Singapore Budget 2022 Commentary

Finance Minister, Mr Lawrence Wong, delivered his maiden Budget speech on 18 February 2022.

Even as the COVID-19 pandemic and other significant headwinds such as geopolitical tensions, global supply chain crisis and inflationary pressures continue to impact economies around the world, Singapore's economy has made a stronger than expected recovery in 2021. Singapore has maintained its growth forecast of 3% to 5% in the first quarter of 2022. This sets the scene for Budget 2022—“Charting Our New Way Forward Together"—to lay the groundwork to better position Singapore for future challenges and opportunities, as well as strengthen its social compact.

Apart from outlining the Government's plans for Singapore's future, this year's Budget includes the much-anticipated tax proposals, specifically carbon tax, wealth taxes, GST, and an update on the possibility of a Minimum Effective Tax Rate. Similar to prior years, the Budget also seeks to address short- to medium-term concerns, like rising living costs and the impact of the pandemic on specific industries, as well as long-term issues, like an ageing population, social
mobility, economic transformation, and climate change. What stands out as
exceptional in this year’s Budget are the decisive steps taken to strengthen
the economy and social compact—difficult decisions but necessary for Singapore to have the first-mover advantage and capture new opportunities for a more sustainable future.

Climate change remains a top priority for Singapore, and rightly so, given that it is one of the world's most pressing issues. Previous Budget announcements precluded that Singapore would review the carbon tax, and indeed, the Minister announced this year that the carbon tax will increase from $5 per tonne of emissions to $50-$80 by 2030. The Minister stated that this is not a revenue-generating exercise, and that the revenue generated by carbon tax will be used to fund incentives to help firms make the green transition and seize opportunities in the green economy.

The significant enhancements to the tax system, which include augmenting wealth tax collection in the form of property tax and luxury vehicle tax, raising the Personal Income Tax rates for higher-income earners, as well as the anticipated increase in GST may not be entirely surprising, given that the Minister has previously alluded to the need to raise revenue through new taxes or increases to existing tax rates in order to meet rising long-term expenditures, particularly in healthcare. To help cushion the blow, the Government has decided to postpone the GST increase until 2023 and to implement it in 2 steps, mitigating the impact on consumers. It is also reassuring that the Government has added $640 million to the $6 billion Assurance Package in order to soften the effects of the GST increase on lower-to-middle income households.

To address long-term structural concerns, the Government announced plans to accelerate investment in digital capabilities, instill pervasive innovation across the economy, provide more support for SMEs to undertake Research & Development (R&D) activities, strengthen the enterprise ecosystem by improving take-up rate for productivity solutions, and launch a new initiative called "Singapore Global Enterprise" to assist promising local firms to go global. These multifaceted measures, help instill confidence that Singapore can and will be fully prepared to deal with the "evolving challenges" brought on by COVID-19, and at the same time, pave the way for a post-pandemic future.

On the international tax front, discussions of whether Singapore should introduce a domestic top-up tax in response to Pillar Two in order not to cede revenue to other countries seems to be taking shape and will likely be the case. Singapore will need to work hard to continue to strengthen its attractiveness for inbound investments—global connectivity, political stability, pro-business environment, and a diverse talent pool will be key to ensure that it remains a top destination for investors.

Overall, Budget 2022 provides clear directives in areas that will strengthen Singapore's competitive advantage and social compact, as well as to prepare the country for a brighter and greener future. It maps out a strategy for Singapore to navigate its new future that is more volatile, unpredictable, and fast-paced, but also full of opportunities.

The Budget Commentary expands on these different measures and initiatives—we wish you an enjoyable read!