Singapore Budget 2022

Forging ahead with courage

We live in unsettling times. Changes are sudden, dynamic and oftentimes, unrelenting. The way we conduct our business, interact, work and live continues to revolve around the COVID-19 pandemic amidst the rapid pace of digitalisation and technological advances. Great wealth is now amassed in less than a decade instead of over generations; widening wealth gap and income inequality continue to put pressure on social cohesion. Choked up supply chains, inflation, geopolitical tensions and other developments converge, making even more uncertain what is already an uncertain world.

Forging ahead with courage is like walking into a fog. We have a sense of what the future might hold without absolute certainty that it will pan out exactly in the way we desire. Waiting for the fog to completely lift before we act gives certainty, but at what cost? Others would have already sprinted way ahead! We must garner first-mover advantage by taking calculated steps to invest into the future. Having a head start allows us to recalibrate as the future continues to unfold.

It is in this spirit that this year’s Budget ploughs significant investments into building the new future – as one people, one nation.

These investments focus on immediate needs and the years ahead.

Though the economy is recovering, economic recovery is uneven. Some businesses emerged stronger while others are still struggling to stay afloat. The Government continues to give targeted support to the hardest-hit workers and businesses. It also introduces the Household Support Package to help Singaporeans with their utility bills, children’s education and daily essentials. These address Singapore's immediate needs.

Budget 2022’s investment into the future revolves around five tenets, namely:

1. Invest in new capabilities

A three-pronged plan aims to strengthen our economy’s digital capabilities, encourage and help our local firms to undertake R&D activities and make innovation pervasive, as well as support the productivity drive of local enterprises to grow and expand into overseas markets.

2. Invest in our people

A strong focus on fostering a culture of lifelong learning at the workplace, upskilling and reskilling of our workforce, and adjusting our foreign worker policy framework to improve the local-foreign complementarity.

3. Advance our green transition

This revolves around our ambition to achieve net zero emissions by mid-century. The blunt but necessary instrument to accomplish this is to raise carbon tax progressively. It will be S$50 to S$80 per tonne by 2030.

4. Renew and strengthen our social compact

This part of the plan is multifaceted.

It extends the progressive wage model to our lower-wage workers in more sectors. It also requires companies employing foreign workers to pay all their local employees at least the Local Qualifying Salary, currently set at S$1,400 per month. To manage the expected cost increases, the Government will co-fund the cost of the wage increase during the transitional period.

This year also sees significant enhancement of the Workfare Income Supplement scheme, increases in the employer and employee CPF contribution rates for older workers aged 55 to 70, and raises the basic retirement sum for five cohorts turning 55 from 2023 to 2027.

5. Develop a fairer and more resilient revenue structure

Budget 2022 encompasses five major changes to our tax system.

The first is a response to BEPS 2.0. The Government is exploring a top-up tax called the Minimum Effective Tax Rate, which will top up the multinational enterprise groups’ effective tax rate in Singapore to 15%. This is not unexpected as other countries like Ireland and Switzerland have also announced their intention to implement a 15% minimum tax in response to the global minimum tax proposal. The question is how the Singapore version should be implemented to reduce the compliance burden on businesses.

The next three tax changes take the form of an increase in the top marginal personal income tax rates, a higher tax on luxury cars, and a higher property tax for owner and non-owner occupied high-end residential properties.

The last is the GST rate hike from 7% to 9%, taking effect in two stages from 1 January 2023 and 1 January 2024.

This is an expansionary budget – it gives more in expenditure than what it takes in revenue. Indeed, much of the expenditure is to prepare for the future and beyond. To forge ahead with all the plans announced in the Budget Speech, the Minister said, “we will need more revenues".

Many of us listened to the Minister’s speech with bated breath, wondering what new taxes awaited. “Wealth tax” takes the form of increases in property tax rates and a higher tax on luxury cars. The top marginal personal income tax rate will be raised by 2%.

There is no capital gains tax, death tax, stamp duty imposition on stock exchange transactions, and the like.

To sprint ahead before the fog lifts fully, we need to invest into the future aggressively.

Will the present enhancement be enough to fund future spending? An educated guess suggests that we should see more calibrated enhancements in the years to come.

Our tax reform and enhancement continues.  

Read our Budget 2022 synopsis here.