (SDF) and the
Lifelong Learning Endowment Fund (LLEF). But this is less than
what several other countries are spending on continuous education
and what is necessary to keep our citizens in pace with a
globalised world. We must ramp up our investment in this area over
the long term.
3.10
First, we need to allow individual
workers to apply directly for subsidised training opportunities.
We previously operated a system that was employer-centric,
reimbursing employers that sent their workers for training. Over
the past year, we have shifted to invest more in adult worker
training institutions. This has lowered course fees and made
training directly accessible to individual workers. We will keep
up our efforts on this front.
3.11
Next, we will implement more Place and
Train programmes, to help workers renew their skills and secure
new jobs. The training will cover all segments of the workforce,
from the unemployed, to operations staff, to supervisors,
craftsmen, professionals and managers.
3.12
Third, we will encourage more adult
learners to take up post-diploma courses in the polytechnics as
part of lifelong learning. These comprise Advanced Diplomas and
Specialist Diplomas 〞 for example, in areas like Infocomm
Security, Logistics and Semiconductor Technology. They
cater to both basic diploma and degree holders. Currently
these courses are fully self-financed by students. I have decided
to subsidise 80% of the cost of these programmes for Singaporeans,
starting from the 2007 intake. About 1,400 students enrol in such
courses today, and we hope more will do so in future. The
polytechnics will also expand their post-diploma offerings over
time in response to market needs.
3.13
These
are only initial plans, towards the larger goal of providing
continuous learning opportunities to every Singaporean, and
encouraging them to see this as a way of life. We will study this
comprehensively 〞 how to provide learning programmes that are
relevant to every Singaporean, how they should be funded and how
to foster a culture that makes lifelong learning the norm. Your
certificate may lead to a diploma, your diploma may lead to a
degree, and your first degree may not be your last. Or you may
get a certificate or diploma after your degree. But this is not
about the paper chase, but about the continuous refreshing of the
skills and knowledge of Singaporeans that will prepare us well for
the future.
3.14
We
will therefore have to invest much more in Continuous Education
and Training. As an initial estimate, we expect to triple our
annual expenditure on lifelong learning to $500 million in the
medium to long-term. To support this important initiative, this
year I will put in another $100 million into the LLEF.
Investing in R&D
3.15
Our
second area of focus is to invest in R&D, to build up new
capabilities that will help drive our economy over the long-term.
We plan to invest 3% of our GDP on R&D annually by 2010 up from
2.4% in 2005.
3.16
This
is a major commitment, both in terms of resources and talent. We
are investing large sums of money. We are also gathering many very
able people in the biomedical sciences and other fields of science
and technology. They include Singaporeans who are doing
post-graduate studies and embarking on careers in R&D, as well as
globally renowned researchers who have uprooted themselves to come
to Singapore because they know we are serious in our plans and
ambitions, and want to work with us on this enterprise. On top of
that, we are attracting world-class corporate R&D labs and
grooming local R&D firms.
3.17
We do not expect short-term returns.
This is a long-term investment, and clearly there are risks. We
cannot be sure of success, and even if we succeed, many of the
economic benefits are likely to be indirect. But the Government
had considered this carefully, and decided that this was an
investment we had to make for Singapore*s future. Over time, we
will build up a critical mass of top-rate researchers in
Singapore, who will create new intellectual property in our
research institutes, universities and hospitals, and will bring in
new, technology-driven activities which will spin off benefits to
the rest of the economy. Our investment in R&D is critical, for
Singapore to be a leading Asian hub for high-value,
knowledge-based industries, even as Beijing, Bangalore and other
cities catch up.
3.18
Since embarking on this endeavour in
the bio-medical sciences and other areas of R&D that we are
engaged in, we have made significant progress. But we are still
on the early legs of a long journey. Other developed nations,
including small ones like Switzerland and Sweden, have taken
decades to get to where they are today. We need to persevere in
our efforts, focusing our limited resources on areas in which
Singapore can make an impact. That is the framework within which
the Research Innovation and Enterprise Council (RIEC) pursues
Singapore*s R&D strategies, and it will continue to guide us as we
go forward.
3.19
It is too early to evaluate the
results of our R&D initiatives. But from MOF*s perspective, I am
satisfied that this is a good use of public funds. Hence, I will
inject another $500 million into the National Research Fund that
was established last year. Along with other R&D related
expenditure in A*Star, MOH, MOE and other economic agencies, we
expect a total of $2 billion of government expenditure invested in
R&D for this year. These will go towards continuing the applied
and academic research in the public research institutes,
universities and hospitals.
Making
Singapore the Best Place to Start, Grow and
Globalise Businesses
3.20
Next, we have to press ahead in our
efforts to create a vibrant and supportive environment for
enterprises, big and small. Our strength and reputation as a base
for MNCs and leading global companies is well known around the
world. We will make Singapore equally reputed for being the best
place for SMEs, local and foreign, to locate, grow and globalise.
3.21
I mentioned Rotary and Food Empire
earlier. Both found themselves having to extend their reach out
of Singapore at an early stage, and depend on markets abroad for
most of their growth. In fact, about one-quarter of all our SMEs
in Singapore now derive at least 50% of their revenue from
overseas.
3.22
Many of our younger local players are going out to
markets abroad at an even earlier stage of their growth. Dextrans
Worldwide Group, founded just four years ago by two young
Singaporeans, already has a bustling logistics business, managing
inventory for major electronics manufacturers in
China.
Heulab was
started by two NUS graduates in 2002 to create educational
software on tablet PCs. Over 140 schools in Singapore, Australia,
Taiwan and Qatar use their products to introduce creative learning
in the classroom. All this in just four years. And Heulab was
selected earlier this week as a launch partner for Microsoft*s
Windows Vista Programme.
3.23
Dextrans and Heulab are part of a new
generation of local firms, fleet-footed, unafraid to venture out
to the world early, and at the leading edge of technology.
3.24
We are also seeing the rise of a new
breed of players in the form of global SMEs 〞 much smaller than
traditional multinationals, sometimes run by small groups of
individuals, rooted in one place but taking advantage of
globalisation to expand rapidly. Some of these are fast-growing
small companies 〞 or &gazelles* as they are called in Silicon
Valley.
3.25
More of these global SMEs are now
coming to Singapore. They want to be here because we are a place
where they can access markets, talent and global financial
services, and operate within a legal and regulatory framework that
they are comfortable with. They may not make huge investments
like the MNCs, but they add vibrancy to the economy and demand for
financial and business services, IT and logistics. Many are now
listing on SGX, and are expanding rapidly.
3.26
We should attract and root this new breed of
players in Singapore. I mentioned Bob Chandran and Chem-oil, an
example of a global SME we have brought to Singapore*s shores.
Another is LMA, a medical equipment firm that was based in UK,
which decided to establish a headquarters operation in Singapore
to manage its global regulatory affairs, quality assurance, and
R&D.
It has operations all over the world, and its
products reach patients in over 100 countries.
