SINGAPORE – Singapore’s revised carbon tax rate for 2024 will be announced in next year’s budget, which will also indicate what to expect until 2030.
Speaking at the 35th Singapore Economic Roundtable on Friday, October 15, Finance Minister Lawrence Wong said the Republic’s carbon price today is too low.
This is why the government is reviewing the level and trajectory of its carbon tax, so that it reflects the cost of carbon and effectively influences investment decisions, he said.
And as it introduces higher carbon taxes, it will also improve U-save discounts to help low- and middle-income households in the transition, Wong added.
Singapore was the first country in Southeast Asia to introduce a carbon tax in 2019, but its rate of $ 5 per tonne is considered the low end of the spectrum.
Mr Wong said the carbon price is a key lever for the green transition of Singapore’s economy, and the government recognizes that businesses will need predictability and time to adapt.
The most promising options today are clean hydrogen and carbon capture, but these technologies are not available for immediate deployment. And that is why Singapore is investing heavily in research and development, he said.
“Importing green electricity can help, but we certainly don’t want to import 100% of our electricity. There are limits on the import of electricity – there are technical issues, there are also energy security issues. “
He added that the sustainable and responsible way to finance recurrent spending is to increase tax revenue.
Healthcare in Singapore alone will demand an additional 3% of gross domestic product spent over the next 10 years, not to mention investments to reduce emissions, provide quality education and maintain safety.
“All in all, our needs are significant and growing. Some of them may be supported by income tax. But, with rapid aging, it will not be sustainable and will make life difficult for our working population.
This is the key to understanding why the government is seeking to increase the goods and services tax (GST), he said. It is a final consumption tax and helps to smooth the tax burden on the whole population, young and old, and includes tourists and foreigners when they spend money here.
The government announced its intention to increase the GST rate from 7% to 9% in Budget 2018, and said in Budget 2020 that it would also put in place a $ 6 billion insurance program for cushion the impact of the increase on the lower and middle levels. income households. He also announced in the 2021 budget that the hike would take place between next year and 2025, but as soon as possible, subject to the economic outlook.
Mr Wong said on Friday that Singapore was not alone in raising the GST – the GST or value added tax (VAT) is now at the heart of tax systems around the world, and most jurisdictions have much higher GST or VAT rate than Singapore.
As the Republic considers different ways to increase its revenue, it must continue to maintain a fair and progressive tax system, he added.
Some people oppose certain tax increases because they are regressive and have a disproportionate impact on lower incomes. But these concerns are not as applicable in the Singapore context, he explained, as he works very hard to mitigate the impact of specific tax components, especially for vulnerable people.
“For example, our GST is linked to a permanent GST voucher program to defray the tax burden on low- and middle-income households. When we increase the GST rate, we will also improve these permanent GST vouchers.”
What is more important is not to look at individual tax items, but to look at the tax and transfer system as a whole, the minister added, noting that Singapore has always maintained a high level of transfers to the most important households. more modest.
Households in the bottom 20 percent income bracket receive about $ 4 in benefits for every dollar of tax paid. For middle-income households, the ratio is approximately 1: 2; while for households in the top 20 percent of income, for every dollar of tax paid, they receive 30 cents in benefits.
“Our tax and transfer system today is progressive, and we will keep it that way. . “
Mr Wong added that Singapore has kept its public spending both low and efficient, and that is why half of its workforce does not have to pay personal income tax, and the rates of the TPS are where they are today.
“Going forward, we will need to increase revenues to fund our additional spending. But we will move cautiously, to ensure that overall government spending remains efficient and taxes remain as low as possible for the middle class.”
Another element of progressivity, he said, is looking at not only a person’s income, but also their wealth, and those who are richer should pay their fair share of taxes.
Singapore, he pointed out, already taxes wealth in various forms – through land tax and stamp duties on residential properties, and through additional registration fees on motor vehicles.
Singapore has also been able to alleviate some of the wealth gaps seen elsewhere through its homeownership policy, he added.
Heavy government housing subsidies have enabled a range of homeowners, including those on the lowest incomes, to benefit from the appreciation in house prices and equity.
Singapore’s policies should continue to promote large-scale wealth accumulation among Singaporeans. But just as it has eased income inequality over the years, it must also guard against increasing wealth inequality, he said.
“That is why we continue to explore options to expand our wealth tax system – effectively and add resilience to our income without harming our overall competitiveness.”
And with an increasingly mobile tax base, deeper international cooperation is needed, Wong said.
“Each country should be free to set its own tax rate. But with the mobility of capital and talent, taxes are no longer purely national issues,” he added.
“That is why there is a need to strengthen international coordination on tax matters and international tax standards … It is important for us to have a seat at the table and to shape the evolution of tax rules. international. “