The only thing anyone watches on Channel 5 nowadays is the annual budget announcement, which was broadcast over a 2-hour prime-time slot on 18 Feb 2022.
Luckily, this article isn’t going to be about the state of local TV, but about the main takeaways from Minister of Finance Lawrence Wong’s Budget 2022 announcement, presented to you in layman’s terms.
What is the Singapore Budget?
The Budget sets out the government’s planned revenue and expenditure for the upcoming financial year (which runs from 1 April to 31 March the following year). In other words, it deals with what the government plans to spend money on, and where they’re going to get the money.
2020 and 2021 were a “special” period due to the pandemic, during which the government had to engage in some emergency spending to help businesses and individuals cope. So, we had several Budgets, including the Unity, Resilience and Solidarity Budgets.
Due to Covid-19, the government has drawn the equivalent of about two decades of fiscal surpluses from past reserves. That’s like an individual spending 20 years worth of savings. The budget deficit is currently $3 billion.
The government is now feeling a bit broke and needs to make more money in order to keep things running. And where does the government get its revenue? Through taxes, that’s how. All forms of tax—Goods and Services Tax (GST), income tax, corporate tax (which makes up 30% of Singapore’s tax revenue), wealth tax and so on.
So, one key theme of Budget 2022 is a hike in all these taxes. In other words, that which the government giveth, the government taketh back.
Here are the key takeaways from Budget 2022.
GST Hike
The government has been talking about raising GST, which is currently 7%, to 9%, and prior to the Budget announcement was dropping ominous hints that it would happen soon.
And now, following the Budget 2022 announcement, it’s official. GST will be raised according to the following timeline:
- 1 January 2023: GST will be raised from 7% to 8%
- 1 January 2024: GST will be raised from 8% to 9%
To help households cope with the GST hike, the government will be rolling out a $650 million Household Support Package, which will include the following:
- Additional U-Save GST Voucher to help with utilities expenses – Doubles regular GST vouchers received by each HDB household in 2022 (households with more than one property not eligible)
- Tops-ups to Child Development Account (CDA), Edusave Account and Post-Secondary Education Account (PSEA) – $200 per child born between 31 Dec 2005 and 31 Dec 2022.
- Community Development Council (CDC) vouchers – $100 vouchers to go to all Singaporean households to be used at participating heartland merchants and hawkers
CPF
Employer and employee CPF contribution rates will increase by a total of 3% to 4% for workers aged 55 to 70 over two years.
The Basic Retirement Sum will be raised by 3.5% per year for the next five years.
These adjustments should result in higher monthly CPF payouts in retirement. Given the rising cost of living, this change is understandable and will hopefully help Singaporeans to be retirement-ready.
Wealth Tax
The government has always been reluctant to tax the rich. Gotta attract them billionaires. But now, they have taken some very tiny baby steps to extract more tax revenue out of the wealthy.
a) Personal income tax
Right now, income in excess of $320,000 is taxed at 22%.
But from Year of Assessment 2024 onwards, personal income tax will increase in the following ways:
– Tax on income in excess of $500 to $1 million – raised to 23%
– Tax on income in excess of $1 million – raised to 24%
This will only affect 1.2% of taxpayers, which (sorry) probably does not include you or me.
b) Property tax
Owner-occupied residential properties with an annual value of more than $30,000 will be raised. Their owners will now have to pay 6% to 32% property tax, up from the current 4% to 16%.
For all non-owner-occupied residential properties (eg. investment properties), property tax rates will be increased to 12% to 36%, up from the current 10% to 20%.
These changes will affect many people living in private property, as well as anyone who owns investment property.
Live in a HDB flat and don’t own any other property? Then you won’t be affected by this tax hike, as the annual value of the biggest HDB flats should not exceed $11,000. However, the same can’t be said about your neighbour who parades his Porsche around in the HDB carpark and owns multiple investment properties.
New ARF Tier for luxury cars
Additional Registration Fee (ARF) is a tax that is paid when you register a vehicle, and is calculated based on a percentage of the car’s Open Market Value (OMV).