3.27
OLAM, too, shifted from London to
Singapore. It has a presence in 52 countries, managed from
Singapore. Last week, OLAM announced that it is tying up with
Chinatex, a leading Chinese state-owned enterprise. They will
jointly invest in Brazil to source soybean. They will also invest
together in China to process soybean and supply cotton to the
domestic market.
3.28
That*s how globalisation is being
played 〞 globalisation out of Singapore. We want to grow more Food
Empires and Dextrans, and attract more OLAMs and LMAs to
Singapore. We can provide the best conditions for them to start
up, grow, raise funds, and reach out to markets in Asia and the
world. We are already recognised as one of the easiest places in
the world to do business. Each year, the World Bank compiles
assessments of experts around the world. In its latest report, it
puts Singapore as the most business-friendly economy in the world,
ahead of New Zealand, the US, Canada, Hong Kong and the UK. After
the recess, I shall announce how we will strengthen this further
through our tax regime.
Growing ※High-Trust§ Services
3.29
We will also develop Singapore as a
centre for a range of ※high-trust§ services - from legal and
financial services to highly specialised, niche services. Near
Changi Airport, a company has set up the Singapore Freeport, a
Fort Knox-like vault to house private art collections and
treasures from all over the world. It is an example of a niche
area that plays to Singapore*s strengths.
Legal Services
3.30
In legal services, we will
position Singapore as a trusted centre for high-end arbitration
work. We have the key ingredients in place to do so 〞 efficiency,
reliability and neutrality. We also have plans for an integrated
dispute resolution complex. We will complement these efforts by
introducing a tax incentive that allows a 50% tax exemption for a
law firm*s incremental qualifying income for international
arbitration activities.
Financial Services
3.31
The financial sector is a key pillar
of our economy. The asset management industry has seen
double-digit growth each year over the past five years.
Singapore*s Over-The-Counter (OTC) derivative market has also
doubled in size since 2004 to US$37 billion in daily volumes,
building on our role as the fourth-largest foreign exchange
trading centre in the world. Many more finance professionals are
locating themselves in Singapore.
3.32
We are also growing new niches in our
financial sector. Singapore is increasingly serving as a bridge
between the Middle East and Asia. More Middle Eastern banks are
setting up in Singapore. We are also seeing double-digit growth in
funds coming here from the Middle East, for investment in Asian
capital markets and real estate. Banks in Singapore are
structuring various new products, including Islamic financial
products such as murabaha investment products and Shariah-compliant
mutual funds to meet the needs of this new class of global
investors. These opportunities can only grow.
3.33
We will keep refining our schemes to
anchor more activities here and keep up the momentum of growth in
our financial centre. We introduced a package of tax incentives to
promote infrastructure finance in September last year. We will
make other revisions in this Budget to ensure our tax rules and
incentives remain relevant and competitive.
3.34
First, I will remove the ※80:20§
rule under our tax exemption scheme for non-resident funds.
This will give certainty of tax exemption to foreign investors
whose funds are managed in Singapore, and also provide fund
managers based in Singapore with greater flexibility in sourcing
for mandates from investors. The list of designated investments
will also now include qualifying loans.
Details of these changes will be released later.
3.35
I will
also enhance our tax incentives relating to Finance and Treasury
Centres, OTC financial derivatives, and Qualifying Debt
Securities. Details are in Annex A.
Growing
Singapore as a Philanthropy Hub
3.36
We will also capitalise on our strengths as a key
financial centre to develop Singapore as an attractive hub for
global philanthropic organisations. Philanthropy is growing
exponentially around the world.
More MNCs are now establishing
charitable foundations and seeking to extend their reach
into Asia. We can play a useful role as a centre for these
organisations. Local philanthropy,
too, is blossoming 〞 witness, for example, the very substantial
donations that have been made to our universities and medical
schools in recent years. The
presence of more global philanthropic grantmakers in
Singapore will go hand in hand with the growth of
local philanthropy, injecting vibrancy and promoting collaborative
ventures and sharing of best practices.
3.37
To
facilitate the growing interest in philanthropy from
both the
local and international community, we will make a number of
important changes. First, I will remove the 80:20 spending rule
for income tax exemption for registered charities. This rule
requires charities to spend at least 80% of their annual receipts
on charitable causes in Singapore within two years in order to
enjoy income tax exemption. Some international philanthropic
grantmakers and local foundations,
which are looking to
contribute towards worthy causes in the region, apart from
Singapore,
perceive this rule
as overly restrictive on the use of their funds. Henceforth, I
will grant all registered charities and exempt charities automatic
income tax exemption. This will enable charities to optimise
their activities in Singapore and in the region, and the use of
their funds over time to sustain their programmes.
3.38
Second, we will relax the 80:20
fund-raising rule, which requires any organisation seeking to
raise funds for any foreign charitable purpose to spend, in
Singapore, at least 80% of the funds raised. This is done so as
not to hinder the efforts of reputable charitable organisations
and grantmakers with an international or regional orientation,
provided that the funds are raised from private donors rather than
from the general public.
3.39
Currently, individuals and companies
can obtain double tax deductions for donations to Institutions of
Public Character, or IPCs, but not for donations to foundations
and other grantmakers. I will therefore allow double tax
deduction for all donations made to philanthropic grantmaking
organisations, as long as these donations are subsequently
channelled to an IPC in Singapore. More details on these
initiatives will be released later.
3.40
Finally,
I
will introduce a tax incentive scheme to give income tax exemption
to other Not-for-Profit Organisations (NPOs) that can bring
economic value to Singapore. Our targeted NPOs are those which
have links to key clusters of our economy, such as the
International Bar Association (IBA) and the Joint Commission on
Accreditation of Healthcare Organisations (JCAHO).
EDB will administer
this incentive.
Logistics, Maritime and Aviation Services
3.41
Logistics, maritime and aviation
services are key to Singapore*s connectivity and our role as a
global business hub. We will develop these capabilities further.
3.42
To encourage shipping logistics
companies to grow their activities in Singapore, we will enhance
the Approved Shipping Logistics (ASL) Enterprise Scheme by
extending the incentive period from five years to 10 years.
3.43
Asia-Pacific aviation is expected to
lead global growth in passenger and freight activity over the next
five years. The leasing business will grow as airlines are
increasingly looking to lease aircraft and aircraft engines.
Singapore can position itself as the base for regional leasing
activities, as we have the aviation expertise and a well-developed
financial sector. I will therefore make several enhancements to
the Aircraft Leasing Scheme that is currently awarded to approved
aircraft leasing operators.
3.44
I will also expand the scope of GST
zero-rating for international maritime and aviation services so
that logistics companies here will pay zero GST when they incur
expenses to service, buy or lease containers in Singapore.
3.45
Details of these tax changes are in
Annex A.
Enhancing our Economic Infrastructure
3.46
We have to invest in our economic
infrastructure to position Singapore for the next 15 years of our
development. These are major investments which will help support
the growth of our high-value manufacturing and services economy,
and catch the next wave of emerging industries.
