• FY2021 overall fiscal deficit was S$5bn (0.9% GDP), below the estimated S$11bn. The difference came from stamp duty revenue (+$2.2bn), income tax (+S$1.0bn), GST (+S$0.7bn), lower expenditure (+S$3.9bn), investment returns (+S$0.8mn) offset by higher special transfers of S$3.0bn.
• Fiscal deficit in FY2022 is budgeted at S$3bn, or 0.5% of GDP.
• GST will be raised from 7% to 8% on 1 January 2023 and from 8% to 9% on 1 January 2024.
• Higher wages are expected from the implementation of progressive wage schemes, lower dependency ratio ceiling and higher qualifying salaries for foreign workers. Most impacted will be F & B retail, construction, marine and manufacturing sectors. The concern is that higher wages at the lower tier could have a cascading impact on the overall wages of a company. No mention of wealth taxes but higher tax rates imposed on residential properties and luxury cars.

The cascading of higher wages

Companies especially in the F & B retail, construction, marine and manufacturing will face higher wage pressure and tight labour conditions. Firstly, the progressive wage model will raise the minimum basic wages of the lower-income and extend to retail, food services and waste management sectors. Secondly, minimum wages for employment pass will be raised from the current S$4,500 to S$5,000 (S$5,500 for the financial sector). Meanwhile, S Pass minimum salary is to go up from the current S$2,500 to S$3,000 (S$3,500 for the financial sector). We believe there will be upward pressure on wages. As minimum wages rise at the lower tiers, it could cascade upwards to the higher tiers. The higher demand for local workers or the need to pay higher wages to foreign workers is another trigger for overall wages to cascade higher.

The near-term impact of the higher wages will be cushioned by various government initiatives such as a S$500mn support package for small businesses (eg S$1,000 per local employee), S$2bn Progressive Wage Credit Scheme (to co-fund the wage increase for lower-wage workers) and enhanced Workfare Income Supplement (cash and CPF support for lower-wage workers).

Sector snippets

1. Aviation. Extend targeted assistance. Details at the Ministry of Transport Committee of Supply.
2. Construction. DRC will be reduced from current 1:7 to 1:5 (or from 87.5% foreign workforce to 83.3%).
3. Consumer. GST hike will be mitigated by S$6.6bn Assurance Package and S$560mn Household Support Package. It will offset at least five years of additional GST expenses for most Singaporean households and 10 years for lower-income households.
4. Defence. Total defence expenditure for FY22 to rise 6.5% YoY to S$16.3bn. Triple the 5-year CAGR of 2% (2017-2021).
5. Land transport. Zero growth rate for private vehicles. Green bonds of S$35bn to be issued to fund green infrastructure including EV charging points.
6. Residential property. Increase property tax rate on non-owner occupied residential properties from 10-20% to 12-36% and owner-occupied from 4-16% to 6-32%.
7. Utilities. Raise carbon tax from S$5 to S$25 per tonne in 2024 and 2025, and S$45 per tonne in 2026 and 2027, with a view to reaching S$50 to S$80 per tonne by 2030.

Other highlights from budget speech

Wealth taxes

• Not easy to implement effectively because mobile and complex to estimate.
• OECD countries that levy wealth taxes dropped from 12 in 1990 to only three in 2020.

Corporate taxes

• Under Pillar 1 of BEPS 2.0* Singapore will lose tax revenue.
• Pillar 2 will require top-up tax (METR**) to 15% and might yield additional tax revenue in the short term.

Healthcare

• By 2030, 25% of Singaporeans will be 65 and above (2021: 16%).
• At the current spending rate, expenditure on healthcare by 2030 will reach about S$27bn or 3.5% of GDP (2021: 3.4%#).

*Base Erosion and Profit shifting initiative

**Minimum Effective Tax Rate

# Includes COVID-19-related expenditure