Budget 101: From tax increases to cash goodies, what is expected from Budget 2022?

SINGAPORE — The 2022 Budget statement will be delivered by Finance Minister Lawrence Wong in Parliament on Feb 18 at 3.30pm. 

Following an expected S$75 billion deficit accumulated over the past two years, which required the Government to tap the reserves for fiscal firepower amid the Covid-19 pandemic, Budget 2022 could return to a modest surplus position, several economists predicted over the past week.

After all, Singapore’s economic fundamentals are improving. Officials expect the economy to grow by 3 to 5 per cent in 2022, after a 7 per cent growth last year.

But come Friday, what can Singaporeans expect to hear when Mr Wong presents the annual Budget statement in Parliament?

In a speech two weeks ago, Mr Wong spoke of providing support for the few sectors that continue to face difficulties, and helping Singaporeans manage living cost concerns and other “more immediate issues”.

“At the same time, we have to look ahead and focus on measures that will put Singapore in a stronger position for the post-pandemic world,” he stressed.

That meant building new capabilities for the future, continuing to grow and transform the economy while creating jobs and opportunities, as well as strengthening the Republic’s social support system “to give Singaporeans greater assurance to cope with life’s uncertainties”, said Mr Wong.

He added: “We aim to forge a fairer, more inclusive and a greener home for us and our future generations — so that all of us can continue to be proud to call Singapore our home.

TODAY looks at what are some possible announcements in Budget 2022 as Singapore exits the worst of the pandemic and sets its sights on a post-Covid future.

As Prime Minister Lee Hsien Loong put it in his New Year message: “Budget 2022 will therefore lay the basis for sound and sustainable government finances for the next stage of Singapore’s development.”

GST RATE INCREASE

First announced in 2018 by then-Finance Minister Heng Swee Keat, the planned increase of the goods and services tax (GST) by two percentage points, from 7 per cent to 9 per cent, was to take place sometime from 2021 to 2025. The current level at 7 per cent is one of the lowest in the world.

Mr Lee, on Dec 31 last year, indicated the need to “start moving” on the GST increase now that the economy is emerging from Covid-19.

The additional revenues generated by the GST increase will be used to fund recurrent expenses, such as the expansion of healthcare and support schemes for older Singaporeans.

But how will it be implemented? Economists predict that an increase to the regressive consumption tax could happen in phases to avoid sudden cost of living fluctuations. 

HSBC economists Yun Liu and Heidi Tang said in a Budget 2022 note that the change could come in two steps — one in 2023 and another one in 2024, thereby giving the authorities some flexibility, particularly in the face of lingering Omicron variant uncertainty.

Singapore Business Federation (SBF) chief executive Lam Yi Young told TODAY that the GST increase “will add to the cost pressures that businesses are already feeling and may also dampen consumer spending and impact revenue of businesses”.

“Giving a longer notice period before the increase is effected will help businesses to prepare for and cope with the increase,” he said.

MANAGING COST OF LIVING

To defray the impact of the GST increase further and to help lower-income families manage costs of living, the Government could announce more support measures, as it did in past GST increases in 2003, 2004 and 2007.

Possible announcements could include further U-Save offsets to utility bills and service and conservancy charges.

Core inflation is projected to reach between 2 and 3 per cent in 2022, based on official forecasts in January. A GST increase will likely also raise inflation further — in 2007, the hike from 5 to 7 per cent added an estimated 1.4 percentage points to headline inflation. 

A S$6 billion Assurance Package has already been announced in previous Budgets to buffer the GST increase for lower- and middle-income households by 10 and five years respectively.

The current GST Voucher scheme — introduced in 2012 and comes in the form of cash, MediSave and U-Save — will likely be enhanced when the GST rate is raised. 

At present, those earning an assessable annual income above S$28,000 do not qualify for the scheme.

The Progressive Wage Model (PWM) could also be extended to more sectors. Mr Lee announced in his 2021 National Day Rally that the scheme, which seeks to raise wages of workers through upgrading skills and improving productivity, will be extended to “many more workers”.

OCBC’s head of research and strategy Selena Ling in her bank’s Budget preview noted that companies that currently hire foreign workers will need to pay local workers at least the local qualifying salary of S$1,400 per month.

“While it may be too soon to increase the S$1,400 minimum salary for local workers, it may be timely to extend the requirement to all firms who employ local workers over a period of time,” said Ms Ling.

CARBON TAX AND GREEN MEASURES

Last October, Mr Wong revealed that the current carbon price charged by Singapore until 2023 — S$5 per tonne — was too low, and that he would be announcing a revised carbon tax rate for 2024 in Budget 2022.

This would reflect the cost of carbon emissions and how such pricing can effectively influence investment decisions, said Mr Wong. 

Previously, the Government said the carbon price would rise to between S$10 and S$15 per tonne by 2030. In comparison, Sweden has the highest rate in the world at around S$170 per tonne, while the European Union currently charges around S$120 per tonne of carbon dioxide emissions.