IT
Connectivity
3.47
The Intelligent Nation 2015 Masterplan,
estimated to cost $4 billion, is a major step forward in our
economic infrastructure. We will make Singapore a centre for
creating and commercialising new media technologies, as well as a
whole array of digital content and services in areas such as
healthcare, education, and games-on-demand. For example, local
player, Bridge Mobile, will be distributing ESPN STAR Sports
content through mobile devices across Asia, from Singapore. We
are already rolling out Wireless@SG which will cover most of
Singapore. Industry players are putting forward plans for the new
National Broadband Network. The pervasive nature of our IT
infrastructure will also encourage any Singaporean to take full
advantage of connectivity to the world, or even to create
something new and take it to market.
Enhancing our Energy Hub
3.48
We will build up Singapore as an
energy hub for the future, expanding on our current role as an
oil-refining and trading centre. To diversify our energy sources,
a new billion-dollar Liquified Natural Gas, or LNG, terminal will
be ready to supply a third of Singapore's gas demand by 2012.
More than that, as gas catches on as a source of energy, it will
help position Singapore as a gas hub the same way we are now an
oil hub.
3.49
We will move ahead with the second
phase of the underground rock cavern beneath Jurong Island that
will be used for the storage of chemicals. The project will free
up 60 hectares of surface land space on Jurong Island for high
value manufacturing activities. This is an investment costing $2
billion in total.
3.50
Alternative Energy is an emerging
growth industry. The global Alternative Energy market is
projected to grow by 10 times, to US$300 billion, by 2015. We
will seek to participate in this emerging industry, in areas where
Singapore can be competitive.
3.51
Rolls Royce has already invested in a
$100 million fuel cell development project in Singapore. Leading
foreign solar companies such as Conergy, Solarworld, and Solar-Fabrik
have based their Asian HQs here. An Australian company, Natural
Fuel, is investing $200 million in what will be the world*s
largest biodiesel facility, in Singapore. We are positioning
ourselves to ride the wave of alternative energy technology.
Creating a Living Environment of the
Future
3.52
For Singapore to stand out as a global
city, however, we cannot be just an economic marketplace. We must
have a living environment that is the best in Asia 〞 a city that
exudes our own Singapore brand of vibrancy and diversity.
3.53
We will remake our city, to create a
home that is distinctive and endearing to Singaporeans. It will
be a place where every family feels they own not just their flat,
but their neighbourhood; where our elderly lead active lives; and
where the young can find a space for every interest and
aspiration. We will transform our HDB heartlands, connect them
to a more extensive and convenient transport network, and
integrate them into a network of parks and waterways that will
together represent a quantum leap in our quality of life.
3.54
We will make Singapore a
city of gardens and waters, or as PM put it, a city of green and
blue. The Gardens by the Bay will open in 2010, bringing
further activity and vibrancy to the whole area. We will spend
about $700 million on these gardens, the next phase of park
connectors, and enhancements to existing parks in the coming
years.
3.55
We will also make use of our
extensive network of water bodies to enhance our living
environment, be it in the city where we are converting the Marina
Bay into a reservoir, or in the residential heartlands where we
are bringing waterfront living to HDB neighbourhoods. In the next
five years,
the Active-Beautiful-Clean or ABC Waters Programme
will cover 28 projects at a cost of about $200 million.
3.56
We will transform Marina Bay into a
vibrant live-work-play destination with distinctive architecture,
lush greenery, public spaces and a pedestrian promenade that will
encircle the entire Bay. Our established city areas like Orchard
Road, Bugis and Bras Basah will also be enhanced.
3.57
Next, our housing estates.
As
the Minister for National Development announced last week, we will
undertake a systematic and total ※urban regeneration§ of our
housing estates. We will start with the older housing estates in
about five years* time. This will cost us about $1 billion per
year in the steady state.
3.58
The makeover of our public housing
estates will be done together with the development of our public
transport system so that residents can readily commute from home
to workplaces and commercial nodes all over Singapore. The Circle
Line which will open from 2010, plus the new Downtown Line which
we will embark on next, will allow commuters to enjoy greater
convenience and faster rides. For example, a trip from Bukit
Panjang to the city centre that now takes 60 minutes will be
shortened by one-third.
3.59
Over
time, we will also have to cater for a larger population, by
expanding our road network. We will
have to widen all our existing highways to four lanes. New
highways will also be needed. Plans are already being finalized
for a Marina Coastal Expressway to serve the new business district
and other developments in Marina Bay. In all, over the next 10 to
15 years, we expect to spend at least $20 billion on our land
transport infrastructure.
3.60
This is the way we want to transform
Singapore into a world class city and provide the highest quality
of life for our citizens. Modern business centres, choice
residences for all Singaporeans, and attractive leisure and
recreational amenities at Marina Bay, Orchard Road, Bugis and
other central areas. HDB homes nestled in lushly landscaped
common areas, fully fitted with elderly-friendly facilities,
connected to the rest of Singapore by an efficient road and rail
system, and linked into green corridors and waterways. This will
be the Singapore of 2020.
(4)
STRENGTHENING OUR SOCIAL SECURITY
SYSTEM
4.1
We are building an inclusive society
where every citizen shares in the country*s success. Since
independence, three pillars 每 all linked to the CPF 每 have
underpinned our social security system. The first 每 the CPF
Special or Retirement Account 每 has enabled every working
Singaporean to build a nest-egg for his retirement needs. The
second 每 subsidised public housing through the HDB and the CPF
Ordinary Account 每 has made home ownership a reality for the vast
majority of Singaporeans. The third 每 the 3Ms of Medisave,
MediShield and Medifund 每 has provided Singaporeans with
affordable, high-quality healthcare.
4.2
The CPF helps us achieve our social
stability. We should continue to strengthen the CPF system, and
include as many Singaporeans as possible in it. The three existing
pillars of our social security system continue to serve the
majority of Singaporeans well. Through the CPF schemes, most
Singaporeans are able to save enough to provide for their own
social security. However, low-income Singaporeans are finding it
more difficult to save enough in their CPF. Their wages have
stagnated because of globalisation, and will continue to be under
pressure. For this group, we now need a fourth pillar 〞
Workfare.
4.3
Like the existing three pillars,
Workfare will also be linked to the CPF, to encourage more
low-wage workers to save for their longer term needs. In doing
all this, we must continue to preserve the key principles which
underlie our social security system 〞 namely self-reliance and
mutual support within the family, supplemented by the Government
only to the extent necessary.
Raising the Employer CPF Contribution
Rate
4.4
First, we will raise the CPF
contribution rate. It is currently 33% 〞 20% from employees and
13% from employers. We have set a long-term variable range of 30%
to 36%. This range seeks to strike the right balance between
achieving our social security objectives and economic
competitiveness, while giving us the flexibility to respond to
changing economic conditions. With the economy doing well, I
believe we can sustain a modest rise in the employer CPF
contribution rate.
4.5
Therefore, the Government has decided
to increase the employer contribution rate by 1.5 percentage
points to 14.5%, starting from 1 July 2007. One percentage point
will go into the Ordinary Account. It will add to the savings of
CPF members, and help many of them pay for their mortgages. The
remaining 0.5 percentage point will go into the Medisave Account
to better provide for healthcare needs. The Ministry of Health
has made it easier for Singaporeans to draw from their Medisave
Accounts, and will continue to liberalise the use of Medisave.
