E.1. We are embarking on a major transformation of our economy. We will deepen skills and expertise at all levels, build up our companies’ capabilities for innovation, internationalise, and make Singapore a vibrant global city.
E.2. At the same time, we must continue to build a society where every Singaporean shares in the country’s growth. The key strategy for achieving this is to raise skills and productivity in every trade and at every level of the workforce. Global competition will continue to threaten the jobs and press down the wages of lower-skilled workers in the coming years. All globalised economies are facing this challenge, including those that are growing rapidly. Countries which have sought to slow down globalisation and protect their people from foreign competition have paid a heavy price in slower growth.
E.3. We introduced WIS as a major government intervention to support the income of older low-wage workers and encourage them to stay in the workforce. With the enhancements to the scheme this year, a 55-year old worker earning $1,000 a month will receive an additional 18% top-up to his or her pay through the WIS.
E.4. But we cannot build an inclusive society by depending on government transfers alone. The fundamental way to raise and sustain incomes for our low-wage workers is to help them to boost their skills, add to their confidence and enable them to contribute more in the workplace. Every individual, putting in the effort to improve, can then be worth more on the job and secure a better income.
E.5. The major investments that we are making to build up a first-rate system for continuing education and training, with special provisions for low-income Singaporeans, and to help companies create better jobs, are therefore central to our strategy of ensuring that all Singaporeans can share in growth. We are also assuring every child access to the best education from pre-school to tertiary level, with enriched pathways for different learning abilities, and substantial subsidies for the lower-income groups, so that every family can aspire to a better future.
E.6. I will now turn to some additional specific measures that we will take in this year’s Budget that will benefit both our lower- and middle-income households.
E.7. First, we will shift from our current system of a flat property tax rate for all owner-occupied residential properties to a system of progressive property tax rates based on the Annual Values (AVs) of these properties.
E.8. With the removal of estate duty in 2008, property tax serves as our remaining form of tax on assets. I had explained in 2008 when we removed the estate duty that the duty was impacting the middle and upper-middle groups disproportionately compared to wealthier ones. We had considered raising the exemption limits (for non-residential assets) so as to correct for this. However, doing so would have further shrunk what was already a narrow base for estate duty and rendered the tax less effective.
E.9. I had also stated then that we intended to retain property tax in Singapore. It did not affect our middle and upper-middle groups more than the wealthier ones. Further, it could not be tax-planned away unlike some elements of the estate duty system.
E.10. We will therefore keep property tax as a means of redistribution in our society, together with our income tax regime.
E.11. Income is taxed on a progressive basis in Singapore, which means we collect more taxes from the top income brackets, not just because they earn more, but also because the tax rate is higher. The top 10% of our working population accounts for about 94% of our total personal income tax collected. However, we have to keep income tax rates low in Singapore to maximise incentives for enterprise and hard work, so that our economy remains dynamic and all Singaporeans benefit.
E.12. Our property tax system currently does tax the wealthy more than others, because investment residential properties are taxed at 10% whereas owner-occupied homes are taxed at 4%. There is some element of differentiation, between the wealthy who often have additional investments property, and those who don’t. However, there is scope for us to introduce further progressivity in property taxes.
E.13. A moderately progressive property tax system, together with an income tax system that collects more taxes from better-off individuals and a flat GST rate that everyone pays, will together form a fair system of taxes in Singapore. Everyone pays something, but the rich pay more. Taken together, the overall burden of taxes will and must remain low by international standards.
E.14. Our current scheme of property tax rebates aimed at supporting the lower- and middle-income groups was introduced together with the GST in 1994. It has significantly reduced property tax payable by HDB flat owners. However, as HDB homes gradually appreciate in value over the long term, flat owners will see an increasing property tax bill over time.
E.15. We provided special, additional rebates in January this year on top of the 1994 rebates, to mitigate the increases in tax payable as a result of increase in rentals and hence AVs of HDB flats over the last two years. However, we need a longer-term solution that provides a fair and balanced system for all property owners.
E.16. I will therefore replace the 1994 GST rebates with a simple but progressive tax schedule for owner-occupied residential property.
E.17. We will introduce three tiers of tax rates – 0%, 4% and 6% – under the new schedule for owner-occupied residences. The first $6,000 of AV will be exempted from property tax. The next tier which is for the next 59,000 will be taxed at 4%, and the balance of AV in excess of $65,000 will be taxed at 6%. This new schedule will apply for property tax payable from January 2011.
E.18. This new system of property taxes is similar in concept to that of personal income taxes, where exemption is provided up to a minimum threshold of value, and progressively higher rates are applied at higher values. There is no change to the property tax structure of non-owner occupied residential properties or for other properties, which will remain at a flat rate of 10% of AV.
E.19. This new system of three tiers, 0%, 4% and 6%, will benefit most Singaporeans. All owner-occupied homes will enjoy tax savings of $240 as a result of the exemption of the first $6,000 of AV. This will mean that all HDB flat owners and the large majority of private property owners will pay lower taxes, compared to the current system.
E.20. Owners of high-end properties with AVs of more than $77,000 will see a small increase in tax payable, as their effective tax rates will be higher than the current 4%. They comprise the top 3% of private owner-occupied residential properties, or the top 0.4% of all owner-occupied homes in Singapore. Homes with AVs of about $80,000 will face only a small increase in tax, of slightly less than $100 per year. A property with an AV of $150,000, which typically is a large property in the central districts and is within the top 0.5% level of private owner-occupied homes, will face an increase in property tax of about $1,500 per year.
