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4 Sectors That Will Be Impacted By Announcements In The Singapore Budget 2022

The writing was always on the wall. Having committed close to $100 billion over the past two years to tackle COVID-19, the question wasn’t so much if the government will raise revenue, but rather, how they intend to do so.

As with every budget, there will be certain sectors that will be boosted by the announcements made and others that may need to contend with a more challenging business environment in the years ahead.

In this year’s special budget edition of 4 Stocks This Week, we take a look at 4 sectors that will be impacted by the announcements made in the Singapore Budget 2022.

If you miss the budget, you can read our full coverage here.

Read Also: Singapore Budget 2022: 5 Ways Taxes In Singapore Are Increasing

#1 Healthcare Stocks

As an aging nation, healthcare was always going to be a concern for Singapore. If you don’t already know, the government projects to spend about $19.3 billion in healthcare for 2022, the highest among all the ministries.

To tackle the rising (and possibly unsustainable) cost of healthcare, Finance Minister Lawrence Wong shared that we “need to fundamentally rethink the way we deliver healthcare”. This includes building “closer partnerships between our healthcare clusters and community partners, particular with GPs”, so that “information can flow beyond hospitals to community healthcare providers, to enable quality care and maximise convenience to patients”.

How that model would look like is something that we will know over time. However, based on what the Finance Minister has shared, it seems safe to say that GPs in the heartlands will play a vital role in Singapore’s healthcare system moving forward, partnering alongside the public hospitals and polyclinics.

Healthcare stocks such as Raffles Medical that have GP clinics, dental clinics and Specialist centres all over Singapore would likely play a valuable role in this closer partnership that the government hopes to forge. This is similar to how we can see the government engaging private healthcare operators to help with vaccinations in Singapore.

Healthcare REITs such as Parkway Life REIT that operate hospitals such as Mount Elizabeth and Gleneagles hospitals may also benefit as the private sector work hand-in-hand with the public healthcare system.

#2 Companies In Low Margin, Consumer-Facing Sectors Such As F&B

GST is a broad-based tax paid on goods and services that are consumed in Singapore.

While GST impacts everyone, it’s important to point out that it does not affect everyone equally. For example, lower-income families, who tend to have a higher propensity to consume, will tend to see a larger proportion of their income used to pay for GST.

The same concept applies to businesses. Consumer-facing businesses such as F&B companies that are already operating on low margins will be hit the most. In theory, they can pass down the increase in GST to their customers. However, logic suggests that if their margin were already low to begin, then it’s likely 1) because their customers are price-sensitive, 2) the competition is too steep, or that 3) the cost of providing the goods or services are expensive to begin with (e.g. rent, labour, raw materials)

Given the already low net margin many F&B companies are operating at, coupled with the fact that they likely have to deal with price-sensitive consumers, the increase in GST – with all things being equal, would make their goods more expensive to customers without any increase in revenue or profit to the business.

For anyone investing in F&B companies, it’s worth taking a closer look at the financial report to better understand how the company intends to cope with the multiple challenges being thrown at them currently – dining in restrictions, increase in the cost of ingredients, increase in labour cost, rental cost plus the hike in GST.

#3 Luxury Car Dealers

Given the high cost of COE, selling a car in Singapore was already difficult. And with the additional registration fee (ARF) tier for cars at a rate of 220% for the portion of Open Market Value (OMV) in excess of $80,000, buying a luxury car is going to cost even more.

Take for example, an “entry-level” Lamborghini such as the Huracan. The Lamborghini Huracan EVO 5.2 V10 RWD (A) has an OMV of $194,496. This gives it an ARF of $322,093. Moving forward, however, the ARF for the same car would be $367,891, or an increase of about $45,798.

In addition to the increase in GST, what this means is that cars – especially luxury cars, are going to be much more expensive. Some Singapore companies that sell luxury cars such as EuroSports Global and Jardine Matheson will need to deal with the increase in taxes that will be levied on the cars they sell.

#4 Construction Stocks

Construction companies have been hard hit over the past two years having to deal with the pandemic outbreak, stoppage of work, complying with safe distancing measures at the worksite, an increase in raw material cost while at the same time, managing their projects with a shortage of workers due to border closing.

Moving ahead, the construction sector isn’t going to have it any easier.

Firstly, there will be an increase in the minimum salary for both E Pass and S Pass holders. New E Pass holders will require a salary of at least $5,000 while S Pass holders will require a minimum salary of $3,000. Given that the construction industry is highly reliant on both these types of workers, we can expect the cost of labour to increase for them.

In addition, the Tier 1 levy for S Pass workers will be progressively raised to $650 by 2025, adding an additional burden of cost to companies.

Finally, the work permit policies in the construction and process sectors will be adjusted to help transform sectors that have been heavily dependent on foreign workers. The Dependency Ratio Ceiling (DRC) will be reduced from the current 1:7 to 1:5 while the current man-year entitlement will be replaced with a new levy framework to encourage more offsite work and to employ more higher-skilled work permit holders.

Read Also: Singapore Budget 2022: 10 Things Business Owners Need To Know

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