4.6
The increase in CPF will apply to all
Singaporean workers, except for the group of workers who earn
$1,500 or less and are also above 35 years old. For
this group of workers, we will need a different approach.
Restructuring the CPF and Introducing
Workfare for Low-Wage Workers
4.7
Older low-wage workers are the ones
most affected by the changes in our economy. They find it harder
to learn new skills and upgrade themselves, they find it harder to
get re-employed if they lose their jobs, and their families find
it more difficult to make ends meet. We will therefore introduce
Workfare to supplement the wages and savings of older low-wage
workers, and modify the CPF system to complement the Workfare
scheme.
4.8
Many other developed countries have
addressed the problems of low incomes, often through extensive
social welfare programmes. But Welfare has drained fiscal
resources and, more damagingly, eroded the work ethic and
encouraged an entitlement mentality. The more successful model of
assistance has been Workfare 〞 which seeks to supplement the
incomes of low-wage workers on the principle that the best way to
help people is to help them find work and stay in work.
4.9
Wage supplements are new to
Singapore, but the concept has been tried with some success in
other countries. The US has the Earned Income Tax Credit. This
acts like a negative income tax for low-wage workers,
supplementing their earned income instead of taking away from it.
The UK has a Working Tax Credit which is similar. These schemes
have helped to reduce poverty and encourage work. But they are
not without problems 〞 they are not cheap, and they potentially
weaken the incentive for workers to upgrade themselves. That is
why we have to consider the design of the scheme very carefully
and move cautiously. We introduced the Workfare Bonus as part of
the Progress Package last year, to test out the concept with
Singaporeans. We are now ready to take a step further by making
Workfare income supplements a long-term feature of our social
security system.
4.10
We will move in parallel on both the
CPF and Workfare for low-wage workers. We will reduce the CPF
contributions for these workers, while introducing Workfare income
supplements for them. This will achieve three objectives. First,
workers will contribute less CPF, so as to increase their
take-home pay. Second, employers will also contribute less CPF, to
make the workers more employable. Third, the Government will give
workers Workfare income supplements, mainly into their CPF
accounts, and so help them to build up their savings. Workfare
provides more incentives for individuals to work, and for
employers to hire them. With Workfare, low-wage workers will end
up with more in their CPF. With Workfare, the state will step in
to share the burden of social support with the individual and his
employer.
4.11
The principal target group of Workfare
will be older full-time workers aged above 45 years who earn
$1,000 or less. This group will receive the highest Workfare
benefits. However, Workfare benefits will extend to a wider group
〞 those above 35 years who earn $1,500 or less, but at a lower
rate. This is so that we do not miss any deserving cases, and also
so that workers whose earnings increase beyond $1,000 do not
suddenly lose all their Workfare benefits. I will go through each
of the measures in turn.
Increasing Take-Home Pay
4.12
First, increasing take-home pay.
Currently, employees start contributing CPF when their monthly
incomes exceed $500, but at a lower rate. Their contributions are
increased to reach the full rate of 20% at a monthly wage of
$750. We will now increase the employee CPF contributions more
gradually, so that employees only pay the full rate of 20% when
they get to a monthly wage of $1,500. Workers earning $1,000 or
less will have larger reductions in employee contributions and
hence larger increases in take-home pay. This change in employee
contributions will apply to all low-wage workers regardless of
age. The contribution rates for workers above 50 years old, which
are lower, will be scaled down accordingly.
Improving Employability
4.13
Second, improving the employability of
older, low-wage workers. Currently, employers pay the full 13%
rate for all workers earning more than $50 per month. We will now
phase in the employer CPF contributions for workers who are aged
above 35, so that employers only pay the full new contribution
rate of 14.5% at a monthly wage of $1,500. Again, the contribution
rates for workers above 50 years old will be scaled down
accordingly.
Supplementing Wages and Savings
4.14
These two changes will reduce employer
and employee CPF contributions for older low-wage workers. The
new Workfare Income Supplement (WIS) scheme that we are
introducing will more than make up for this.
4.15
The
Workfare quantum will be based on age. For workers above 45 and
earning $1,000 and below, the Workfare will supplement their wages
by up to $1,200 per year, or between 10 to 20%.
Workers aged above 35 to 45 will receive three-quarters the amount
that workers above 45 will receive.
4.16
Workfare will be given partly in cash,
but mostly in CPF. The cash-to-CPF ratio will be 1 : 2.5. In
other words, for every dollar of cash we give the worker, we will
also put $2.50 into his CPF. We are putting a larger part into
CPF, so as to help low-wage workers better provide for their
future needs.
4.17
WIS will be conditional on regular
work. It will be given to workers who have worked at least three
months in any six month period in the calendar year, or at least
six months in the calendar year. Eligible workers who have worked
for at least three months in the first six months of 2007 can look
forward to their first WIS on 1 January 2008.
4.18
Like the Workfare Bonus Scheme, the
WIS scheme will be for those who live in properties with an annual
value of $10,000 or less, who are mostly living in public
housing.
4.19
Let me give two examples to summarise what WIS will
do, coupled with the changes in CPF. First, let*s look at a
46-year old worker who earns $800. He used to take home $640 per
month. He will now bring home $57 more. What he gets in his CPF,
which used to be $264, will also be slightly higher now despite
the cut in employer CPF. Overall, he has received $100 of
WIS, in other words, a 12.5% supplement to his
wage. The employer has also saved $27.
4.20
The second example is a 46-year
old who earns $1,000 per month. Again, he gets more take-home pay
〞 $49 more. And in his CPF 〞 $38 more. He gets $100 of WIS,
which is a 10% supplement to his wage. He is better off, overall,
and his employer*s cost of hiring him is also reduced. This is
the combined result of the CPF restructuring and Workfare 〞 more
cash-in-hand, and more CPF.
Details can be found in Annex B.
Helping
Self-Employed Persons
4.21
Self-employed individuals do not pay
full CPF, but they are required to contribute to Medisave at the
same rates as other working individuals. The WIS scheme will
extend to them. Self-employed persons will receive Workfare
benefits that are two-thirds the amount for employees, provided
they pay their Medisave. However, unlike employees, all of the
Workfare for self-employed persons will be paid into their
Medisave accounts.
4.22
Presently, one-third of self-employed
persons are not paying Medisave, even though they are required to
do so. To encourage more low-income self-employed persons to
contribute to Medisave, we will reduce their contribution rate to
one-third of the full Medisave rates. They will therefore pay no
more than 3%, based on the new Medisave contribution rate of 6.5%
to 8.5%.
4.23
For example, a self-employed person
above 45 years earning an average of $1,000 a month would have had
to contribute $80 a month to his Medisave. With the new scheme,
he will only need to contribute $28 a month, whereupon the
Government will top up his Medisave with a further $67 a month.
In other words, the Government is topping up his income by about
7% a month.
4.24
The one-third Medisave contribution
rate will apply to all self-employed persons
with a net trade income of $12,000 or less a year. The rate will
gradually increase to the full Medisave rates at a net trade
income of $18,000 a year.
