2022 Budget – All About The GST

The key surprise of the budget was the slight delay in the implementation of the GST hike over 2023 and 2024, giving the domestic economy a little breathing room to continue its pace of recovery. In our view, the budget has a limited impact to our universe of listed companies with its focus very much on supporting workers, small- and medium-sized enterprises, digitalising the economy and ensuring that
Singapore continues to remain relevant in the future.

Budget 2022 – taxes aplenty. Singapore’s Minister of Finance, Mr Lawrence Wong delivered the 2022 Budget on 18 Feb 22. Key highlights from his speech include:

a) GST hike to be implemented in two stages. Taking into account the current COVID19 situation, economic conditions and worries over inflation, the government has decided to implement the GST hike in two stages: a) from 1 Jan 23, GST will increase from the current 7% to 8%, and b) from 1 Jan 24, it will increase from 8% to 9%. Ostensibly, the higher GST will go towards funding Singapore’s healthcare costs
which have risen at a CAGR of 13%, from S$3.7b in 2010 to S$11.3b in 2019. Excluding COVID-19-related expenditure, the government is expected to spend about S$27b (or around 3.5% of GDP) by 2030 if such costs continue to increase at a similar rate. The 2ppt hike in GST is expected to raise S$3.2b in revenue.

b) A number of taxes focused on the wealthy. Despite additional revenue from the higher GST, the government states that this will not be adequate to cover the higher healthcare costs. Thus it will increase personal income taxes, property taxes and vehicle taxes to cover the anticipated rise in healthcare costs (see table below).

c) A further push into a greener future. The government has proposed an increase in the carbon tax from the current S$5/tonne to S$25/tonne in 2024 and 2025, then to S$45/tonne in 2026 and 2027, eventually reaching S$50/tonne to S$80/tonne by 2030. The government has mentioned that it will look to pace the increases to the carbon tax between now and 2030, and will announce subsequent increases ahead of time, allowing certainty for businesses.

d) Corporate taxes remain unchanged for now. However there may be updates at a later juncture as the Ministry of Finance is currently studying the global tax developments relating to the Base Erosion and Profit Shifting (BEPS) 2.0 which is being spearheaded by the OECD.

In 2021, Singapore saw a budget deficit of S$5b (0.9% of GDP), which was lower than expected due to reduced expenditure of S$10b for the COVID-19 Resilience Package, delayed expenditure due to COVID-19 as well as one-off revenue upside from vehicle quota premiums and stamp duties. In 2022, the budget will remain expansionary, with total expenditure projected at S$102.4b and an overall budget deficit of S$3b (0.5% of GDP).

Investing in digital capabilities. The Singapore government highlighted that it will look to upgrade the country’s broadband infrastructure to increase broadband access speeds by around 10x over the next few years as well as invest in future technologies like 6G. Apart from infrastructure improvements, it will look to spend S$200m over the next few years to enhance schemes that build digital capabilities in the country’s businesses and workers.

Adjusting foreign worker policies. To ensure that incoming Employment Pass (EP) and S Pass holders are comparable in quality to their respective Singaporean counterparts, the government plans to raise the ‘minimum qualifying salary’ for new EP applicants from the current S$4,500 to S$5,000 (S$5,500 for financial services). For S Pass, the minimum qualifying salary will rise from the current S$2,500 to S$3,000 in Sep 22 (S$3,500 for financial services) and then increase again in Sep 23 and in Sep 25 with numbers to be disclosed at a later stage.

KEY MEASURES: BUSINESSES

A S$500m Jobs and Business Support Package: This package includes Small Business Recovery Grants for small- and medium-sized enterprises (SMEs) within sectors that have been most affected by COVID-19 restrictions over the past year, eg food & beverage, retail and tourism/hospitality. Such enterprises will receive a payout of S$1,000 per local employee, up to a cap of $10,000 per firm. In addition, licensed hawkers, market and coffeeshop stallholders, who do not hire local employees, will also receive a $1,000 payout.

Loan programmes: In acknowledging the difficulties that enterprises have had in dealing with higher materials and energy prices, the government has extended its Temporary Bridging Loan Programme and the enhanced Trade Loan Scheme for another six months, to 30 Sep 22 in order to provide liquidity to affected firms. In addition, the construction sector will also see extended access to Project Loans for another year to 31 Mar 23.

KEY MEASURES: INDIVIDUALS

S$560m Household Support Package. Within this package are three key items. These include a) doubling the GST Voucher – U-Save rebates for the rest of 2022 with eligible HDB households receiving additional rebates of up to S$285, b) children below 21 receiving a topup of S$200 in their Child Development Account, Edusave Account or Post-Secondary Education Account, and c) distribution of another set of S$100 CDC Vouchers in 2022 to support all Singaporean households in their daily expenses.

Enhancing the Assurance Package. As part of a S$640m enhancement to the Assurance Package, now worth S$6.6b, that was first announced in 2020 to help deal with the impact of the impending hike in the GST, the government will provide support via: a) cash payouts to all Singaporeans depending on income and property ownership over 2022-26, b) cash bonuses to lower-income senior citizens over 2023-25, c) more U-Save rebate vouchers for eligible HDB households over 2023-26, d) Medisave top-ups for Singaporeans aged 20 and below, and those above 55 years old over 2023-25, and e) additional CDC vouchers.

Other measures to absorb GST impact that were announced during Budget 2022 include: a) an increase in the assessable income threshold for GST vouchers, rising from S$28,000 to S$34,000 thus benefitting more Singaporeans, and b) rebate for service and conservancy charges.

