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Budget 2023 offers near-term help but maintains fiscal discipline and active wealth distribution

Bryan Wu
Bryan Wu • 12 min read
Budget 2023 offers near-term help but maintains fiscal discipline and active wealth distribution
Singapore expects to run a slight deficit of $0.4 billion this year, as the country shifts from fighting the pandemic to dealing with near-term economic challenge. Photo: The Edge Singapore
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On Feb 9, deputy prime minister Lawrence Wong, in his capacity as co-chair of the multi-ministry task force, cheerily appeared in yet another TikTok video.

In a bid to reach constituents and citizens who shy away from mainstream channels, Singapore’s politicians are now regularly found building their presence on new platforms to deliver messages.

In this instance, Wong was announcing that Singapore, with effect from Feb 13, would remove practically all pandemic-related restrictions, moving its Disease Outbreak Response System Condition (Dorscon) level from Yellow to Green.

The very next day, Wong — who has been designated Singapore’s next prime minister — delivered his Budget 2023 statement. In the announcement, he warned of the “formidable challenges” lying ahead for Singapore in a “new era” of external uncertainties, forcing the country to brace itself for a slowdown in growth of at most 2.5% this year, following the 3.6% GDP growth in 2022.

Only three years ago, the country was hit by the Covid-19 pandemic that brought most physical activities to a standstill, compelling Wong’s predecessor, Heng Swee Keat, to front the unprecedented $100 billion rescue package as Finance Minister at the time.

As signalled by Dorscon Green, Singapore believes the worst of the pandemic is over. Budget 2023’s measures pertaining to business have been reoriented from soothing the impact of Covid-19, to focusing on long-term capability enhancement and strengthening competitiveness.

See also: A budget to secure Singapore's future

Budget 2023 also signalled the government’s active pursuit of measures that will see better-off demographics contributing more to the pot, following the accentuation of wealth disparity in Singapore over the course of the pandemic. “We see Budget 2023 as pro-young family, to cope with pressing inflationary issues, while continuing to focus on wealth distribution and taxing the rich,” say CGS-CIMB analysts Lock Mun Yee and Lim Siew Khee.

This year’s budget reiterated the self-discipline necessary to keep a tight fiscal rein. For FY2022, the government says it will run a “slight” deficit of $2 billion, which is expected to narrow further to just $0.4 billion for the coming FY2023 — estimated at a mere 0.1% of GDP.

The draw on the country’s reserves — whose actual amount is a state secret -— came up to $3.1 billion in FY2022, only half the $6 billion it initially requested. In short, Singapore will spend if required, but will abstain if it can afford not to.

See also: Tech sector's response to Singapore Budget 2023

According to OCBC’s chief economist Selena Ling, the reiteration of the importance of Singapore’s reserves as the insurance for “rainy days” underscores the need for this small yet open economy to have the financial resources to navigate a “fragmented and disrupted” global landscape littered with shocks and setbacks, without sending the bill to future generations.

“This principle is likely to ensure that Singapore will continue to walk the tightrope of prioritising the growing expenditure needs, while exercising fiscal prudence and balancing the trade-offs between short-term and medium-term needs,” adds Ling, a former government economist.

A significant proportion of the Budget 2023 measures will help address social issues such as cost-of-living pressures suffered particularly by the low-income group. Specific help will be provided for first-time home buyers, parents-to-be, seniors, platform workers, and persons with disabilities, says Ling.

The generosity, however, has to be balanced against the medium-term growth drivers of innovation and the need for economic resilience, she adds.

Ling says the government has not “forgotten” the need for fiscal prudence. Although help such as the $3 billion increase to the Assurance Package will be provided, specific segments, namely buyers of fancier cars and bigger homes, as well as its perennial target — smokers — will have to stump up more.

While there is no further drawdown on past reserves despite the “modest” $0.4 billion deficit, Ling says the onus will likely fall on Budget 2024 to make up the fiscal shortfall to balance the budget for the current term of government.

Mixed outcomes for businesses

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With Budget 2023, the government has again reiterated the importance of encouraging innovation and internationalisation for businesses to stay relevant and capture new opportunities.

As usual, a whole slew of schemes have been made available or given a boost. These include the $4 billion top-up to the National Productivity Fund, the new Enterprise Innovation Scheme, as well as the $1 billion boost to the Singapore Global Enterprises initiative.

