Budget 2024 an action plan for Singapore’s shared future in a new reality

By Lee Sze Yeng, Managing Partner, KPMG in Singapore 

While Budget 2024 indicated some bright spots ahead, including improving economic growth and moderating inflation, Finance Minister Lawrence Wong underscored the need for the nation to contend with a new reality, marked by a “new era of conflict and confrontation”. 

By setting the course for the Forward Singapore roadmap in this year’s speech, he drove home the need to plan for longer-term threats, including climate change and technological disruptions. This calls for innovative solutions to resource the country’s needs, while keeping taxes competitive and progressive.

Largely in line with our Budget recommendations, measures such as the Refundable Investment Credit (RIC) and Enterprise Support Package will help Singapore stay competitive and continue to attract investments. Additional funding for SkillsFuture and artificial intelligence (AI) deployment will also create more avenues for success, while the social support initiatives promise that the most vulnerable will not be left behind. 

For Singapore to build its shared future in uncertain times, three interconnected strategies will need to be at the fore - attracting high-quality investments to its shores, differentiating itself through cutting-edge innovation, and amplifying its role as a trusted regional leader.  

Attracting new flows of capital and investments into Singapore will be more critical than ever, as countries globally re-evaluate their strategies in response to the Base Erosion and Profit Shifting (BEPS) 2.0 initiative. Singapore is also dealing with stronger competition from other countries with “deeper pockets, more abundant resources, and much bigger domestic markets” to attract foreign direct investments.

With Singapore set to move ahead with implementing the BEPS Pillar Two rules through the Income Inclusion Rule and the Domestic Top-up Tax, the new RIC scheme should allay concerns of impacted multinational enterprises (MNEs) and preserve Singapore’s competitive advantage and appeal. 

The RIC scheme is expected to meet the requirements of a Qualified Refundable Tax Credit scheme, which should mitigate the impact of the Pillar Two rules as compared with other forms of tax incentives. While this could go some way in placing Singapore on par with other financial hubs, the devil will be in the details, especially as these countries are certain to offer similarly attractive tax perks. 

Notably, to ensure Singapore’s tax incentives remain relevant and competitive, the concessionary tax rates offered under Singapore’s existing suite of tax incentives have also been recalibrated with new tiers to align with Pillar Two rules. 

Additionally, the S$2 billion top-up to the Financial Sector Development Fund would extend Singapore’s lead as a financial hub by attracting major financial institutions to set up their base here while drawing crucial investments, capital and talent.

This will add vibrancy to the economy and fuel high-quality jobs, which goes hand in hand with efforts to refresh Singapore’s social compact.

However, to stay ahead of the curve in the long term, more targeted initiatives to build the innovative agility of Singapore’s workforce will need to be considered. 

Amid uncertainties, investing in innovation and resilient growth will be key to Singapore’s continued success. Singapore will need to build on its strengths to attract quality capital and talent to its shores and the announced measures are a step in the right direction. 

A further S$3 billion investment into the Research, Innovation and Enterprise 2025 plan, along with a S$1 billion commitment to catalyse AI activities over the next five years, will enable businesses to harness cutting-edge solutions, thereby spurring innovation-driven economic growth. This will also nurture a healthy AI talent pool and secure valuable access to advanced chips for AI deployment. 

Schemes to strengthen human capital, such as a S$4,000 top-up for mid-career Singaporeans via the new SkillsFuture Level-Up Programme, will also be crucial, as these will plug existing gaps and create a diverse mix of talent to power innovation activities.  

While Budget 2024 presents Singapore’s holistic approach in navigating an uncertain world, it will need to look at ways to raise its reputation as a trusted regional leader to gain a strategic differentiation.

Hence, more could be done to further assert Singapore’s influence in sustainability, especially in leading Asia’s climate financing.

That said, the new S$5 billion Future Energy Fund will provide much-needed funding to build the critical yet costly infrastructure needed to scale Singapore’s green transition, including tapping solar, hydrogen and nuclear energy sources in the future. It also demonstrates that the costs of a just transition cannot be borne by the private sector alone. 

However, Singapore should take this private-public collaboration a step further by earmarking up to 1 percent of its gross domestic product, which could draw additional capital from private sector and philanthropies, to create a blended finance hub in Singapore for Asia.

Ultimately, it will take a collective effort to build a sustainable future, especially if Singapore businesses want to remain an integral part of MNEs’ value chains.

Wong detailed an action plan for Singapore to rise above the adversities of a new reality to build “an economy that benefits the many, rather than the few”.

But with volatile times ahead, Singapore will need to stay agile and constantly calibrate its strategies, with a strong focus on honing its competitive edge, innovation prowess and regional leadership.