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Singapore ‘loans $22 billion for COVID-19’, from who and how to replenish it?

Marina Bay Sands, Singapore

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Corrections & Clarifications to this Article:
Gov.sg has put out a clarification about the $22 billion loan, late on 22nd June 2020 at about 10pm.

In the clarification, the $22 billion loan capital mentioned by DPM Heng Swee Keat refers to $22 billion set aside to provide financing support to companies. It does not refer to a borrowing by the Government to finance its budget.

Banks can tap on this loan, if they need to supplement their own capital to provide loans to companies under the new financing schemes launched as a measure during this crisis, such as the Temporary Bridging Loan Programme.

The loan capital, when disbursed, is expected to be repaid. Therefore, it is not a fiscal expenditure. The Government has set aside a separate budget to meet the Government's share of risk for loans that may not be fully repaid.

This article has been corrected to reflect accuracy.

You can read the following supplementary articles:
Gov.sg Corrections & Clarifications on 22nd June 2020
Parliamentary Reply by DPM Heng to Mr Leon Perera on 4th June 2020

DPM Heng has mentioned of a “$22 billion loan capital” which is “fiscally neutral” and will be “part of the budget”.

Loan capital, which we expect to be repaid in the future and is hence fiscally neutral, makes up $22 billion of the total COVID-19 package.

DPM Heng Swee Keat, 4th June 2020

DPM Heng Swee Keat has disclosed pertinent financial data after Worker’s Party Member of Parliament Mr Leon Perera filed questions during a parliamentary session.

Mr Perera had asked for the Ministry of Finance to provide details on how it will finance the four budgets announced to help Singaporeans overcome COVID-19 and the economic downturn which ensues. He also asked if the budgets are funded by other means and to explain what are the other means of financing.

Mr Leon Perera questions the nature of a $22 billion loan for financing Singapore's Fortitude Budget during COVID-19.
Mr Leon Perera questions the nature of a $22 billion loan for financing Singapore’s Fortitude Budget during COVID-19.

The budgets are known to be funded by a drawdown from the National Reserves of Singapore, as well as the accumulated surplus from the current term of government.

More than half of the expenditure will be drawn from the reserves, amounting to $52 billion Singapore dollars. The remaining $18.9 billion will be drawn from the budget surpluses of the current term of government.

Concerns about the ‘$22 billion loan capital’

There have been a few concerns highlighted by Singaporeans about the nature of funding. Among the questions are:

  • Where is the loan coming from?
  • Who is the lender?
  • What are the terms of the loan?
  • How long do we expect the loan to be repaid?
  • Most importantly, how can a loan be “fiscally neutral”?

Observers have been interested to seek DPM Heng’s clarifications on the matter. Mr Perera has also agreed that these are questions that should be asked.

No more parliamentary sessions until after GE

However, it seems that Singaporeans will not be able to get any clarity on these issues. Singapore is gearing up to hold its 14th General Election in the next few months as the Elections Department is releasing terms of video streaming for candidates.

Any government expenditure should come from two sources of income – investment returns & collections from the populace. Since Singapore isn’t drawing from the reserves and going for a loan, it can be expected to be paid by future generations of Singapore, or from the future returns on the National Reserve.

How might the budgets be replenished?

Singapore is a island nation without natural resources. The closest which we can consider as a resource is human resources. If human resources is the only available resource, then it can be expected that residents in Singapore have to pay some from of tax for everything.

For a perspective of what collections are being made on the residents of Singapore, we have compiled a list of government incomes:

Goods & Services Tax (GST)

GST was one of the first Indirect Taxes introduced to allow lowering of Corporate Tax & Income Tax. It began as a 3% tax in 1994 on the recommendation of the Economic Review Committee. It was increased over the years to it’s current 7%.

  • 1994 – 3% GST
  • 2003 – 4% GST
  • 2004 – 5% GST
  • 2007 – 7% GST
  • 2020 – 7% GST imposed on Digital Services
  • 2021 – Planned increase to 9% GST

GST at 7% stands at $11.1 billion Singapore Dollars collected in FY 2018/2019. If extrapolated to 9%, we can expect $14.2 billion dollars in collections.

In 2010, 84.2% of GST is paid by foreigners & also the Top 40% of Singaporean Households. The Bottom 20% of Singaporean Households paid 4% of total GST collected. You can read Mr Tharman Shanmugaratnam’s FY2011 Budget Debate Round-Up Speech for insights into GST.

Electronic Road Pricing (ERP)

ERP was introduced in 1998 after successful stress testing with fast-moving vehicles. It replaced the Singapore Area Licensing Scheme (ALS). The annual revenue from ALS is estimated to be $6.8 million Singapore Dollars.

In 1998, Singapore became the first city in the world to implement electronic road toll collection for congestion pricing.

  • 1975 – Area Licensing Scheme (ALS)
  • 1998 – Electronic Road Pricing (ERP)
  • 2020 – Distance-Based Satellite (ERP 2.0)

Sources: Area Licensing Scheme, Lessons Learned From International Experience in Congestion Pricing

Electronic Road Pricing is estimated to collect approximately $150 million per year.

Corporate Income Tax

Corporate Income Tax used to be at the high of 40%. It was reduced gradually over time as Singapore tries to transform itself to attract foreign investments. In 2020, Corporate Income Tax is a flat 17% after the introduction of various Indirect Taxes.

  • 1947 – Singapore Income Tax Department established
  • 1948 – Corporate Income Tax rate of 40%
  • 1949 – Collection of First Income Tax ($33.2 million)
  • 1987 – Corporate Income Tax rate of 33%
  • 2000 – Corporate Income Tax rate of 18%
  • 2010 – Corporate Income Tax rate of 17%

Sources: Straits Times, IRAS – History & Milestones

There are over 400,000 company entities in 2019 and the total collected Corporate Income Tax is $16.1 billion.