Wong also announced extensions to existing measures that will help businesses defray rising costs. Current enhancements to the Enterprise Financing Scheme, which include the 70% government risk-share for trade loans and support for domestic construction projects via project loans, will be extended for another year until end-March 2024. The Energy Efficiency Grant will also be extended for another year to provide continued support for businesses in the food services, food manufacturing and retail sectors to invest in energy efficiency.

But DBS Group Research economists Irvin Seah and Chuan Han Teng note that some of the other measures announced this year could have adverse outcomes for businesses. For example, the Central Provident Fund (CPF) salary ceiling has been raised from the monthly $6,000 to $8,000, so that middle-income salaried workers can save more for retirement.

By doing so, companies face higher manpower costs with employers’ contribution increasing in tandem. “That said, the progressive four-year rise for the ceiling increase would allow for a gradual adjustment,” they add.

Property investors will ‘wait and see’

Meanwhile, buyer’s stamp duties (BSD) rates have been raised, affecting an estimated 15% of the higher-value residential properties and 60% of non-residential properties. With effect from Feb 15, BSD for residential properties has increased from 4% to 5% for the portion of the value of the property costing $1.5 million to $3 million and 6% for the value in excess of $3 million, while BSD for non-residential properties has increased from 3% to 4% for the portion of the value of the property costing $1 million to $1.5 million and 5% for the value in excess of $1.5 million.

From the perspective of Maybank Securities analysts Chua Hak Bin, Lee Ju Ye and Thilan Wickramasinghe, the increase in BSD on high-value properties is more of a “wealth tax” targeted at “higher-end” buyers than a property cooling measure. “We expect high-end residential property taxes to be marginally impacted, both in terms of volume and prices, while the mass residential market should be less affected,” they say.

Calculations from property analysts show that for a $2 million property, BSD would rise by $5,000 or 0.25% of property value, while for a $10 million property, the additional tax would come in at $155,000 or 1.55% of property value.

According to CBRE Southeast Asia’s head of research Tricia Song, the raised BSD rates for higher-value properties will result in an increase of up to 2% in total costs for buyers.

“On its own, this is unlikely to have a significant impact on the market. However, taking into consideration other earlier wealth taxes and cooling measures for residential properties, as well as higher financing costs for both residential and commercial properties, transaction volumes for both residential and non-residential properties could slow down in the near term,” says Song.

Similar to residential properties, the revised BSD rates will primarily impact non-residential properties valued over $10 million, she says. “This is likely to further impact investor sentiment, which has turned cautious since 2H2022 amid sustained rate hikes and the deteriorating global macroeconomic backdrop. Higher interest rates have impacted the ability of institutional investors to underwrite larger property deals,” she says.

With the increase in BSD likely to widen the “mismatch” in price expectations between buyers and sellers, Song notes that investors are likely to continue adopting a “wait-and-see approach”, which is likely to lead to a short-term slowdown of big-ticket institutional-grade asset transactions.

Notwithstanding, she believes the industrial property sector is still attractively positioned, even after factoring the increase in BSD. “This is due to a positive yield spread despite the higher cost of debt. While the actual impact still depends on the profile of investors, the market could remain competitive, especially for good-quality assets,” she says.

Song maintains that investment volumes could pick up in the later half of 2023 when interest rates stabilise and there is more clarity in the market outlook. “Overall, the mid- to long-term outlook for Singapore assets remains positive due to Singapore’s strong fundamentals, coupled with the expected continuation of rental growth,” she adds.

Meanwhile, Lock Mun Yee and Lim Siew Khee of CGS-CIMB Research say they expect the raised BSD to be “slightly negative” for property developers such as City Developments, UOL Group and CapitaLand Investment. “The market is still digesting the impact of the residential cooling measures introduced in December 2021 and September 2022, while the increase in non-residential transaction costs could also mean slower activity on big-ticket items,” say Lock and Lim.

However, DBS Group Research analyst Yeo Kee Yan sees “minimal impact” from the higher BSD on property developers City Development, UOL Group and Wing Tai Properties. Noting that BSD has only seen a “marginal increase” of 1 to 2 percentage points for higher-end residential and non-residential properties, he expects that transaction velocity will not be significantly impacted, considering that the demand drivers of personal use and investment are unlikely to be deterred.