COVID-19 Recovery Grant: The government has also extended the COVID-19 Recovery Grant to end-22 and this applies to workers who continue to face income loss due to COVID19.

SECTOR IMPACT

AVIATION (MARKET WEIGHT – unchanged)

Continue to receive targeted support from government: The Finance Minister reiterated the importance of preserving and enhancing Singapore’s status as an international aviation hub and that the government will continue to extend targeted assistance to the aviation sector to help ensure public health and safety as well as to preserve core capabilities. While this stance is largely expected, we believe the support from government should continue to help stabalise business outlook for Singapore aviation plays such as SIA, SIA Engineering and SATS.

CONSUMER (MARKET WEIGHT – unchanged)

Selected consumer names like Sheng Siong, and to a lesser extent Dairy Farm, could see some marginal benefit from consumers stocking up on household items in 4Q22 and 4Q23 before the 1% GST hike in Jan 23 and Jan 24. However we do not expect this to change Sheng Siong’s earnings significantly as the GST hike is not lumpy and consumer spending will normalise subsequently.

Jobs and Business Support package not expected to materially benefit consumer companies. While the payout of S$1,000 per local employee would apply to consumer companies like Kimly and Jumbo for example, the cap of S$10,000 per firm would be immaterial to the companies in our view.

GAMING (OVERWEIGHT – unchanged)

Impact not significant. Based on our sensitivity analysts, the impact to our FY23-24 net profit forecast for Genting Singapore is not significant at about 2.4% for FY23 and 4.8% for FY24. Our assumption is based on the GST hike for gaming GGR only as we assume the non-gaming segment will pass the cost onto consumers.

PROPERTY DEVELOPERS & AGENCIES (OVERWEIGHT – unchanged)

Property developers appear to be negatively affected from Budget 2022. However, we do not believe that the impact will be meaningful. The move to increase the minimum monthly salary for foreign workers may reduce the profit margins of the construction companies and thus have a minor knock-on effect on new developments’ profit margins. In addition, the tightened rules for the number of foreign work permit holders could lead to slight delays in construction timelines, although it is difficult to quantify the effect at this juncture.

Property agencies such as Propnex and APAC Realty may experience marginal benefits via the increased sales of properties by asset-rich individuals. Such individuals may decide to rationalise their property portfolios due to materially higher taxes on non-owner occupied properties, although we assess the impact of this to be relatively immaterial to the property agencies’ bottom line.

SHIPYARD & INDUSTRIALS (OVERWEIGHT – unchanged)

While the percentage increase in carbon taxes appear daunting, we believe that the shipyard and industrial companies under our coverage should be able to manage given that the government has clearly articulated that there will be a transition framework in place to assist companies in managing the higher carbon taxes. These include providing existing companies with allowances based on efficiency standards and decarbonisation targets, meaning that the companies would not have to pay carbon taxes for these allowances. Importantly, businesses will also be able to use high-quality international carbon credits to offset up to 5% of their taxable emissions from 2024.

• As power generators, Sembcorp Industries (SCI) and Keppel (KEP) may be negatively affected via higher taxation on carbon, although we do note that both companies have been focusing on an early push into reducing their respective carbon and greenhouse gas (GHG) emissions. In addition, both companies have highly efficient combined cycle gas turbine cogeneration plants which emit less CO2 than conventional thermal coal and oil plants, which are less efficient. As such, we expect both companies to continue being competitive in the Singapore energy sector.

• In 2020, SCI, Sembcorp Marine (SMM) and KEP’s Scope 1 and 2 emissions were 26,525, 125 and 172 kilotonnes of carbon dioxide equivalent (ktCO2e) respectively. However, both companies have plans to reduce this in the medium to long term:

a) KEP has targeted 86ktCO2e by 2030. Beyond 2030, KEP aims to achieve net zero Scope 1 and 2 carbon emissions by 2050. Already, the company has retrofitted its Keppel Bay Tower into a Zero-Carbon building.

b) SCI aims to reduce its GHG intensity to 0.40 tonnes of carbon dioxide equivalent per megawatt hour (tCO2e/MWh) by 2025 vs 0.54 tCO2e/MWh in 2020. In addition, its Climate Action Plan 2021 aims to halve its GHG emissions by 2030 and hit net-zero by 2050 as well as committing itself to no new coal-fired energy asset investments.

OTHERS

• In his speech, the Finance Minister noted that strengthening digital capabilities is among Singapore’s first priorities and the government would continue to promote innovation by encouraging investments in R&D by both public and private sectors. Being a leading technology and engineering powerhouse for Singapore with a large client base (in both public and private sectors), ST Engineering stands to benefit from Singapore’s consistent push towards a digital and green future.

CONCLUSION

Key stocks impacted by Budget 2022. Within our coverage universe, there appears to be relatively minimal impact on Singapore corporates. Budget 2022 was very much focused on supporting workers and businesses still affected by COVID-19 but more importantly was focused on medium-to-long-term policies such as helping firms digitalise while supporting workers in retraining and upskilling so that both businesses and workers stay relevant in the future. Hopefully, the budget will allow the government to move more decisively and follow other countries into an endemic COVID-19 environment, while helping Singaporeans realise the vision of a fairer, more sustainable, and more inclusive society.

Singapore still on a growth path. We note that UOB Global Economics and Markets Research is currently forecasting for Singapore to expand by 3.5% in 2022, against the Ministry of Trade and Industry’s outlook of between 3.0% to 5.0%.