Singapore's Budget 2023: Boosting economy and people

Amid a climate of economic uncertainty and downside risks, the Singapore government today announced a national budget that focuses heavily on future-proofing businesses and employees.

The 2023 Budget, delivered by Deputy Prime Minister and Minister for Finance Lawrence Wong, leans into Singapore's long-standing strategy of economic restructuring and driving productivity to stay competitive. However, where this strategy has historically been used to offset the city-state's disadvantageously small talent pool, it is now being pushed as a way to cushion the impact of geopolitical shifts and economic stresses, including inflation.

Setting the context for the Budget, Wong warned several times that even should inflation stabilise, prices will almost certainly remain at a level higher than what consumers are used to. He said that economic restructuring and increasing productivity and efficiency to drive higher wages is the only viable way to help workers survive, and sketched out a series of initiatives in that vein. Here are some highlights.

Boosting real income growth

The government is setting aside $1 billion in funding under the Global Enterprises Initiative, which supports local companies that are trying to go global. An additional $4 billion will go into the National Productivity Fund, which supports productivity improvement initiatives and continuing education.

More attention is also being placed on upskilling and training. Singapore's existing skilling, career mobility, and career conversion programmes have been running for years now, but the outcomes of these programmes came under additional scrutiny during the pandemic when retrenchments were rife and re-employment rare.

Hence, the government will be putting more focus on establishing and equipping labour market intermediaries, or “jobs-skills integrators”, who will work to ensure that training can translate into better employment outcomes and earning prospects. These integrators will have to actively understand the skills gaps in target industries, and develop or overhaul reskilling programmes to plug those gaps.

“Upgrade your businesses. Invest in innovation and training. Reskill and upskill to stay competitive and seize new opportunities,” the minister urged employers and workers alike.

Increasing retirement capabilities

In an expansion of ongoing efforts to bring gig workers under Singapore's retirement adequacy scheme, platform companies will now be required to pay Central Provident Fund contributions for workers under the age of 30, and these workers will have to make higher individual contributions.

Previously, platform workers made only minimal CPF contributions, meant to cover their basic healthcare needs. Under the new changes, they will gradually have to increase their CPF contributions until, by 2028, the CPF contributions paid by both individual workers and platform companies will be on par with those of full-time employees and employers.

During the transition period, the government will offset part of the amount to reduce the impact on platform workers' take-home pay.

This shift in CPF policy was initially suggested by the Advisory Committee on Platform Workers last November, with the objective of boosting housing and retirement adequacy for platform workers.

Looking ahead

Budget 2023 heavily emphasises reducing the impact of macroeconomic uncertainty on individuals and businesses. In the preamble to his Budget speech, Minister Wong pointed out that the global economy will be the key influencing factor for this year's outlook – and the forecast is filled with “major uncertainties and downside risks”, ranging from escalation of the Russo-Ukraine war to the emergence of a new Covid variant.

Singapore is currently looking at a $2 billion deficit for 2022, or 0.3% of GDP. The last major deficit was in 2008, during the global financial crisis, when the city-state ran up a $4 billion deficit. That deficit had been made up by 2010 as the economy recovered rapidly, but given current global economic conditions, it is unlikely that the 2022 deficit can be made up soon.

The minister also announced adjustments to tax rates. Singapore increased its goods and services tax at the start of 2023. Budget 2023 now introduces heavier taxes on high-value property transactions, increased fees and taxes on vehicles, and higher taxes on tobacco products, among others. In addition, corporate tax rates are set to increase in line with changes in international tax agreements.