Budget 2022: Building fiscal resilience
? We see the staggered and delayed GST hike as positive for this year’s economic and inflation forecasts (MTI: 2.5-3.5% vs. CGS-CIMB: 3.0%).
? Support for business and households was reduced but support for resident employment was sustained.
? Despite several plan to raise taxes, we see the budget as neutral. We maintain our GDP growth outlook at 4.2% yoy in 2022 (MTI: 3-5%).
A contractionary budget, but not really
Budget 2022, named ‘Charting Our New Way Forward Together’, w as delivered by the new Finance Minister, Lawrence Wong, on 18 Feb 2022. The budget was aimed at positioning Singapore in a post-Covid-19 environment. Although measures announced point towards a contractionary budget this time around, efforts were taken to mitigate the impact on the lower income group and this year’s economic outlook, with most measures generally taking effect in 2023 or beyond.
GST hike announced, but for 2023
The most anticipated outcome of the Budget was the announcement of the increase in GST rate from 7% to 9%. While w e fully expected the announcement of the tax hike, the decision to stagger the increase (from 7% to 8% in 2023 and to 9% in 2024) comes below our expectation of a straight 2% hike by July 2022. Nevertheless, the delayed implementation of GST is positive for this year’s economic and inflation forecasts. For 2023 onwards, the Assurance Package w orth S$6.6bn in the form of cash handouts, alongside a slew of other measures, such as the GST voucher scheme and U-Save rebates, also neutralise the negative impact of the tax on consumption.
Support was reduced
Not much was laid out for segments of the economy still reeling from the Covid-19 impact. A few measures were extended for this year, although the quantum of support seemed to be smaller. For consumption, gone was the wide array of cash handouts seen since 2020, although support for the low income group and the elderly remained. Of note, the increase in taxes for the rich was a welcome surprise. How ever, w e see the hike in personal income tax to have a minimal impact to consumption given that the share of consumption expenditure of the top 1.2% income earners is projected to be negligible.
Local workers get more support
The government will raise the minimum qualifying salary for new Employment Pass and S Pass applicants by S$500 effective September 2023. This move will make hiring foreign workers much more expensive, forcing businesses to hire locals or further improve on productivity to justify the higher pay. We view this as positive for the domestic labour market.
Budget still drawing from past reserves
The budget will in total run into a deficit of 0.5% of GDP, narrower than the 0.9% seen in 2021. However, this marks the third consecutive year of a fiscal deficit, a first on record. How ever, given the inclination for an upside surprise in the budget over the past several years, w e do not rule out the possibility that the fiscal deficit could be better than projected.
Maintain 2022 GDP at 4.2% yoy
Overall, we maintain our GDP growth forecast for this year at 4.2%. Several tax increases announced will not take effect this year, which mitigates any negative impact on the economic outlook. Even the GST hike, which takes effect in 2023, will be offset by the mitigating measures, such as the Assurance Package. This prompts us to maintain our 2023 growth outlook as well.