Helping Informal Workers
4.25
There is another group whom we want to
encourage to join the CPF system and to benefit from the WIS.
These are the informal workers who do odd jobs on an ad-hoc
basis. Their employers do not pay their CPF, either because they
cannot afford to do so, or because the workers prefer to take
their entire wages in cash.
4.26
For purposes of the WIS scheme, we
will treat
informal workers just like the self-employed.
Informal workers will receive WIS benefits if they work and
contribute to their Medisave. They must pay Medisave at the same
rate as the self-employed, and they will receive the same Workfare
benefits as the self-employed, i.e. two-thirds of what employees
receive, but all paid into their Medisave accounts.
4.27
We want, however, to caution employers
who avoid paying CPF for their workers. Under the CPF Act, so long
as a worker works regularly for any employer, that employer is
liable to pay their CPF. As we institutionalise Workfare, MOM and
CPFB will step up enforcement to ensure that payment for CPF is
complied with.
WIS
Scheme Rewards Work
4.28
The WIS scheme is expected to benefit
438,000 Singaporeans,
and cost about $400 million a year over time. The numbers are
likely to go up as more individuals are incentivised to join the
workforce and contribute to CPF. While Workfare is a long-term
government programme, the specific scheme that we have worked out
is new and will need to be tested out. We will review this scheme
after three years and adjust it to better achieve our aims.
4.29
The Workfare Income Supplement scheme
is a major policy change. For the first time, the state will be
supplementing the market wages that low-wage workers receive. But
we have decided to make this change so as to help low-wage workers
and encourage them to stay employed. This will strengthen social
inclusion in Singapore.
Preparing for Future Healthcare Needs
4.30
Through Workfare and the various CPF
changes that I have just mentioned, the CPF balances of all
Singaporeans will rise to help them meet their long-term expenses,
including their medical needs. However, many Singaporeans are
understandably concerned about whether they will be able to afford
their healthcare bills as they grow older.
4.31
Healthcare costs for the individual
are rising because we are now living longer and becoming more
prone to age-related diseases like stroke, diabetes and
hypertension which are typically chronic and require long-term
care. The elderly use more healthcare services and incur higher
costs per episode of care. For example, hip fractures because of
osteoporosis are common among the elderly and hip replacement
surgeries are usually required to ease their condition.
4.32
The incidence of heart disease and
cancer among Singaporeans is also growing, leading to very costly
hospitalisation and treatment cycles.
And the expectations of Singaporeans are rising; they are
demanding more medical services, better medical technologies and
more effective drugs.
4.33
To cater to these healthcare
needs, the Government will be ramping up our healthcare
expenditure over the next five to 15 years. Over the next five
years alone,
we expect to increase our spending to reach about
$3 billion a year in 2012, compared to $2 billion today. Part of
this will go towards growing the number of doctors, nurses and
allied health professionals in our public hospitals. In
particular, we aim to bring 4,500 more nurses into the public
sector over the next five years, as they play an increasingly
important role in supporting the elderly. We will also increase
the number of acute hospital beds and improve clinical services.
4.34
We will create academic medical
centres in our NUH and SGH campuses, which will allow us to better
marry the strengths of academic and clinical practice. Both
centres will have a stronger clinical research component, with
funding focused on the major diseases afflicting Singaporeans. In
addition, step-down care
now
provided by charities
will be better
integrated with hospital care. We also want to better integrate
patient care between GPs and specialists so that GPs can play a
larger role in looking after Singaporeans* health.
4.35
Singaporeans will still have to foot their share of
their medical bills, either in Medisave, insurance or cash. Some
people, especially the elderly and low-income, have difficulty
setting aside enough in their Medisave for their healthcare needs.
They need our
help. I will top up the Medifund by $200 million to $1.4 billion.
4.36
Mr Speaker Sir, I have outlined some
of the major programmes that the Government will have to embark on
over the next five years and beyond, to build our capabilities for
the future and to strengthen our social security system.
RECESS
﹛
(5)
REVENUE STRUCTURE FOR THE FUTURE
5.1
Mr Speaker Sir, the plans I have laid
out for CPF and Workfare represent the Government*s commitment to
address the dislocations caused by globalisation and ensure a
continued sense of cohesion and financial security among
Singaporeans. We are also making major new investments in our
social and economic infrastructures. At the same time, we want to
be able to reduce direct taxes to enhance our competitiveness. To
do all this, we must therefore raise additional revenues. I will
now map out our plans on the revenue front.
Reducing Direct
Taxes
Restructuring the Corporate Income Tax
System
5.2
We will make a significant move on
corporate income tax in this Budget. The landscape is now more
competitive than it was, even five years ago. Globally, corporate
tax rates have come down to an average of 27% compared to 31% five
years ago. Hong Kong*s rate is currently at 17.5%, and could go
down further. Ireland*s is 12.5%. The emerging Eastern European
economies have become serious competitors for global investment 〞
Czech Republic is at 24%. Poland and Slovak Republic are at 19%.
Hungary*s is at 16%. Latvia and Lithuania are at 15%. The
competition is heating up so quickly that even France is thinking
of dropping its 33% tax rate to 20%.
5.3
As a broad based measure to help all
companies and to keep Singapore attractive as a business location,
I have decided to reduce the corporate tax rate by two percentage
points, to 18%, with effect from YA2008. This will cost the
Government $800 million a year. This corporate tax cut will bring
Singapore more investments and more good jobs over time.
5.4
I will also do more to keep our tax
regime relevant to new business structures and financial
practices. Recognising that business borrowings are now taking
various innovative and non-traditional forms, I will now allow all
borrowing costs that are akin to interest to qualify as
tax-deductible expenses, with effect from YA2008. Such tax
deductible costs will include certain guarantee fees and bond
discounts. This will cost the Government $110 million a year.
IRAS will release further details on this change.
Making
Singapore the Best
Location to Start and Grow Companies
5.5
I spoke earlier about our intention to make
Singapore the best location for companies to start, grow and
globalise. Our tax regime for SMEs and start-ups is already
attractive. We will make it more so.
5.6
I have decided to increase the Partial
Tax Exemption threshold for companies from the current $100,000 to
$300,000, with effect from YA2008. This will cost $150 million.
All companies will enjoy this exemption, but it will benefit SMEs
the most. This will mean that almost 80% of taxable companies in
Singapore will pay tax at effective rates of less than 10%. It
also means that a company with chargeable income of $500,000 will
pay tax at an effective rate of 12.5%, equal to Ireland and
significantly lower than comparable rates in Hong Kong.
5.7
I will also enhance our tax regime for
start-ups. Start-ups currently enjoy full tax exemption on the
first $100,000 of their chargeable income for each of their first
three years of assessment between YA2005 and YA2009. I have
decided to remove the YA2009 expiry date so that all start-ups
will henceforth enjoy a full three years* of exemption.
5.8
These moves, coupled with the
reduction in corporate tax rate to 18%, will make Singapore one of
the most competitive locations in the world for SMEs and
start-ups.