Individual Income Tax

Individual Income Tax was also introduced at 40% before Singapore became independent, largely to fund the new administration. In 2020, the maximum Individual Income Tax is 22% for an income above $320,000.

  • 1948 – Maximum Individual Income Tax rate of 40%
  • 1961 – Maximum Individual Income Tax rate of 51%
  • 1977 – Maximum Individual Income Tax rate of 55%
  • 1987 – Maximum Individual Income Tax rate of 33%
  • 1992 – Maximum Individual Income Tax rate of 30%
  • 1996 – Maximum Individual Income Tax rate of 28%
  • 2002 – Maximum Individual Income Tax rate of 22%
  • 2006 – Maximum Individual Income Tax rate of 20%
  • 2016 – Maximum Individual Income Tax rate of 22%

Sources: Top Incomes: A Global Perspective, The Political Economy of Tax Reform, Singapore: a Case Study in Rapid Development, TradingEconomics.com

Individual Income Tax stands at $11.7 billion for FY 2018/2019.

Property Tax

Property Tax is a wealth tax imposed on property owners and land owners. The tax is calculated with a formula of Annual Value times Tax Rate. The Annual Value of land is calculated using 5% of its market price.

Annual Value is derived based on the estimated annual rent that it can fetch if it were rented out. IRAS takes into account of the rental incomes of similar properties in the vicinity to estimate the value.

This tax is payable in advance every year, subject to prevailing Annual Value.

Sources: Ministry of Finance, IRAS.

Property Tax collected $4.6 billion for FY 2018/2019.

Betting Taxes & Casino Taxes

Betting is a controlled activity in Singapore. Licences are awarded for gambling activities. This exclusively refers to Singapore Pools. Singapore Turf Club no longer handles horse betting activities, it has been transferred over to Singapore Pools.

Type of Betting ActivitesMethod of Calculating Duty
Totalisator or pari-mutuel betting in connection with horse racing

Sports betting (e.g. football betting with fixed odds)
25% x (Amount of bets received – Winnings paid out – GST *)
Totalisator or pari-mutuel betting excluding horse racing (e.g. TOTO)
Any other system or method of cash or credit betting (e.g. 4D and Singapore Sweep)
Effective 1 Jul 2014 **
30% x (Amt of bets received – GST *)

Up to 30 Jun 2014
25% x (Amt of bets received – GST *) 
Sweepstakes30% x (Amt contributed towards the sweepstake – GST *)
*GST = 7/107 x (amount of bets received – winnings paid out)

Integrated Resorts are introduced in 2010. The tax rates have been rather unique, differentiating between premium players and mass players, with higher rates for the latter.

  • 2010 – Premium Gaming: 5%, Mass Gaming: 15%
  • 2022 – Premium Gaming: 8% to 12%, Mass Gaming: 18% to 22%

Betting Taxes, which includes Casino Taxes , which are collected from casinos & private lottery duties, is at $2.66 billion.

The above are taxes which apply to every person. We have not included Motoring Tax, Road Tax or Certificate of Entitlement which are based on purchase and consumption.

Tax Revenue for Singapore

Inland Revenue Authority of Singapore (IRAS) collected $52.4 billion in revenue for Financial Year 2018/2019. This makes up 71.1% of Singapore Government’s Operating Revenue. It also makes up 10.1% of Singapore’s GDP. The breakdown of the constituents in IRAS’s revenue is as follows:

  • Corporate Income Tax: $16.1 billion (31%)
  • Personal Income Tax: $11.7 billion (22%)
  • Goods & Services Tax: $11.1 billion (21%)
  • Property Tax: $4.6 billion (9%)
  • Stamp Duty: $4.6 billion (9%)
  • Betting Taxes: $2.7 billion (5%)
  • Withholding Tax: $1.6 billion (3%)
IRAS revenue 2018 breakdown

Inevitable Thoughts

It is inevitable to think that the current expenditure will be a cost to future generations. Singapore faces a stark reality – that its workforce is aging and is much less talented.

In 2020, Singapore has 60% of its workforce aged 40 and above. This is a huge shift in proportion of 30% when Singapore was at Independence.

There have been active efforts to help the aging workforce remain competitive such as WorkFare or SkillsFuture but the fact remains that a young worker is going to fair better at a junior technical job, no matter how much training older workers go through.

It’s also downplaying the value of a 3 year diploma versus a short conversion course given to an older worker. It just does not equate to the same quality of productivity. Encouraging companies to hire such older workers will almost certainly create deadweight & lower the velocity of growth.

There can be a good 10% of older workers to transit effectively & are competitive, replacing the gap in the workforce. The rest will definitely need a few years of experience to match a fresh graduate in the same discipline.

Singapore’s education system has also been very focused on managerial skills than technical skills, which exposes weaknesses in graduates, showing a lack of foundational understanding & ability.

This is a continuing problem as pay expectations of fresh graduates are not in tune with market rates when we consider the ability for companies to shift jobs overseas through remote working.

The reliance on foreign workers will continue – Singapore has aspirations of a full Singaporean workforce back in 1982. There is no quick fix for this issue.

singapore worker levy full sg workforce 19820329

Given that Corporate & Individual Income Taxes form the bulk of IRAS revenues, with GST close behind, we can expect future hikes to happen as Singaporeans become less employable.

The grave situation and costs of COVID-19 pandemic has made governments uneasy all over the world. Even in Singapore, it is unlikely that clarity can be given before the General Elections.

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