Today, the budget for 2013 hit smartphones and tablets across the country. Some people cheered, some people moaned, and the immediate advantage went to the bar / KTV scene. Because every car salesman in the country’s attempting to drown themselves in JD and vodka right now. Take it easy guys; at least you get overtime pay for working till midnight last night. But that aside, let’s look at the other effects of the budget:
The Overall Budget Impact
Singapore’s GDP growth is projected to be around 1% – 3% this year. That’s not good; we’re still far from the 5.2% in 2011. But Europe and America have swiped their last credit cards, so manufacturing and exports haven’t much room to grow right now.
Median household incomes have grown by 14% over the last five years, cumulatively (too slow, considering recent inflation rates). Lower income workers haven’t seen real wage growth over the same period, even though they can find jobs easily enough.
So it’s not surprising that this year’s budget seems (to us) to be aimed at evening out income inequality. We’re seeing a lot of love for low income families, and more pressure on the rich.
But don’t expect big overnight fixes. Right now, it still looks like we’re trying to level the Grand Canyon with dental filling. This is a small start, and with any luck, we’ll see a long term payoff by 2015. Some of the areas we’re paying attention to are:
- Car Ownership
- Property Ownership
- Career Issues
- Medical Insurance
- Family Matters
1. Car Ownership
COE prices have been out of control lately, so we were expecting some sort of intervention.
Maybe a little tweak to the bidding system, or a change to the quota. But no; the government applied all the subtlety of a Rambo plot, and hacked the problem off at the knees.
Car loans have been capped at 60% Loan-to-Value (LTV), for cars with an Open Market Value (OMV) of $20,000 or less. Cars with a higher market value are capped at 50% LTV. So if the overall cost of your car is $100,000, you’d need to fork out around $40,000 – $50,000 in cash.
On top of that, maximum loan tenures have been reduced to five years. Now, in cases where maximum loan tenures decrease, banks have a reasonable response.
Reasonable for their profit margin, that is: They’ll raise interest rates. Our calculated guess? Forget about the current car loan interest rate (about 2% per annum), and expect it to creep to maybe 2.5% to 3%.
Readers with good memories might remember we advocated a 60% LTV, long before this. But this policy matched our suggestion, and then some. It should put a serious dampener on the number of new car purchases, and ultimately cool the bidding for COEs.
But if you need a car urgently and this is killing you, follow us on Facebook. We’ll be talking about how you might still afford one in this market.
2. Property Ownership
Property taxes are going up progressively, but leave most retirees and home owners (owner occupiers) better off. The squeeze is on owners of luxury properties, and most landlords.
For owner occupiers, your property tax can either decrease or rise. It’s based on your home’s Annual Value (AV), which is constantly revised by the Inland Revenue Authority of Singapore (IRAS). You’ll have to check your own.
But in general:
- One and two-room flats will not incur property taxes
- Homes with AV of $12,000 (Most five-room flats) will see property tax decreases of up to 33%
- Most suburban condominiums will see property tax decreases of around 7%
- Luxury properties (landed property and central region condominiums) will see property tax raises of between 5% to 69%
For landlords, the property tax on investment properties is no longer a flat rate of 10%. It will now vary from 10% to 19% (or 20% in 2015). Again, this is based on the property’s AV.
We won’t be surprised if landlords raise their rent, in order to make up for new taxes. Tenants had better practice their negotiation speeches.
Also, you can stop scanning for the part that says “…and then property prices will drop”. Sorry, but any fall in property prices will come from the cooling measures. These tax hikes won’t even be noticed by most investors and developers.
3. Career Issues
Employer contribution to CPF, for lower income workers, is being raised to match the average of 16%.
For example, an employee who’s older than 35 and earning more than $50 per month, will be treated as though he earns about $1,500 a month (usually 16% employer contribution).
You can see the full table here. Additionally, the Workfare Income Supplement (WIS) scheme has been tweaked. Recipients will now get 40% of the payout in cash, as opposed to 29%. The maximum payout will also increase from $2,800 to $3,500.
More workers will also qualify for WIS. Workers earning up to $1,900 a month are now eligible, as opposed to the previous limit (up to $1,700 a month).
Okay, so these welfare schemes seem great. But they don’t change that fact that low income jobs (cleaners, security guards, etc.) haven’t seen wage growth in almost five years right? That’s where the Wage Credit Scheme (WCS) comes in.
For the next three years, the government will co-fund 40% of the pay raises for workers earning up to $4,000. This should theoretically make companies more willing to raise the pay of lower income workers. We’ll see how it plays out over the next year, before making any definitive statements.
4. Medical Insurance
Medifund has been raised by $1 billion, and an extra $250 million is set aside for Eldercare. Which is as reassuring as an airline telling me not to worry about air crashes, because they’ll provide complimentary peanuts at my funeral.
Most of us will never get to touch Medifund. It’s for people who absolutely cannot pay medical bills, and a non-factor into personal insurance planning.
As for Eldercare, it’s meant to help long term costs (e.g. a nursing home). An extra $250 million spread between all our elderly will take us…let me see…oh, that’s right, nowhere.
Also, Singaporeans above the age of 45 will get a $200 to Medisave. Yeah, that ought to cover a day in the hospital or something. It looks like most of us still have to look out for ourselves, when it comes to medical insurance. So get it young, or get an affordable protection-only plan. But don’t let apparent budget raises here make you complacent.
5. Family Matters
We’re seeing a boost to family friendly policies. Notably, support for pre-schools has been raised by a whopping $3 billion. There will also be an extra 16,000 places by 2017.
In response to worries about preschool education standards, the government also wants more pre-school teachers raised to Diploma and Degree holders.
This is all a start toward a more child-friendly environment. With so much extra funding, we should be seeing either cost-reductions for childcare, or higher standards (I’m not an expert and can’t measure that). However, the relief will mainly be felt by low to middle income families who use government childcare.
High income earners, or middle income families who want private pre-schools, are unlikely to see any difference.
In addition to this, local companies are being encouraged to take on family friendly practices. This includes the implementation of flexi-time, telecommuting, and a host of related practices. Again, this is too complex to go into here, so it will be covered in a subsequent article.
In conclusion we’re hardly done. The budget was a two hour speech, and we can’t go into more than a high level summary here. We’ll take a more in-depth look in the coming days, so follow us on Facebook. But stay with us over the coming weeks, and we’ll look further into each sector.
But these are the general effects, for now:
- Strong financial benefits to low-income earners
- Probably drastic reduction in COE prices in the coming year
- A growing emphasis on work-life balance initiatives
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