5.9
We recognise that our SMEs will typically face
greater difficulties in meeting the higher costs due to the CPF
employer contribution increase. Therefore, I have decided to give
them a rebate on their labour expenses for two years. In the
first year, this will take the form of a 2% cash rebate on the
first $40,000 of total employer and employee CPF contributions of
a firm. On the next $40,000 of total CPF contributions, we will
give a 1% rebate. These percentages will be halved in the second
year. This rebate will effectively offset up to 45% of the
additional CPF cost that SMEs face in the first year and cost the
Government $100 million in total. Details can be found in
Annex C.
Keeping our Personal Income Tax Regime
Competitive
5.10
Personal income taxes have also been
coming down worldwide, although not to the same extent as
corporate taxes. We have gradually lowered our personal income
tax rates, most recently with a two-percentage point cut to 20%.
We aim to keep personal income taxes low. This will maximise the
incentives for all Singaporeans to work hard and reap the rewards
of their efforts. It will also help us to attract and keep both
international and Singaporean talent here.
5.11
For most taxpayers, our personal
income tax regime is already competitive, because our marginal tax
rate schedule is highly progressive. Thus individuals with
assessable incomes of up to half a million dollars pay less tax in
Singapore than in Hong Kong. However, at the very top end, some
other jurisdictions have lower effective tax rates than us. For
attracting and keeping top talent, this is an issue. Therefore,
we will continue to monitor the trends in personal income tax
rates of competing locations. The changes to our NII framework
will enable us to lower our rates further if necessary.
Rationalising Indirect Taxes
5.12
I have decided to implement other tax
changes to rationalise our indirect tax regime.
Abolishing Cess
5.13
First, I will remove the current
broad-based Cess that applies to F&B outlets. If you did not
already know, this is the second of the &pluses* in the +++ on
your meal tab. This will cost the Government about $30 million a
year. Cess has played a role in helping to fund the promotion of
tourism. The Government will study more targeted ways to use Cess
in future, where necessary, to fund specific tourism events.
Reducing Road Tax
5.14
I will reduce road tax by 8% for
passenger cars and motorcycles. This is part of our move to shift
progressively towards taxing on the basis of vehicle usage rather
than ownership. Someone who owns a 2.0 litre car (e.g. a Toyota
Picnic) and who currently pays $1,550 in annual road tax will get
about $124 in savings. Details will be announced by the Ministry
of Transport.
Reducing the Foreign Domestic Worker
Levy
5.15
I will reduce the monthly Foreign
Domestic Worker Levy by $30 from 1 July 2007. This will benefit
one in every six households in Singapore, which currently employs
a foreign maid. It will be particularly helpful for families which
need a maid to help take care of dependents.
5.16
I have also decided to extend the
Foreign Domestic Worker Levy Concession which currently only
applies to those with young children and elderly parents, to
employers with disabled family members, or who are themselves
disabled and need additional care-giving support. This will take
effect from 1 November 2007. The Foreign Domestic Worker Levy
changes will cost the Government $75 million a year. More details
on the qualifying criteria will be announced by the Minister for
Community, Development Youth and Sports.
Reducing the Foreign Worker Levy
5.17
To help companies save costs, I will
lower the second tier foreign worker levy for the manufacturing
and services sectors from $310 to $280 with effect from April
2007. This will cost the Government about $1 million a year. The
Minister for Manpower will also be announcing other measures to
facilitate access to manpower in the construction sector
and certain other industries which are growing very rapidly.
Extending Tax Relief for Cash Top-ups to CPF
Accounts by Siblings
5.18
Currently, a person can claim up to
$7,000 in tax relief each year for making cash top-ups to his, his
parents*, his grandparents* or his spouse*s CPF Retirement
Accounts, provided the beneficiary is aged 55 and above. To
encourage greater support from close family members and not just
children, we will extend this tax relief for cash top-ups to
siblings who are 55 and above, and who earn $2,000 or less in the
year preceding the top-up. This will take effect from YA2008.
Extending Stamp Duty Relief
5.19
Today, only limited liability
companies and registered business trusts qualify for stamp duty
relief on intra-group transfers of assets. I have decided to
extend this relief to unlimited companies, Limited Liability
Partnerships (LLPs) where all the partners are companies, and
Statutory Boards. This will take effect from today.
Rationalising Liquor Duties
5.20
At
present, some liquors are taxed on the basis of alcoholic content
while others are taxed by volume. We will progressively move
towards taxing liquors on the basis of alcoholic content. From 1
January 2008,
I will tax beer and stout on this new basis. This
is a rationalisation of duties and is not aimed at generating
additional revenues. In addition, we will harmonise the Customs
and Excise duty rates for beer and stout. The new rates are set
out in Annex D.
Reviewing Asset Taxes
5.21
We mentioned in 2006 that we will
review our asset taxes including estate duty. I have decided to
postpone a verdict on this. There have been many calls to
rationalise the structure of estate duty on residential properties
and other assets respectively. I prefer to take this together
with the decision on whether we will retain estate duty.
Raising New Revenues
5.22
Let me now turn to the issue of
raising revenues to ensure long-term fiscal sustainability.
5.23
To meet our future expenditure needs
and ensure that we remain competitive on direct taxes, we will
raise additional revenues from two sources 〞 income from our
reserves, and GST.
Drawing More Income from the Reserves
5.24
First, the Government intends to amend
the Constitution to revise the rule that allocates Net Investment
Income (NII) from past reserves for spending. We are studying
this carefully, and discussing with the President the proposed
revisions to the NII formula. We expect to be able to increase
the investment income available for spending by the Government, by
taking in capital gains as part of this income. What we aim to do
is work out a formula that strikes a fair balance between the
claims of present and future generations, because the financial
security and spending needs of tomorrow are no less important than
those of today.
5.25
But we cannot rely on NII alone to
cover everything that we need to spend on. Instead, we must use
the additional income from our reserves to secure further
improvements to our competitiveness and to make longer-term
investments in infrastructure and R&D, and to top up the endowment
funds that will bring value to Singaporeans for many years to
come. This way, the NII will help to boost the growth of our
economy over the long term. The increased expenditures that we
will have to make on the social front over time should, therefore,
be funded primarily by other new revenues.
Raising the Goods and Services Tax Rate
5.26
This is why the PM announced last year
that we will raise the GST rate. Doing this will broaden our tax
base, and enable the Government to implement Workfare and other
initiatives to strengthen our social cohesion and grow our
economy.
5.27
I have decided to raise the GST rate
to 7% with effect from 1 July 2007. It is prudent to implement
the GST increase now, in one step, while the economy is strong.
This is expected to raise additional revenues of $750 million this
year, and $1.5 billion per year going forward.
5.28
I have carefully considered the
alternative of spreading out the increase over two steps, and
decided against it. It is better to raise prices at one go, and
compensate Singaporeans with a substantial offset package. By
doing it in one step, it also means that no one can profiteer by
raising prices in anticipation of a second step. For businesses,
it also saves costs because they will not need to adjust their
systems twice.
5.29
We will make it easier for smaller
businesses to register for GST. SPRING will subsidise up to 50%
of GST registration-related costs for Internet connection and IT
consultancy and training for small enterprises. This support will
be in place for two years starting from March 2007. SPRING
and IRAS will also work with the industry chambers and
associations to provide free automation software to businesses and
help them administer the GST.