There’s now a new ARF, created specially for luxury cars. The portion of the car’s OMV exceeding $80,000 will now be taxed at a rate of 220%.
How do you know whether you’ll be affected? After all, in Singapore, all cars are a luxury, right? For illustration purposes, let’s compare the OMV and ARF for a brand new Honda Jazz vs a Porsche Cayenne.
|
ARF Rate |
New ARF Banding |
ARF Payable – Honda Jazz ($23,386 OMV, $24,740) |
ARF Payable – Porsche Cayenne ($87,539 OMV, $132,586 ARF) |
|
100% of OMV |
First $20,000 |
100% x $20,000 = $20,000 |
100% x $20,000 = $20,000 |
|
140% of OMV |
Next $30,000 ($20,001-$50,000) |
140% x $3,386 = $4,740 |
140% x $30,000 = $42,000 |
|
180% of OMV |
Next $30,000 ($50,001-$80,000) |
– |
180% x $30,000 = $54,000 |
|
220% of OMV |
Above $80,000 ($80,001 and above) |
– |
220% x $7,539 = $16,586 |
Under the old ARF system, the Porsche Cayenne would be taxed $129,570. Under the new system, it will be liable for ARF of $132,586.
Net Zero Carbon Emissions
The thought of sauna-like Singapore getting even hotter has scared the government into putting in some measures in pursuit of net zero carbon emissions.
a) Carbon tax
In 2024, carbon tax will go from $5 to $25 per tonne, with the goal of eventually reaching $50 to $80 per tonne, in line with the International Monetary Fund’s (IMF) recommendations.
|
Year |
Carbon Tax /tonne |
|
2022 |
$5 |
|
2024 |
$25 |
|
2026/2027 |
$45 |
|
2030 |
$50 to $80 |
b) Electric vehicles
In order to reduce road traffic-related emissions, the government plans to continue to improve and expand the MRT and encourage public transport adoption. Nothing new there.
More importantly for those who can’t do without a vehicle, they have pledged to do more to encourage electric vehicle adoption, first and foremost by installing more EV charging points, particularly in private and public carparks.
In an even more ambitious move, the government wants to phase out internal combustion vehicles by 2040—that means all cars that run on petrol or diesel could be scrapped. The implication is that all drivers will eventually have to adopt electrical vehicles.
c) Green Bonds
The government will issue $35 billion worth of green bonds by 2030.
These are government bonds that will be sold to investors to help the government raise money for green infrastructure. Find out more about how they work here.
Green bonds are usually only available to institutional investors rather than retail investors, ie. regular people like you and me. You can, however, indirectly invest in Singapore green bonds through a fund or investment product that offers exposure to them.
Jobs, Small Businesses
The government is rolling out a $500 million Jobs and Business Support Package to help jobseekers and SMEs survive, particularly those in sectors hardest hit by Covid-19 like F&B, retail, tourism and hospitality.
This will include:
- Small Business Recovery Grant – SMEs in eligible sectors receive $1,000 per local employee up to $10,000 per firm.
- Jobs Growth Incentive – Scheme, which encourages employers to hire locally, has been extended by six months to Sep 2022.
- Progressive Wage Mark / Progressive Wage Credit Scheme (PWCS) – Progressive Wage Model extended to retail, food services and waste management sectors. PWCS will co-fund 50% of wages for workers earning up to $2,500 in 2022 and 2023. This will fall to 30% in 2024 and 15% in 2025 to 2026. For workers earning $2,500 to $3,000, co-funding of 30% will be offered this year and next year, and 15% in 2024.
- Workfare Income Supplement (WIS) enhancements – Will now include younger workers aged 30 to 34, and qualifying income will be raised from $2,300 to $2,500. The income offers payouts in cash and CPF or MediSave contributions.
Digitalisation
5G isn’t enough, it seems. The government will invest in 6G and aims to upgrade broadband infrastructure, making the internet potentially 10 times faster. If the Covid-19 restrictions continue for the rest of our lives, at least we’ll be able to live lag-free lives in the VR world.
The government will also set aside a $200 million budget to help businesses and workers build digital capabilities.