Singapore Budget 2022: GST hike delayed, carbon tax raised
Singapore's national budget will be delivered by Finance Minister Lawrence Wong today.
11:30 am Singapore Business Review is tracking developments from Singapore’s 2022 budget statement live as they are announced by Finance Minister Lawrence Wong. The formal presentation kicks off from 3:30 pm today. Follow us live!
3:36 pm
ECONOMY AND COVID-19
- Singapore has one of the highest rates of vaccinations in the world. Read HERE.
- The economy has rebounded since the worst recession since its independence.
- Singapore will continue to benefit from the pick-up in the global economy, widespread booster, and vaccination efforts from the global economy.
- The global economy is still vulnerable to pandemic-related risk and supply chain disruptions.
- A slowdown in external demand is expected.
- The economy is expected to grow by 3% to 5% this year. Read HERE.
STRUGGLING SECTORS
- Small business recovery grant, $1000 per local economy up to a cap of $10,000 per firm.
- Hawkers and coffee shop owners who do not hire local employees can also receive $1,000 payout.
- COVID-19 recovery grant for workers who have experienced income loss extended to the end of this year.
- Jobs Growth Incentive extended to September this year with step-down support rates reflecting improved labour market conditions for those who have difficulty finding jobs
- There is targeted assistance for the aviation sector.
- We must preserve and enhance our status as a global aviation hub.
RISKS OF RISING INFLATION
- MAS takes the pre-emptive step of raising the rate of appreciation to help dampen inflationary pressures.
- Significant additional support for businesses and households:
- Temporary bridging law programme and enhanced trade loan scheme with revised parameters extended to 30 September
- Access for project loans for the construction sector extended to 31 March 2023
- For households, GST voucher rebates doubled this year
- Distribution of $100 CDC vouchers to all Singaporean households
INVESTMENTS AND INNOVATIONS
- Singapore continues to be a strategic launchpad for businesses around the world looking to expand to markets in the region.
- Wong cites BioNTech as an example. Read HERE.
- Singapore has to remain open to talent from around the world.
- 11 Singapore-based startups achieved unicorn status in 2021.
- This creates highly paid jobs for Singaporeans.
EXTERNAL CHALLENGES
- The rivalry between the US and China has intensified and will impact the world for the rest of the decade and more.
- The pandemic turbocharged the move to digitalisation. This will disrupt and reshape businesses, impact a wide range of jobs.
- It’s possible for multinational companies to reshore to their country.
- Our enterprises must accelerate their transformation and look for opportunities beyond these shores. This fast pace can bring anxiety about the future.
WORKFORCE
- Real incomes of local workers at the 20th percentile have risen by almost 40% between 2009 and 2019, faster than that of a medium worker.
- Equality has improved in the last decade.
- An increasing shift in market rewards towards those with high skills, who can take advantage of new technologies, is expected. This will make it harder to keep growth inclusive.
- Aging population: 16% of the population are aged 65 and above, by 2030 the government expects 25% of the population to be aged 65 and above.
- Planning ahead needed to have resources to take care of senior citizens.
4:00 pm
CLIMATE CHANGE
- Moving to net-zero will be costly, but Singapore cannot afford to skimp on.
- Actions are needed to progressively de-carbonise the economy.
GOVERNMENT SPENDING AND TAXES
- Excluding COVID-19-related expenditure at $88b or about 18% of GDP, Singapore's was probably the lowest amongst the more developed economies.
- NRIC is a continuing stream of income from reserves accumulated over the years: average revenue stream of $17b or 3.5% of GDP.
- Taxes in Singapore are much lower than in most countries. There is no intention to adopt the European model of high taxes to provide universal welfare.
- Social spending almost doubled from $17b to $31b over the last decade, taking up almost half of the annual budget.
- This increase was used for higher subsidies for healthcare systems, tertiary education, SkillsFuture scheme, and workers support scheme.
- To strengthen risk-sharing between government and citizens, everyone’s contributions matter and Singaporeans will not be left helpless when they’re down.
FISCAL OUTLOOK FOR THE DECADE
- By 2030, we expect government expenditure to increase to more than 20% of GDP. Most will go to healthcare.
- There will not be enough to cover additional spending needs.
ON TAX ADJUSTMENTS
- These are needed to raise additional revenue.
- Reserves should be used for major crises.