(6)
GST Offset Package
6.1
This brings me to the measures we will
take to offset the GST increase. We will put in place a
comprehensive set of measures for Singaporeans, with more for the
lower-income. The majority of Singaporeans will get offsets that
are equal to at least five years of the increase in their GST
expenditures. Lower-income households will get much more than
five years* worth. This GST Offset Package will cost the
Government $4 billion in total over five years.
Helping Singaporeans Cope with the GST
Increase
GST Credits
6.2
Of this $4 billion, $1.8 billion will
be given out as cash, in the form of GST Credits. All adult
Singaporeans will receive GST Credits in annual instalments. The
amount that a person receives depends on two factors 〞 his
assessable income (AI) and the annual value (AV) of his home,
which is used as a proxy for his wealth.
6.3
I will give lower-income Singaporeans
larger GST Credits. Those who live in one- to three-room flats
and have annual assessable incomes of $24,000 or less will qualify
for the largest quantum of $1,000, to be paid out in instalments
of $250 per year over four years. Nearly three-quarters of the
population will receive GST Credits of $800, paid out in $200 per
year. Next, if you live in a larger home with an AV of more than
$10,000, but you earn less than $100,000 a year, you will get $400
in GST Credits. The top income group comprising those earning
over $100,000 a year will get $100. It is a small gesture, but
recognises that the GST increase affects everyone.
Table 1 每 Structure of GST Credits
6.4
NSmen and NSFs, including those aged
below 21, will also get an additional $100 of GST Credits, to
recognise their contributions to national security. They will get
their bonus GST Credits in the year that they qualify. So a person
who becomes an NSF in 2008 or 2009 will also get the bonus GST
Credits.
6.5
Singaporeans will have to sign up
just once to qualify for all four years of GST Credits, though the
amount they get will be assessed yearly based on their income and
residence. The first instalment will be paid out on 1 July this
year, at the same time as the GST increase.
Senior Citizens* Bonus
6.6
I will give senior citizens more.
Many of them will be concerned about the GST increase, because
they have to meet living expenses out of their savings. We will
therefore provide Singaporeans aged 55 and above with a Senior
Citizens* Bonus, as long as they have annual assessable incomes of
$100,000 or less. Those aged 60 and above will get more, with
amounts ranging from $1,000 for those in the lower-income group,
to $400 for those who are better off. As with the GST Credits,
the quantums will depend on their income and the annual value of
their homes. Two-thirds of the Senior Citizens* Bonus will be
given in cash and one-third credited into their Medisave Accounts,
on 1 July of each year. For example, a 65-year-old retiree living
in a three-room flat will get $1,000 of Senior Citizens* Bonus on
top of the $1,000 he will get in GST Credits, making a total of
$2,000 over four years. The Senior Citizens* Bonus will cost the
Government $400 million.
Table 2 每Structure of Senior Citizens* Bonus
|
Annual Value of Home
|
$5,000 or less |
More than $5,000 and up to
$10,000 |
More than $10,000 |
Annual Assessable Income
|
$24,000 or less
|
Aged 55 每 59: $600
($150 per year for 4 years)
Aged 60 & above:
$1,000
($250 per year for 4 years) |
Aged 55 每 59:
$400
($100 per year for 4 years)
Aged 60 & above: $800
($200 per year for 4 years) |
Aged 55 -59:
$200
($50 per year for 4 years)
Aged 60 & above: $400
($100 per year for 4 years)
|
More than $24,000 and up to
$100,000 |
|
Top-ups to Post-Secondary Education Accounts
6.7
We must also help families with the costs of their
children*s post-secondary education. As I mentioned earlier, we
will open Post-Secondary Education Accounts (PSEA) for all
Singapore citizen children aged from seven to 20 from next year.
We will top up these accounts from time to time, when our
surpluses allow, and give more to those who are less well-off.
I will credit the accounts of those in
secondary school or older with $400 in 2008, and another $400 in
2009. Those of primary school age will get less as they
can get more PSEA top-ups in future years if we are able to share
surpluses.
6.8
The PSEA top-ups will cost $400
million and benefit around 650,000 children.
Table 3 - Structure of PSEA Top-ups (each year)
Age of Child in Year of Payout |
Annual Value of Home less or
equal to $10,000 |
Annual Value of Home more than
$10,000 |
7 to 12 |
$200 |
$100 |
13 to 20 |
$400 |
$200 |
﹛
Utilities-Save
(U-Save), Service and Conservancy Charges (S&CC), and Rental
Rebates
6.9
As part of the GST Offset Package, I
will also extend the Utilities-Save, S&CC and Rental Rebates to
eligible HDB households for five years, from 1 April 2007 to 31
March 2012. This will help low to middle-income households cope
with increased household expenses due to the GST increase. The
U-Save and S&CC rebates will also be extended to those living in
HDB executive flats. These rebates will benefit 800,000 HDB
households and cost a total of $800 million over five years.
Property Tax Rebate
6.10
I will provide a one-off property tax
rebate of up to $100 per year in 2008 and 2009, in other words,
$200 in total, for all owner-occupied residential properties.
This will benefit about one million property owners, with three-
and four-room HDB flat owners paying little to no property tax
during these two years. This will cost the Government $200
million.
Assistance for Low-Income Families
with Young Children
6.11
To help lower-income families with
young children, we will increase financial assistance for
kindergarten and childcare. We will enhance the Kindergarten
Financial Assistance Scheme (KiFAS) by increasing the level of
subsidy from 75% of kindergarten fees to 90%, which means that
low-income families will now be able to enjoy a subsidy of about
$80 a month. Subsidies for the Centre-Based Financial Assistance
Scheme for ChildCare (CFAC) will be increased by between $20 and
$40 a month for each child. Other enhancements to the ComCare
Fund programmes will be announced by MCYS later. These
enhancements will cost a total of $6 million a year.
Assistance for
Pensioners
6.12
The Government has decided to increase
the Singapore Allowance further by $20 per month, and raise the
gross pension ceiling from the current $1,100 to $1,150 per month.
The revision will give an additional $4 million a year to
pensioners residing in Singapore.
Public Transport
Fund
6.13
While public transport remains
affordable for the majority of Singaporeans, there are
lower-income families who need more help. The Government will
commit $10 million to a Public Transport Fund (PTF) in October
2007, to be given out over three years. This will provide
additional help to lower-income households for their public
transport costs where necessary.
Assistance through
Citizens* Consultative Committees (CCCs), Self-Help Groups and
VWOs
6.14
Although we have a comprehensive GST
Offset Package, it is possible that some households may face
additional difficulties. The best way to help them is through
flexible assistance from their CCCs. I will therefore top up the
CCC ComCare Fund by $5 million over five years. To help
lower-income Singaporean families, the Government will also
provide $2 million over five years to the Self-Help Groups, and $3
million over five years for Government-funded VWO programmes.
More details will be announced by MCYS.
