Budget 2022 – From GST hikes to tax changes

If you’ve only got a minute:

• Start to spend more prudently before the impending GST hikes.
• With higher ABSD and property taxes on luxury properties, property owners who have investment properties should do their sums and consider other wealth generating instruments, such as Reits, ETFs and unit trusts, to achieve their financial goals.
• The increase in CPF Retirement Sums by 3.5% per annum from 2023 to 2027 offers an opportunity for CPF members to top up their RA for higher monthly payouts for life.

Singapore Budget 2022 was highly anticipated as Singaporeans await clarity on the impending GST hike from 7% to 9%, and look forward to the government’s support to better manage higher costs of living amid rising inflation.

Here are 5 Budget highlights that affect Singaporeans and financial tips to help you navigate the changes.

1. GST hike and GST offset measures

The GST rate will increase from 7 to 9 per cent in two stages - 1 percentage point on Jan 1, 2023 and subsequently another on Jan 1, 2024.

To reduce the impact of the GST hike, the $6 billion Assurance Package will be topped up by $640 million. Under the Assurance Package, every adult Singaporean will get cash payouts ranging from $700 to $1,600, spread over a five-year period.

Around 950,000 Singaporean households will also get additional GST U-Save rebates of $330 to $570 in the next 4 years to offset the cost of utilities. All Singaporean children and seniors will also get a total of $450 in MediSave top-ups.

There will also be a $200 top-up per child through the Child Development Account, Edusave Account or Post-Secondary Education Account for families with Singaporean children below age 21.

On top of that, all Singaporean households will get another 2 rounds of community development council (CDC) vouchers. The $200 in vouchers can be used at heartland stores as well as major supermarkets.

Finally, the service and conservancy charges (S&CC) rebate will be made a permanent component of the scheme from this year. This will provide Singaporean households rebates to offset between 1.5 and 3.5 months of S&CC charges.

In addition to the Assurance Package, the government will top up the CCC ComCare Fund by $5 million over 5 years. It will also provide $12 million over 4 years to self-help groups.

Here's an example of how the GST increase and payouts will work out for a typical family.

This means they will receive around 5 times the additional GST they are expected to incur a year. For lower-income households, the support exceeds 10 times the additional GST they are expected to incur.

Tips: Since GST will rise to 8% from Jan 2023, consider making your must-have big-ticket purchases before end of the year. While we are relieved that the GST hike is delayed till the start of 2023, it is timely to review our saving and spending habits to inculcate a thrifty habit and manage our finances better. After all, prices of some goods and services like Netflix, food and petrol have already headed north in recent months. Do bear in mind that the impending increases in property and personal income taxes will also translate to higher cash outflows for those who are affected.

Ensure that you have at least 3 to 6 months of emergency cash set aside for a rainy day. In the light of higher prices and taxes, review if it is still adequate for you and your dependants. Consider paying off unsecured or high interest debts to lower your recurring expenses.

In addition, use the Budgetary handouts prudently to enhance your financial wellbeing. This can include closing the gaps in your insurance coverage to ensure sufficient cash reserves for emergencies and investing wisely.

Our experience of living within the constraints of social distancing due to the pandemic has taught us that it is possible to reduce discretionary spend when the need arises. You may turn these saving tactics to habits, such as cooking and eating at home, group tuition, self-care, less consumption on cosmetics and apparel, buying in bulk, and doing away with unnecessary subscription services, or swapping out brand-name items for generic ones where possible.

Make use of the “Plan” tab on DBS digibank to help you keep track of your spending in different categories and make realistic adjustments.

2. Increase in taxes

To ensure Singaporeans continue to have access to world-class education and healthcare, affordable housing, good jobs, and peace of mind in their retirement years, the government expects spending to rise over the years.

By 2030, government expenditure is expected to increase to more than 20% of GDP, with most of the spend channelled to healthcare. Taxes will thus be increased, although this will affect those who are earning higher income and who own luxury homes and cars.

Changes to personal income tax

The top marginal personal income tax rate will be increased, with effect from the year of assessment 2024 - which is for income earned from Jan 1, 2023 to Dec 31, 2023.

Resident taxpayers’ chargeable income in excess of $500,000 up to $1 million will be taxed at 23% (up from 22%), while income in excess of $1 million will be taxed at 24%(up from 23%).