Even then, KPMG Singapore’s head of tax Ajay Kumar Sanganeria said a sharp increase in Singapore’s carbon tax rate could be “counter-productive” in the short term and may even hinder broader economic progress, while a gradual rise through taxation alone is unlikely to bring about a big enough reduction in emissions, he said. 

“Where Singapore can look to differentiate itself from other countries is through combining increased carbon taxes with incentives and support for businesses that invest in environmental, social and governance initiatives and switch to greener alternatives,” said Mr Sanganeria.

Budget 2022 could potentially introduce new incentives for businesses to go green, in the face of a rising carbon tax bill, said experts. 

Mr Lam from SBF said sustainability is one of the biggest untapped business opportunities in Singapore today. 

“Through the emerging global consensus to set targets for a green economy, there is scope for the business community to pursue environmental sustainability as a key competitive advantage in the next bound of Singapore’s economic growth,” he added.

WEALTH AND CORPORATE TAXES

Could Budget 2022 also see the introduction of a form of wealth tax? Some observers predicted that it could happen, since wealth inequality has widened during the pandemic. 

DBS senior economist Irvin Seah said in a research note last month that some form of wealth tax increase, such as the reintroduction of estate duties or capital gains taxes, is likely.

Others believe higher taxes on luxury cars, such as increased Additional Registration Fee and road taxes, could be on the cards. Petrol duty rates could also be raised — despite already record-high petrol pump prices.

Property taxes, especially on luxury homes on the highest end, could also be instituted, though there were already recent property cooling measures announced in December.

“Importantly, any decision in this regard would have to consider the risks of wealthy individuals redirecting their assets abroad,” wrote Mr Seah. 

Personal income tax rate for the top tier earners was also raised from 20 to 22 per cent just five years ago in 2017, hence the likelihood of a further increase in such a short duration is low, he added.

While it is still uncertain how any changes to wealth taxes may take shape, there is a clearer deadline for governments to revise its tax strategy for multinational corporations, with new global tax rules by the Base Erosion and Profit Shifting project coming into force from 2023. This could be addressed in Budget 2022.

Last year, 136 countries who are part of the project by the Organization for Economic Co-operation and Development, including Singapore, have agreed to set a 15 per cent minimum multinational corporate tax rate from 2023. 

Singapore’s standard tax rate is 15 per cent, though some multinational companies receive tax reliefs that lower their effective tax rate. Maybank Kim Eng economists estimated in 2021 that such companies from the United States enjoy a low corporate income tax rate of 4 per cent in Singapore.

DRIVING EMPLOYMENT AND SKILLS 

Budget 2022 is expected to build on past Budgets when it comes to jobs and skills training, though some observers predict that there could be a shift towards driving full-time employment instead of trainee positions.

Singapore’s labour market has maintained a recovery trajectory over the past year. Last month, the Manpower Ministry said the full-year unemployment rate dropped to 2.6 per cent overall, down from 3 per cent before, though this remains above pre-Covid levels.

Ms Chew Siew Mee, managing director of job portal JobStreet, said schemes like the Jobs Growth Incentive could be expanded further in a drive to exceed 2019 levels.

The Jobs Growth Incentive is a scheme introduced in 2020 to spur employers to hire locals by providing salary support to eligible companies and employees, and it expires in March 2022.

“The Government has said it wants to focus a lot on helping employees and candidates to emerge stronger post-pandemic, so we do expect them to focus more on funding full-time employment programmes, instead of traineeship roles,” Ms Chew told TODAY.

To help mid-career switchers, programmes like the Career Conversion Programme could also be enhanced, she added. Such schemes let career switchers undergo skills conversion, helping them move into new occupations or sectors that have good prospects and opportunities for progression.

TARGETED BOOSTS FOR BUSINESSES

Businesses can also watch out for Budget 2022 announcements that would aid them in their digital transformation, particularly since rising inflation could mean higher business costs.

SBF’s Mr Lam said that in a poll conducted by his association this year, small- and medium-sized enterprises (SME) requested greater support including assistance on digitalisation, financial support, and business strategy development advisory and consultancy services.

The federation’s SME Committee had also recommended to the Government last year to lend support in various areas, including the continuation of some immediate-term support to help SMEs cope with current challenges, especially for those in certain consumer-oriented businesses.

The support also includes wage support measures, such as extensions to the Jobs Support Scheme (JSS), for certain industries still impacted by the pandemic. Among these are businesses in food and beverage, gyms and fitness studios, performing arts and education, retail, cinemas, museums, art galleries, historical sites, family entertainment and tourism.

“Given the cost pressures, in terms of rising manpower, raw material, logistics and electricity costs that SMEs are facing, it will be good if the Government can also consider some assistance to help SMEs cope with the cost increases,” Mr Lam told TODAY.

While some economists said JSS support will taper off in Budget 2022, some targeted sector-based support, such as rental waivers and relief for SMEs and food and beverage outlets, and the Driver Relief Fund payouts for eligible taxi and private-hire car drivers in the land transport sector, is still expected.

Support could also be needed in aviation, said the HSBC economists, given the slow recovery in the sector despite the launch of more vaccinated travel lanes. Changi Airport’s passenger traffic remained at only 15 per cent of pre-pandemic levels by end-2021, they noted.