Additional
Subsidies for Healthcare, Education and Service and Conservancy
Charges
6.15
The Government will provide the
restructured hospitals and polyclinics with more grants to fully
absorb the additional GST on subsidised healthcare services. This
will cost the Government an additional $12 million a year.
6.16
We will also absorb the GST payable on
school and miscellaneous fees, as well as fees and tuition grants
at ITEs, polytechnics and universities. This will cost an
additional $40 million a year.
6.17
Town councils will also get an
additional $10 million a year to absorb the additional GST payable
on Service and Conservancy Charges.
Overall Impact of the GST Offset
Package on Households
6.18
Let me summarise the overall impact of the GST
Offset Package for Singaporean households. Most households will
receive GST Credits, Senior Citizens* Bonuses, PSEA top-ups,
U-Save, S&CC and rental rebates, and property tax rebates. Taking
these offsets alone, those living in four-room flats will receive
benefits that are, on average, seven times the extra GST they will
have to pay each year. In other words, seven years* of offset.
Even those in executive flats will receive four years* worth of
offset. The lowest-income households will receive the most 〞 for
instance, two-roomers will receive about 16 years* worth. More
details can be found in Annex E.
6.19
Take the example of an average
Singaporean family living in a four-room flat. Husband, aged 42,
earns $2,800 a month. His wife, aged 37, earns $1,000 a month.
They spend most of their take-home pay, or about $3,000 a month.
They will pay additional GST of $57 per month or $685 per year.
The couple has two children, one in primary school and the other
in secondary school. They will get a total of over $4,200 from the
GST Offset Package 〞 $1,700 in GST Credits,
$790 of U-Save rebates, about $340 of S&CC rebates, $1,200 of PSEA
top-ups, and $200 of property tax rebates. This will offset about
six years of the GST increase. In addition, the couple will get
about $340 more a year from increased CPF contributions. The wife
will also qualify for $900 from the WIS scheme.
6.20
The GST Offset Package is therefore a
substantial one that will help the majority of Singaporeans offset
their increased GST costs for several years. Low-income
households, in particular, will be well provided for through both
the GST Offset Package and the WIS. Even after the GST offsets
have been distributed, Workfare will provide significant support
for low-income workers on a continuing basis. This is why the GST,
which we are combining with Workfare, is not regressive.
Lower-income workers will end up better off because of this 〞
better off compared to before the GST increase and introduction of
Workfare.
(7)
CONCLUSION
FY2007 Budget Position
7.1
Mr Speaker, Sir, let me now summarise
the FY2007 budget position. Excluding Special Transfers and tax
changes, we expect a surplus of $1.1 billion for FY2007. The GST
increase, reduction in corporate tax and other tax changes, taken
together, will increase FY2007 operating revenue by $0.3 billion.
The GST Offset Package, Workfare, and top-ups to NRF and the
endowment funds will cost $2.1 billion. After taking these into
account, the estimated FY2007 Overall Budget Balance is a deficit
of $0.7 billion. The Government will not need to draw on past
reserves as the deficit can be fully financed by funds accumulated
since the new Government took office in May 2006. Details of the
revised fiscal positions for FY2006 and FY2007 can be found in
Annex F.
Ready for the Future
7.2
Mr Speaker, Sir, this Budget is about
our future. It will build on our strengths, enhance our
capabilities, and provide opportunities for all Singaporeans to
strive and succeed.
7.3
This Budget will sharpen Singapore*s
competitive edge. We are reducing corporate tax, and providing an
environment for enterprise to flourish. Singapore will become the
best place to start and grow a business. We will invest in our
people, enhance our infrastructure, and create a living
environment that will inspire every Singaporean.
7.4
This Budget also strengthens our
social security system. We are raising the employer CPF
contribution rate to help our workers become more financially
secure and to provide for their future medical, housing and
retirement needs.
7.5
We are taking a bold new approach to
help those at the lower end of our workforce. Their wages are
being held down by globalisation. Our older workers, especially,
find it difficult to secure jobs, and many lower-income households
struggle to make ends meet. We will reduce their CPF contribution
rates to help them stay employable and to increase their take-home
pay. And we will supplement their incomes and savings through
Workfare.
7.6
This Budget strengthens our revenues
for the future. We are raising the GST to broaden our tax base.
It will give us critical additional revenues that will enable us
to improve our social security system, increase spending on health
especially as our population ages, and ensure that our income
taxes remain competitive.
7.7
To help Singaporeans adjust to the
higher GST, we are providing a comprehensive offset package.
Lower-income Singaporeans will receive much more than the extra
GST they have to pay. The middle- and higher-income groups will
also benefit from the offset package as well as from the higher
employer contributions to their CPF. Most importantly, all
Singaporeans will be better off because these decisive moves will
grow our economy.
7.8
We are setting in place a strong and
sustainable fiscal position. The GST increase will give us an
additional $1.5 billion each year. Workfare will cost us about
$400 million a year. Our increased health expenditures will
amount to $300 million each year on average over the next five
years, and more beyond that. Expanding continuing education
opportunities for all Singaporeans will cost us at least $300
million extra each year in the long term. The corporate tax cut
will cost us $800 million per year. The GST increase will help
us to finance these initiatives. But we also need to use more of
the investment income from our reserves. The additional income
from our reserves, together with the increased GST revenues, will
give us the resources to enhance our social security system,
invest in new capabilities, further sharpen our competitiveness,
and meet the challenges of the future from a position of strength.
7.9
Mr Speaker Sir, we have every reason
to be confident about our future. Globalisation is playing to
Singapore*s strengths 〞 our openness to the world, our
responsiveness to change, our reputation for trust. But what will
ultimately determine our success is our people*s spirit of
enterprise, resilience, and self-reliance. Even as we bolster our
system of social support, we must keep these values strong in our
society.
7.10
Many Singaporeans bear testimony to
these values. Like Mabel Ong, now in her mid-fifties. She did
not get beyond primary school, but she has always worked. First
as a seamstress for many years in garment factories, until her
mid-forties when her eyesight deteriorated and she found it harder
to sew clothes. She then started working at hotels, as a valet,
delivering laundry to hotel guests, and as a food server in
restaurants. Two years ago, she took up a friend*s recommendation
and started work at the Oriental Hotel, checking and issuing
mini-bar items for rooms. She does every type of work she can;
during lull periods, she volunteers to help out at the linen
department. She has also been going for courses, so that she can
take on new responsibilities. Recently, the hotel promoted her
into a new position they created 〞 &Mini-bar Supervisor*. As
Mabel sums it up in her own words, ※Whatever I can do, I will do.
And whatever I do, I will try to do well.§
7.11
That is the Singapore spirit 〞 can do,
will do, do well. This is why we will succeed and this is why our
future will be bright and prosperous.
Mr Speaker, Sir, I beg to move.
ANNEXES
ANNEX A : Budget
2007 Tax Changes
ANNEX B :
CPF Restructuring for Low-wage Workers and Workfare
ANNEX C :
SME Rebate Scheme
ANNEX D :
New Customs and Excise Duties for Beer and Stout
ANNEX E : Impact
of GST Offset Package on Households
ANNEX F :
Budget for FY2006
and FY2007
﹛