Increase in top marginal income tax rate

Chargeable income	Current tax rate	Tax rate from YA2024
>$500,000 and up to $1 million	22%	23%
>$1 million	22%	24%

This increase in the top marginal personal income tax is expected to affect the top 1.2% of personal income taxpayers and will raise $170 million of additional tax revenue per year.

Increase in property taxes

Property tax rates for residential properties will be raised from 2023 in 2 steps, with properties at the higher end seeing steeper hikes.

The range for property tax rates of non-owner-occupied residential properties (which include investment properties) will be increased.

Owner-occupied homes with an annual value of $30,000 or less, such as HDB flats or condominiums and landed property in suburban areas will not be affected by the increase in property tax rates.

When fully implemented, these changes will raise Singapore's property tax revenue by about $380 million a year.

Tips: Coupled with higher Additional Buyer’s Stamp Duty (ABSD) rates, the impending increase in property taxes will translate to higher cost of holding on to luxury properties and lower rental yields. This will lower the attractiveness of physical property as an asset class to accumulate wealth. As such, property owners who have investment properties should do their sums and consider other wealth generating instruments, such as Reits, ETFs and unit trusts, to achieve their financial goals.

Taxes on luxury cars

To make the vehicle tax system more progressive, an additional ARF (Additional Registration Fee) tier for cars will be introduced at a rate of 220% for the portion of open market value in excess of $80,000. The new rates will apply to all cars registered with COEs obtained from the second COE bidding round this month (February 2022).

3. Increase in CPF retirement sums

To help Singaporeans better prepare for their retirement, the government will raise the CPF Basic Retirement Sum (BRS) by 3.5% each year for the next 5 cohorts turning 55 from 2023 to 2027.

The BRS provides CPF members with retirement payouts that cover basic living expenses. The increase in BRS adjusts for long-term inflation and improvements in standard of living. Those who set aside the BRS when they turn 55 in 2027 will receive monthly payouts of close to S$1,000 when they are 65, for the rest of their life.

The CPF Full Retirement Sum and Enhanced Retirement Sum will also increase by 3.5% annually during the same period from 2023 to 2027.

Retirement Sums at 55

 

Estimated monthly payouts at age 65*

*Assumes male member under CPF Life Standard Plan, starting payouts at age 65

Tips: The increase in CPF Retirement Sums by 3.5% per annum from 2023 to 2027 offers an opportunity for CPF members to top up their Retirement Account via the various CPF schemes for higher monthly payouts for life. This will go a long way to increase the retirement adequacy for all.

4. Uplifting lower-wage workers

Over the next 2 years, the government will implement several changes to uplift the lower-wage workers.

The Progressive Wage Model (PWM) will be extended to the retail, food services and waste management sectors, as well as to cleaners, security officers, landscape workers, administrators and drivers across all sectors. This will result in higher labour costs for companies.

The government will help companies co-fund the wage increases in varying percentages up to year 2026 via the new Progressive Wage Credit Scheme (PWCS). These subsidies will apply to Singaporean and Permanent Resident workers earning a gross wage of up to $2,500 a month. Support will also be provided for workers earning between $2,500 and $3,000, at a lower co-funding ratio.

The Workfare Income Supplement will also be enhanced to include those earning up to $2,500, from the previous income cap of $2,300. This will allow more lower-income workers to benefit from the scheme. There will be a minimum income criterion for Workfare set at $500 a month to encourage part-timers and casual workers to take up full-time work.

Workfare will also be extended to younger workers aged 30 to 34, with a maximum annual payout of $2,100. Maximum annual payouts for other age groups will be raised to $3,000 for those aged 35 to 44; $3,600 for those aged 45 to 59; and $4,200 for those aged 60 and above.

People with disabilities will also get a maximum payout of $4,200 annually, regardless of their age. The enhanced Workfare scheme is expected to benefit more than half a million workers.

5. Driving employment and skills for mid-career workers

To help mid-career workers, a new scheme will provide subsidised, industry-orientated training courses to help them secure jobs in sectors with good hiring opportunities.

Mid-career workers will be able to tap a new scheme that will provide highly subsidised, industry-oriented training courses to help them secure jobs in sectors with good hiring opportunities.

The new scheme is called the SkillsFuture Career Transition Programme and will begin from April 1. The courses will be delivered by SkillsFuture appointed education centres and will span 3 to 12 months. Courses will focus on actual industry experience, such as work attachments or industry projects.

Up to 95% of total course fees will be subsidised for Singaporeans who are recipients of short- to medium-term support under ComCare and those who receive income supplements under Workfare.

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This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.