Budget 2022

The economy is on the mend, and the COVID situation in Singapore has also stabilized, thanks to the efforts made in inoculating the population. As it is, more than 90% of the population have received at least two doses of vaccines and a large majority has also taken the booster shot. Such high vaccination rate implies higher resilience against the impact of COVID and make for further reopening of the economy.

The economy is also firmly on the recovery path. Base effect aside, overall GDP growth in 2021 is projected to record a robust expansion of 7.2% based on the advance estimates. As such, the upcoming Budget 2022, due on 18th February, will mark a key turning point in the fiscal policy focus. Coming off the worst recession since Independence and two years of pandemic, policy thrusts are expected to shift from crisis management to addressing longer term priorities. Although sustaining the recovery would still be important, policymakers are likely to accept some tradeoffs to achieve long term economic objectives.

Shift from broad-based to targeted support

Granted the recovery thus far has been uneven. While some of the worst affected sectors such as construction has registered double digit growth in 2021, that’s largely due to the low base in 2020. The reality is that in terms of real GDP (sa), some of these worst hit sectors have yet to recover to pre-COVID levels. However, what is weighing on these sectors is the reopening of the borders. Further relaxations of border-related measures (e.g., more VTL arrangements) would drive tourist arrivals, as well as helping to resolve the existing manpower crunch in these sectors. Expectation is that the reopening of the borders will be done steadily, facilitated by continued increase in local inoculation rate. As such, most broad-based support measures will likely be expired while the remaining assistances for the worst hit sectors are also expected to be more targeted going forward.

Along with the shift towards targeted measures, we also expected initiatives pertaining to wage and employment to be tweaked. The Job Support Scheme (JSS) is unlikely to be extended. Instead, focus will be to spur hiring and to resolve skill mismatches in the labour market. We expect policy measures such as the Job Growth Initiative (JGI), which incentivizes hiring of locals, and the Career Conversion Programme (CCP) that aims at helping workers transiting to new industry to be further enhanced in the upcoming budget.

Maintaining economic relevance in a post-COVID world

With the economy gradually emerging from the pandemic, there is impetus to refocus on longer term priorities. We expect fiscal thrusts to be redirected back towards economic transformations and strengthening Singapore’s competitiveness in a post-COVID environment. Enabling companies to adapt, to stay ahead of competition and to be able to seize opportunities in the region when the shadow of COVID eventually fades off will be fundamental to Singapore’s longer term economic relevance.

Policy measures will aim at spurring investment in digital solutions, technologies such as AI, automation and robotics, regionalization, as well as green technologies. Efforts in these areas will not only enable companies to remain competitive and be able to capture emerging opportunities, but also to help them mitigate against the potential challenges of an aging population, climate change and perhaps even the next pandemic.

Continued investment into our human capital will receive significant attention in the upcoming budget as well given the disruptions to jobs arising from the pandemic. Some jobs may be lost permanently in a post COVID environment as remote working becomes a new norm. Workers and indeed, livelihoods will be affected as the skill requirements within industries adjust to this new phenomenon. To enable workers to remain employable and agile in their skills, there will be renewed efforts to reskill and upskill our labour force.

Refocus on fiscal sustainability

The past two years of pandemic has taken a huge toll on Singapore’s fiscal resources, and there is now an urgent need to refocus on fiscal sustainability. Accumulated fiscal deficit over the last two years has amounted to a massive SGD 75bn and the government has also drawn down SGD 53.7bn of the reserves to fund multiple relief packages. While rebuilding public finance is a pressing concern, the bigger focus of Budget 2022 is ensuring the long-term robustness of Singapore’s fiscal system to cope with challenges such as aging, future-proofing our human capital and climate change [1]. These longer-term issues would incur significant costs on the nation and would need to be supported by a sustainable source of revenue.

As such, the impending GST hike will be announced in Budget 2022 [3]. Economic conditions are now robust enough, presenting a window for such a policy move. The GST rate will be raised to 9%, from 7%. To mitigate against the regressive effects of the tax hike, the SGD 6bn Assurance Package has also been set aside to defray the GST costs on the lower income households. The timeline is less certain though, but based on the last GST hike in 2007, the policy move could take effect as early as July this year. The 2%-pts hike in the GST is expected to bring about an additional SGD 3.2bn to SGD 3.6bn tax revenue for the fiscal coffer per annum.

Beyond the GST hike, a review of the existing set of tax incentives for MNCs could be on the cards. The OECD announced on 8 Oct21, a landmark agreement between 136 countries and jurisdictions to establish a global minimum corporate tax. In an effort to curb corporate tax evasion, participating countries will need to ensure a minimum corporate tax rate of 15%. A review of the tax incentives for MNCs will not only align Singapore tax policies to the global agreement, but it will also benefit the fiscal coffer.

A modestly contractionary budget

The fiscal outturn for 2021 could surprise on the upside. The government’s total operating revenue for FY21 as of November has been stronger than expected, largely from robust corporate income tax receipts and stronger showings from other broad revenue categories such as the GST and stamp duties compared to the previous year. Hence, while the government has budgeted for a fiscal deficit of SGD11bn (2.2% of GDP), expectation is that the final outcome could be a smaller deficit (SGD 4-5bn).

An overall surplus of about SGD 3.5-4.5bn (0.7-0.9% of nominal GDP) is expected for Budget 2022. This is slightly higher than the average annual balance over the ten-year period (FY10-19) prior to the COVID pandemic (SGD 3.3bn) as it includes the potential fiscal boost from the impending GST hike. If the above fiscal surplus pans out as projected, it’ll put the government on a better footing in terms of accumulating sufficient fiscal bullets for the coming years.


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