E.21. However, our property tax rates, even for the high-end, will remain lower than in most international cities. That is as it should be, so that we remain a vibrant and attractive place for businesses and individuals alike.
E.22. This new progressive system of property taxes for owner-occupied homes will lower taxes for the vast majority of Singaporeans, and will cost the Government about $230 million a year initially.
E.23. I am also making changes to our income tax reliefs, particularly to benefit our middle-income groups, and especially families providing support for their elderly and their handicapped members.
Increase in parent relief
E.24. First, I will be increasing the parent relief to give greater recognition to those who are looking after their parents and grandparents. Compared to the past, we will be seeing more families where the elderly have to be looked after by fewer children. I will hence increase the parent relief, and also enhance the relief for taxpayers who are taking care of handicapped parents and grandparents.
Expansion of wife relief to spouse relief
E.25. Second, I will also allow wives who are taxpayers to claim a spouse relief of $2,000, similar to the current scheme for husbands. This will help families where the wife is the breadwinner, for instance where the husband has retired. Accordingly, wife relief will be renamed as “spouse relief.”
Enhancing dependant reliefs
E.26. The next revision concerns the income threshold for all our dependant-related reliefs – in other words, the maximum income, which is currently set at $2,000, that a dependant can be earning in order that the taxpayer can claim relief for supporting him. I will increase the income threshold for dependant-related reliefs from $2,000 to $4,000. This increase recognises taxpayers’ efforts in supporting family members who are genuinely dependant, while giving them the flexibility to do some incidental work.
E.27. Further, in recognition of the extra resources and attention needed in taking care of the disabled, I will remove the income threshold for handicapped dependant-related reliefs.
E.29. I will also increase the tax relief for course fees. Consistent with our support for lifelong learning, I will increase the course fee relief from $3,500 to $5,500 with effect from Year of Assessment 2011.
E.30. Last year, I had increased the tax deduction for donations made in 2009 to Institutions of Public Character (IPCs) and other approved institutions from 200% to 250%. With the economic downturn, corporate donations nevertheless fell, and understandably. However, tax deductible donations from individuals held steady at $200 million. Many charities found that the additional tax deduction was helpful in attracting donations especially given the difficult state of the economy. To encourage both individuals and corporates to give more as the economy recovers, I will extend the 250% tax deduction for an additional year.
E.31. This year, Singaporeans will continue to benefit from transfers to households that have been announced in previous Budgets, including the fourth and last tranche of GST Credits and Senior Citizens’ Bonus, and U-Save, S&CC and HDB rental rebates.
E.32. I will provide additional special top-ups in this year’s Budget to help older Singaporeans as well as families with children.
Top-up to CPF Medisave Accounts
E.33. First, I will provide a one-off top-up to the CPF-Medisave Accounts of older Singaporeans aged 50 and above. Most Singaporeans aged 50 to 59 will receive a top-up of $200 to $300. The majority of those aged 60 to 69 will get a top-up of $300 to $400, while those aged 70 and above will receive a top-up of $400 to $500 (see Table 1). The Medisave top-up will benefit slightly more than one million Singaporeans (1.02 million) and will cost the Government $310 million.
Top-ups to Medifund and ElderCare Fund
E.34. I will also set aside an additional $200 million in this year’s Budget for Medifund which supports needy Singaporeans and another $200 million for the ElderCare Fund as part of our ongoing efforts to set aside funds to meet our long-term healthcare needs.
Top-up to Post-Secondary Education Accounts
E.35. We set up the Post-Secondary Education Account (PSEA) scheme in 2007 to support families with children. Together with our enhanced bursaries and financial assistance schemes, the PSEA helps to encourage every family to put their children through a tertiary education at our ITE, polytechnics and universities.
E.36. I will provide a further top-up to PSEA accounts (see Table 2 below). Children in primary school will receive up to $200 in their accounts, while those between 13 and 20 years old will receive up to $500. With this latest top-up of $500, a secondary school student living in a HDB home who has benefitted from the previous top-ups would have $1,900 accumulated in his account, which is about 85% of the cost of polytechnic tuition fees for one year.
E.37. 650,000 young Singaporeans will benefit from this additional top-up, which will cost the Government $230 million.
E.38. Taking all our measures together, we will be spending $1.4 billion this year in direct transfers for households. Inclusive of the WIS, the total sum transferred to households will be $1.8 billion.
E.39. While most Singaporeans will receive some benefits, more will go to those with lower- and middle-income households. Let me give two examples to illustrate this.
E.40. The first is a low-income household, around the 20th percentile of the population, staying in a three-room HDB flat. The family comprises two working adults in their 30s, earning $1,800 and $800 a month, and an elderly parent in her 60s. The wife will receive $1,100 in WIS, including a special payment this year which we committed last year. Together with their GST Credits, Senior Citizens’ Bonus, and Medisave top-up for the elderly parent, and their U-Save, S&CC and property tax rebates, the family can expect to receive about a total of $2,900 in benefits in 2010.
E.41. The benefits for a middle-income family, say a five-room HDB household between the 60th and 70th percentile of incomes, will also be significant. There are two working parents, with neither eligible for WIS. However, with two children, one in secondary school and the other in polytechnic, the family will receive PSEA top-ups. In total, it will receive about $1,700 in benefits.8 Based on the median gross annual income of employed residents (i.e. full-time and part-time) in 2008. The income threshold will also be adjusted for 2010 GST Credits and Senior Citizens’ Bonus.
9 Age in 2010.