Contrary to popular belief, the Singapore Budget is far from being a boring show of numbers and figures. Instead, it showcases the government’s strategy to help Singapore excel as a nation in a post-pandemic environment. To reflect this, 2023’s Budget has been given the theme ‘Moving Forward in a New Era’. Here are the key highlights you need to know as a Singaporean dealing with stubborn inflation as pandemic restraints are loosened.
Singapore Budget 2023 Key Highlights
1. Raising of CPF Ordinary Wage Ceiling From S$6,000 to S$8,000 by 2026
Summary: Short-Term Pain, Long-Term Gain
Any Singaporean with a monthly salary will undoubtedly know how CPF contributions work. For the uninformed, 20% of employees’ wages will be contributed to their CPF accounts monthly. The government mandates this to ensure Singaporeans have enough savings for retirement and to pay for essentials like housing and medical bills. For years, the S$6,000 ordinary wage ceiling meant that CPF contributions maxed out at S$1,200. With this new ordinary wage ceiling announcement, CPF contributions will now be capped at S$1,600.
While some Singaporeans may dread the lowered take-home amount, this ‘reduction’ in disposable income will yield greater returns in the long run as employers also have to contribute more to their employees’ CPF accounts. Assuming a salary of S$8,000, employees’ CPF accounts will enjoy an additional employer contribution of S$340. This will thus help employees reach the full retirement sum quicker and bolster overall retirement adequacy.
2. GST Vouchers (GTSV) & Assurance Packages (AP)
Summary: Government Payouts of Up To S$2,250
To relieve low-income Singaporean households, an additional S$3 billion will be deployed in government payouts to combat escalating inflation. In essence, Singaporeans will be given payouts from these five categories:
- AP Payouts
- Cost-of-Living Special Payments & Seniors’ Bonus
- CDC Vouchers
- U-Save Rebates
- Edusave & PSEA Account Top-Ups
3. More CPF Housing Grants for Resale Flats
Summary: Up To S$30,000 Subsidies for First-Timers
Despite corrections in the stock market, the local housing market shows no signs of slowing down as we continually see HDB flat prices breach the S$1 million mark. To combat this, the government is offering more CPF grants to soften the monetary blow for First-Timer families and singles purchasing resale HDB flats. Singles will enjoy an extra S$15,000 and families stand to gain up to an additional S$30,000 when buying 4-room or smaller resale flats. Although this might further inflate flat resale prices, this amount will offer some relief for First-Timers to take the plunge and purchase their first home.
4. Increased BTO Flat Application Odds
Summary: First-Timers Will Receive An Additional Ballot for BTO Flat Applications
Oversubscribed Build-To-Order (BTO) flats are commonplace these days as thousands partake in the process to secure their first home despite surging real estate prices. To give BTO first-timers an edge, the government is granting families with children and married couples aged 40 and below an additional balloting chance. Even though this might seem like a drop in the ocean of BTO ballots, the extra chance can make a difference if you’re balloting for a unit in a non-mature estate.
5. Supporting New Families
Summary: Young Parents Will Enjoy Extra Cash Support & Tax Relief
Raising children in Singapore has always been considered expensive. Fortunately, the government is taking steps to ease the financial burden on newer parents. The first of these measures is enhancements to the existing baby bonus cash gifts. S$3,000 will be awarded to families of babies born after 14th February 2023. With regards to overall tax relief, Singaporeans will be glad to know that the Working Mother’s Child Relief scheme will now offer a fixed amount of tax relief. This contrasts the previous percentage-based relief and favours lower-income households.
How The Singapore Budget 2023 Impacts You as An Investor
If you’re an avid investor in the Singaporean market, you’ll want to know how these policy changes will impact your investments in the short and long run. Here are our thoughts regarding investor-based insights for the Singapore Budget 2023.
1. An Increase in Demand for Bank Loans Will Lead to More Revenue Growth for Local Banks
To afford an HDB unit, new homeowners will likely need to finance their mortgage with a bank loan. To analyse the impact of housing loans on the balance sheets of banks offering these hefty loans, we'll use the most recent financial report from DBS (SGX: D05). According to DBS' latest quarterly earnings report, housing loans with the local bank grew by about S$3B in 2022.
While this growth is expected to slow to less than S$2B in 2023, it's noteworthy that loans to finance housing purchases remain a sizeable portion of DBS' gross customer loans. Of the total S$420B amount, about 19% (S$80B) is attributed to consumer housing loans. With DBS reporting record annual profits of S$8.19B for FY22, this increase in housing loans will impact the balance sheet of DBS and improve the bank’s fundamentals.
2. More Demand for BTO Units Will Lead to More Projects for Construction Companies
Due to pandemic restrictions, the construction sector took a big hit in 2020 as demand projections were slashed to a range of S$18B and S$23B. This was largely due to delays and cancellations for both private and public sector projects. Fortunately, as Singapore reverts to its pre-pandemic norms, construction projects are projected to come roaring back as established construction companies like Kim Seng Heng Holdings (SGX: ER0) come back into the limelight.
The Building and Construction Authority forecasts the value of 2023’s construction contracts to be between S$27B and S$32B, most of which is supported by a strong pipeline of public housing projects. First-timers can finally rejoice as the Housing Development Board is ramping up the construction pace so the supply of BTO flats can meet the strong demand.
3. Increased CPF Contributions Will Lead to More Liquidity in CPFIS
While Singaporean investors bemoan the lack of liquidity that comes with increased CPF contributions, the bright side is that Singaporeans will have more funds available for their CPF Investment Scheme. As retail investors may want to enhance their potential retirement savings, we foresee more funds flowing into a wide range of investible products like shares, property funds, corporate bonds and gold ETFs. As such, the value of such products may be inflated in the short-term when treasury bond yields fall, and investors look for alternative investment opportunities for greater returns.
From making housing more affordable to helping Singaporeans plan better for retirement, we hope our Singapore Budget 2023 summary helps you better understand how the government intends to guide the economy moving forward. We also expect our insights grants you added perspectives on the Singaporean market as they relate to the announcements by providing an outlook of specific sectors.
Keen to learn more about investing in a post-pandemic environment? Find out if you should embrace wanderlust with our take on 2023’s travel outlook and whether travel stocks are worth a buy. Alternatively, if you’re more interested in commodities, our guide to bull and bear cases for gold and oil will be perfect.
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