- Tax systems adjustment to raise additional revenue to contribute fairer revenue structure. Those with greater means should contribute a larger share.
- This budget is about charting a new way forward together, strengthening the social compact for a post-pandemic world, developing a fairer, sustainable more inclusive society.
ACCELERATING INVESTMENTS IN NEW CAPABILITIES
- Digital capability is the first priority.
- This will allow people to access digital services.
- Singapore has adopted 5G internet and will invest in 6G. Read HERE.
- Upgrade broadband infrastructure to increase broadband access speed 10x over the next few years.
- Additional $200m for schemes that enhance digital capabilities for businesses.
- Pervasive innovation across the economy
- This is built on strong R&D foundations.
- Government investment in R&D was maintained at 1% of GDP
- $25b was set aside under the Research, Innovation and Enterprise 2025 strategy.
- Unfortunately, R&D expenditure is still behind other countries.
- To further support collaborations between students and SMEs, the capacity of research centres to be increased to close to 2,000 innovation centres across five sectors: agritech, construction, food manufacturing precision engineering, and retail.
- An eight-fold increase in the number of innovations is expected.
- Strengthen local enterprise ecosystem
- $600m set aside to increase the range of solutions under Productivity Solutions Grant for SMEs.
- New initiative: Singapore Global Enterprises
- New Singapore Global Executive Programme will help nurture the next of industry leaders.
- Two components of the Enterprise Financing Scheme enhanced
- M&A loan programme to include domestic M&A activities from 1 April 2022 to 31 March 2026
- Enhanced Trade Loan extended by 6 months to September this year, enhanced 70% risk-share under the Trade Loan for enterprises venturing into more nascent markets (ex. Bangladesh, Brazil)
4:30 pm
INVESTING IN EDUCATION, UPSKILLING/RESKILLING WORKERS
- On SkillsFuture: Waiver of skills development levy requirement for the qualifying period of 1 January 2021 to 31 December 2021
- Estimated to double eligible employers from 40,000 to 80,000
- Deadline to claim credit extended to 30 June 2024
- On Company Training Committees (CTCs): to date, 800 companies of different sizes
- $100m set aside to support National Trades Union Congress (NTUC) to scale up CTCs, support companies who have set up CTCs
- SG United Mid-career Pathways Programme to be made a permanent feature of training and placement ecosystem
- New SkillsFuture Career Transition Programme
FOREIGN WORKERS
- The foreign policy framework is to be reviewed and updated continually.
- The Framework for Employment Pass (EP) holders will be updated: minimum qualifying salary to be raised from $4,500 to $5,000 this September, (financial services: from $5,000 to $5,500)
- Changes will apply to renewal applications one year later
- SPass holder minimum qualifying salary will be raised in phases.
- First step: $2,500 to $3,000 for September this year ($3,000 for $3,500 for financial services)
- To be raised again in September 2023 and September 2025
- These changes will apply to renewal applications one year later.
- Tier 1 levy will be raised from the current $330 to $650 by 2025.
- Work permit policies in construction and process sectors to be re-adjusted
- The dependency ratio rating is to be reduced from 1:7 to 1:5.
- Man Year Entitlement Framework to be replaced with new levy framework
- These changes will take effect on 1 January 2024.
GREEN TRANSITION
- Singapore is disadvantaged by a lack of natural resources.
- Singapore is on track to achieve 2030 green targets.
- “We will therefore raise our ambition to achieve net-zero emissions by mid-century.”
- The carbon tax will be raised from $5 per tonne to $25 per tonne in 2024 and 2025.
- $45 per tonne in 2026 and 2027
- $50 per tonne by 2030
- Current rates will be unchanged until 2023.
- An additional carbon tax will not be imposed on petrol, diesel, and compressed natural gas.
- Transition framework to be put in place to help companies, allowances to be determined by efficiency standards and decarbonisation targets, to be implemented in 2024.
- Also starting 2024, businesses will be allowed to use high-quality international carbon tax credits to offset up to 5% of their tax emissions in lieu of paying carbon tax.
- Households may feel the effects of these through higher utility bills (ex. $25 per tonne = $4 per month increase).
- Additional revenue is not expected from the increased carbon tax, proceeds will be used to support the shift to decarbonisation.
- We must move decisively toward the future of a net-zero world.