In fact, he believes that while the rise in CPF monthly ceiling, which trims take-home pay slightly, could dampen consumer spending, the higher monthly CPF contributions of up to $740 for mortgage payments from January 2026 is another potential positive for the developers mentioned.

Market reaction

On Feb 14, Singapore shares fell marginally as traders stayed on the sidelines, in anticipation of key US inflation data to serve as cues for Fed Fund Rate movement. Measures announced as part of Budget 2023 also gave investors “plenty to digest”, says the Phillip Securities Research Team.

The Straits Times Index (STI) slipped 6.5 points or 0.2% to 3,318.20. On the wider bourse, losers outnumbered gainers 252 to 248 after 1.2 billion securities worth $880.4 million changed hands. On the day of the Budget 2023 announcement, SATS came up among the STI’s top decliners, slipping 14 cents or 4.7% to close at $2.86. It was also Feb 14’s eighth-most actively traded counter, with 20.2 million shares transacted. This was in contrast with network infrastructure provider NetLink NBN Trust, which bucked its losses on the Singapore Exchange on the same day, rising 2 cents or 2.3% to 87.5 cents.

For Paul Chew, head of research at Phillip Securities, a beneficiary of Budget 2023 will be supermarket chain Sheng Siong Group, which will see higher business volume as Singaporeans make good use of their additional cash handouts or vouchers.

As part of Budget 2023, “platform workers” are to be given greater income security, specifically through CPF contributions from both workers and employers, as the government adapts its suite of employment policies to keep up with the model implemented by the likes of Grab Holdings. Indirectly, ComfortDelGro, which competes with the likes of Grab, will now see its competition bearing higher costs, says Chew.

Besides concurring with the view that platform companies face higher costs, Maybank Securities points out that with higher vehicle taxes, which will drive vehicle ownership costs up further, demand could spill over to taxis and private hire vehicles.

Meanwhile, Yeo of DBS says that grocers and neighbourhood malls will benefit from the $3 billion top-up to the Assurance Package and the new cost-of-living cash pay-out. The total cash distributed to eligible residents will be up to $1,300 in 2023, while a total of $600 of Community Development Council (CDC) vouchers will be granted to Singapore households this year and next.

“This will benefit value grocery provider Sheng Siong. Suburban mall proxy Frasers Centrepoint Trust (FCT) also benefits as supermarkets and grocers occupy about 10% of total net leasable area (NLA). Food courts are also among top 10 tenants by NLA within these heartland malls,” says Yeo.

Saxo Markets’ strategist Charu Chanana adds that the increased handouts will support private demand despite high inflation pressures, which could be positive for value grocers like Sheng Siong and F&B operators like Kimly or Jumbo Group. “This could in turn benefit retail REITs like FCT or Suntec REIT, which have a large part of their malls dedicated to food courts and restaurants,” she says.

The Maybank analysts are positive on the financials, suburban retail REITs, F&B and healthcare sectors. They believe the extension of support schemes for SMEs and lower-income households to defray pressures from higher inflation and GST should lower asset quality risks for banks.

Enhancements to schemes that support SME growth and internationalisation could help improve capital market pipelines for IPOs and corporate debt in the medium term, while higher cash payouts could drive more consumer spending, supporting F&B and retail plays, they reason.

On the other hand, although enhanced HDB grants could support HDB resale prices, which could “spill over” to provide support to the private residential market, the Maybank team sees private property sales volume facing downside risks with the higher BSD in place.

However, Yeo believes that the $30,000 additional CPF Housing Grant for first-timer families will be “mildly positive” for property agencies like APAC Realty and PropNex. “The additional grants should help to boost demand for resale flats for first-timers. APAC Realty derives about onethird
of its total revenue from the HDB resale and rental market, which includes upgraders and first-timers. For PropNex, the HDB resale segment accounted for 14% of the total revenue for the nine-month period to September 2022.”

Finally, Yeo sees the enterprise development measures announced as “slightly positive” for Nanofilm Technologies International and Venture Corp assuming the criteria are met. “Both Nanofilm and Venture constantly invest in R&D to develop new products and enhance their technology capabilities,” he notes.

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