How SG Budget 2023 Will Impact Your Financial Health

Budget 2023 TLDR:????

• Aided by their employers, middle-income workers will be able to set aside more towards their retirement.
• Newly-minted high income working mothers may need to explore additional means to lower their tax bill, like the SRS or voluntary CPF contributions.?
• Property shouldn’t be the only investment game in town with higher stamp duty to pay.
• Giving continues to be financially and spiritually rewarding.

iGM:?There were quite a number of measures presented in SG Budget 2023 targeting different segments of the economy. What’s your overall take on Budget 2023?

Bernard:?It’s great to see a fairly comprehensive Budget 2023, which tries to address various issues faced by businesses and individuals on the domestic front, while providing the necessary support for Singapore to forge its own competitive path on a global stage. There’s also a sense of trying to reduce social inequalities without imposing a direct wealth tax which could hurt our competitiveness as a financial hub.?

As an adviser to a wide range of client segments, I’ve been focused on how the various initiatives impact each of my clients. Oh, and it’s great that the spirit of giving was emphasised, with a continuation of the 250% tax deduction for eligible donations, at least until end-2026.

iGM:?Let’s look at the measures for individuals. Quite a number of changes on the CPF front, like the implementation of CPF contributions for platform workers below 30, increases in CPF contribution rates for senior workers, an increase in the minimum CPF monthly payout (on the Retirement Sum Scheme) to $350 per month.

We note the increase in the monthly salary ceiling for CPF contributions from $6,000 to $8,000 by 2026, which probably affects “middle-income” workers more. What are you speaking to clients about following these changes?

Bernard:?For those who fall in the “middle-income” bracket, take home pay may be marginally affected, given the increase in the salary ceiling for CPF contributions. However, this will be staggered from September 2023 to December 2026, and I suspect that potential increases in salary for many clients over this period may help to offset any pain on this front.?

Obviously, there is also a good side to this change. Employees having a gross salary more than $6,000 will be receiving more CPF contribution from their employer. This amount is approximated to be $4,080* per year. This actually translates to a fairly sizable add-on to your overall retirement, especially after the compounding effects over 20 or 30 years, and may help you achieve retirement goals just a little faster.

*utilising a 17% employer contribution rate on the $2,000 increase in CPF monthly salary ceiling, over a period of one year

iGM:?The change to the Working Mother’s Child Relief is also significant. Could you share your thoughts on this?

Bernard:?The changes to the Working Mother's Child Relief (WMCR) is a sizable shift in the tax structure which affects mothers who are higher earners. While the old method provided tax relief calculated as a percentage of your earned income (15% of earned income for 1st child, 20% for second child, and 25% for each subsequent child, with reliefs capped at 100% of the mother’s earned income), the new WMCR will be changed to a fixed dollar relief which could be effectively lower than that calculated using the old method. For children born from 1st January 2024, the tax relief is $8,000 for the first child, $10,000 for the second child, and $12,000 for the third and subsequent child.

Previously, high-earning working mothers could have seen their personal income tax reliefs capped (at $80,000) primarily because of the WMCR, which made schemes like the Supplementary Retirement Scheme (SRS) redundant from a tax savings perspective. With the change, there is a greater need to explore other effective means such as SRS and CPF voluntary contributions.?

iGM:?Singaporeans love property, and there are some measures targeted at the sector in Budget 2023. What are the main implications for clients?

Bernard:?It’s great that housing affordability is being addressed, with the commitment to build sufficient HDB flats and to provide the necessary grants and more opportunities to First-Timer families, even for resale HDBs.?

At the other end of the spectrum, the Buyer Stamp Duty increase for property values beyond $1.5 million would affect many condominiums and almost all landed property purchases. There is a traditional Singaporean belief that wealth should be placed in properties. Families should consider diversifying beyond property investments. You can build a portfolio of international equities and bonds whose returns match or outpace that of property market growth.

This also serves as a reminder of the importance of having a proper wealth distribution plan, especially for property assets which can be a sizable part of one’s estate. This avoids any unnecessary subsequent transfers of property assets from one family member to another, which could incur additional financial costs.

iGM:?Bernard, thanks for sharing your insights. Any concluding thoughts?

Bernard:?Don’t overlook the benefits of doing good. In addition to helping a worthy cause, you’ll also be rewarded with a 250 per cent tax deduction, and this will be extended for another 3 years until the end of 2026.

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