- Singapore will become a go-to location in Asia for expertise in carbon services, and a trusted regional marketplace for carbon credits.
GREEN FINANCE
- Singapore accounts for close to half of the ASEAN green bond market.
- Up to $35b of green bonds will be issued by 2030 to fund public infrastructure projects.
- An inaugural green bond will be issued this year.
TRANSPORTATION AND ELECTRIC VEHICLES
- Zero growth rate for private vehicles is maintained.
- Internal combustion engine vehicles will be phased out by 2040.
- More charging points will be built to increase EV adoption. Financing will come from green bonds.
PROGRESSIVE WAGES
- Progressive wages to be extended to retail, food services, and waste management sectors over the next two years.
- Companies hiring foreign workers are required to pay local employees at least the local qualifying salary.
- The government will require eligible suppliers from March 2023 to be accredited with the progressive wage (PW) mark when the contract with the government.
- Progressive Wage Credit scheme will provide transitional support for businesses
- The government will be co-funding at 50% from 2022 to 2023
- 30% from 2024 to 2025
- 15% in 2026
- Workfare payouts to be raised in 2023, to be extended to younger workers (aged 30-34)
- An average of $1.8b will be spent over the next five years for the PWCs and enhanced Workfare.
HEALTHCARE EXPENDITURE (EXCLUDING COVID-19)
- The government healthcare expenditure tripled from $3.7b in 2010 to $11.3 b in 2019. If the current healthcare expenditure continues to increase at a similar rate, it will be at $27b or around 3.5% of GDP by 2030. This might not be sustainable.
- Healthcare ecosystems should be reconstructed to centre around the patient and must be designed to keep patients healthy and provide care in the most appropriate setting.
- There is a need to rethink the current Healthier Singapore Strategy.
BASE EROSION AND PROFIT SHIFTING INITIATIVE (BEPS 2.0)
- Singapore will lose tax revenue in Pillar 1, the tax system must be adjusted in response to Pillar 2.
- Top-up Minimum Effective Tax Rate (METR) being considered, for further study by IRAS.
- It is premature to determine the eventual fiscal of both pillars.
- BEPS 2.0 has not reduced global competition on investments, might intensify.
- Need more time to study these issues thoroughly, changes in the corporate tax system to be announced “when we are ready”.
PERSONAL INCOME TAX (PIT) RATE
- PIT rate will be increased from 2024.
- The portion of chargeable with an excess of $55k to $1m will be taxed at 23% whilst income beyond $1m will be taxed 24%, both up 22%.
WEALTH TAXES
- Net wealth taxes are difficult to implement, studying the experiences of other countries to explore options.
- Adjustments are to be made to property tax, the principal means of taxing wealth.
- For non-owner-occupied residential properties: from 10-20% to 12-36%
- For owner-occupied residential properties: from 4-16% to 6-32%
- These will be implemented in two steps starting 2023, expected to raise tax revenue by $380m per year.
- The luxury car tax will be increased.
- Additional registration fee tier for luxury cars for those above market value of $80k will be taxed by 220%.
GST
- The implementation of GST increase will be delayed to 2023.
- First increase: 1 January 2023 from 7% to 8%.
- Second increase: 1 January 2024, 8% to 9%.
- Town Councils will be provided with an additional $15m per year to absorb additional GST payable on service and conservancy charges.
- The government fees and charges will not be increased until 1 January 2023.
- The government to create a committee against profiteering to prevent companies from raising prices due to the GST hike.
- Assurance packages, GST vouchers to be issued to offset effects of GST hike.
FISCAL OUTLOOK
- Past reserves utilised for COVID-19 relief
- $31.9b from 2020
- $5b from 2021
- Advances were taken for a contingency to be replaced through the supplementary budget of 2021.
- $6b to be used to maintain multiple layers of public health defence, to be sourced from past reserves.
- Total expected draw from past reserve form 2020 to 2022 for up to $42.9b. This is less than the initial draw of $52b that the president agreed to meet new spending needs, expenditure growth needs to be managed.
- From FY 2023, an additional 1% cut will be applied to budgets of ministries and organs of states to fund new priorities.
- Overall deficit for $5b or 0.9% of GDP for FY2021.
- For FY2022, the budget remains expansionary to support the economy, the expected overall deficit is $3b or 0.5% of GDP.