Analysts are mixed on the impact on consumer spending after Finance Minister Lawrence Wong announced the higher tax rates for personal income, property and luxury cars during Budget 2022 on Feb 18.
Beyond the higher personal income tax rates, luxury car buyers would have to pay a higher additional registration fee (ARF) of 220%. In addition, property taxes will also be raised, with the changes rolled out in two phases over the next two years.
“Simply put, high income earners will be confronted with a multiple whammy of tax increases in the coming years (e.g., personal income tax, property tax, ARF for luxury car and GST). As such, some negative wealth effect on consumption of luxury goods and property investment is to be expected,” says DBS Group Research economist Irvin Seah.
In his report dated Feb 21, Seah writes that while the government is likely able to offset the existing deficit and still achieve its mandate of a balanced budget within the current term, there is downside risk on corporate tax revenue inflow “due to base erosion and profit shifting (BEPS) 2.0, which could dampen the fiscal position”.
“The impending series of tax hikes (GST, personal income tax, carbon tax, property tax etc) will also take a toll on growth performance and may require additional fiscal offsets to mitigate the economic impact,” he adds. “Yet, the biggest concern is that given economic cycles are becoming more volatile and unpredictable in recent times, Singapore could be sandwiched between rising taxes and falling growth should another recession occur in the next two to three years.”
Meanwhile, Maybank Securities analysts Chua Hak Bin, Lee Ju Ye and Thilan Wickramasinghe feel that the higher taxes on property, luxury cars and personal income are unlikely to impact consumer spending significantly.
See also: Forging ahead with courage
This is because wealthy households “tend to save a larger and spend a smaller proportion of their income, and will be less sensitive and less likely to cut their overall spending patterns”, write the analysts, who have kept their GDP growth forecasts at 3.8% in 2022 and 2.5% in 2023.
However, on equities, the higher wealth taxes may soften volumes for property developers. The higher GST, meanwhile, could support REITs and consumer plays on the assumption of advance retail spending.
Morgan Stanley analysts Wilson Ng and Derek Chang see the absence of the introduction of estate duties or net wealth taxes in the Budget as positive for Singapore banks and their growing wealth businesses.
See also: 'Daunting' and 'significant': analysts react to Singapore's carbon tax rate hike
However, the analysts see the raised taxes for residential property as an “incremental negative” for property developers which already have had to contend with higher stamp duties since the additional cooling measures in December 2021.
The team at OCBC Investment Research also sees the absence of a direct net wealth tax as a “modest relief” for the Singapore banking sector.
To be sure, the sector has been steadily growing its wealth management fees over the past years from about 21-26% of fee income in 4QFY2016 to about 31%-40% of fee income in 4Q FY2021 (estimates for DBS and UOB) and has helped to mitigate earnings pressure from a low interest rate environment, notes the team at OCBC.
“Looking ahead, our base case on this topic remains unchanged for the regulators to continue to take a balanced and practical approach, in view of Singapore’s financial hub development goals,” writes the team.
On property, OCBC analyst Andy Wong says the “relatively muted announcement on new measures” will come as a welcome relief for Singapore developers.
“There were some concerns that other potential tax increases such as capital gains tax would be announced,” says Wong.
“We believe Budget 2022’s new measures took into account the higher Additional Buyer’s Stamp Duty (ABSD) rates which were announced in December 2021,” he adds.
For more stories about where money flows, click here for Capital Section
Esther Fung, senior wealth planning specialist at boutique private bank, VP Bank Limited Singapore branch, says the higher wealth taxes could “carry indirect impact on how high-net-worth individuals (HNWIs) go about succession planning”.
“As Singapore continues to attract family offices and is widely regarded as a preferred jurisdiction for HNWIs, the tax increases would require wealthy individuals to look at their legacy plans to ensure effective wealth preservation across generations,” she notes.
Photo: Samuel Isaac Chua/The Edge Singapore
