Every year, Singaporeans tune into the annual Budget to find out what Singapore's financial planning looks like for the year ahead, and 2020 was no exception. This year, the Singapore 2020 Budget was centred around assisting families with household expenses and helping businesses with tax rebates as Singapore deals with a potential recession. DPM Heng Swee Keat has committed to tapping $10.95 billion from Singapore's reserves to help the economy in this potentially trying time as we recover from the effects of COVID-19.

While the government has taken comprehensive measures to boost the economy through business tax rebates and handouts, as investors, we have to carefully consider how much domestic exposure we want to have given the current performance of our domestic GDP growth.

These are the key highlights of the Singapore 2020 Budget, and some suggestions on what you should do with your finances in anticipation of the leaner times to come.

Highlight 1: The Stabilisation and Support Package  

This package, worth $4 billion, aims to help enterprises retain local workers, and provide economic support to companies through income tax rebates.
Acknowledging the challenges from retail businesses and revenue challenges faced by businesses, tenants and lessees of government managed properties will be given more flexible rental payment terms. Retail businesses are also one of the five sectors slated to get additional support from the government, as they are now directly affected by the COVID-19 outbreak. Landlords like Jewel Changi Airport have already taken aggressive steps to reduce rental rates to help tenants through this tough times.

Highlight 2: The 7% Goods and Services Tax (GST) rate remains for now

Goods and Services Tax rates will not increase this year or in 2021. The government may increase GST between 2022 to 2025, to fund future Budgets. However, this will be offset by the GST Assurance Package which will cushion the increase in GST. DPM Heng has noted that an enhanced GST Voucher Scheme and a U-Save Special Payment will be implemented. As per current practice, GST will continue to be absorbed for publicly subsidized healthcare and education.

Highlight 3: Matched Retirement Savings Scheme

The Government will match every dollar of cash top-ups made to the CPF Retirement Account for lower income Singaporeans who are unable to set aside the prevailing Basic Retirement Sum (currently $90,500). For working Singaporeans with elderly parents, they are now more incentivized to do a cash top-up for their parents' RA. Not only will their parents get to enjoy a cash match from the government of up to $600, they'll also receive additional tax relief for themselves.

Key Actions and Takeaways

1. Budget your holidays and big expenses more carefully

We can expect bonus packages from the civil service sector as well as the private sector to be lower due to the economy challenges faced by Singapore. Singapore's 2019 GDP growth of 0.7% turned out to be lower than the forecasted 1.5% to 3.5%. 2019 GDP growth is the lowest it has been in the past decade, and MTI's forecast for 2020 is not rosy as well. The revised 2020 gross domestic product (GDP) growth of -0.5% to 1.5% is lower than last year's, and hence we should in general, expect lower bonus packages in the private and public sector this year end and in the next year.

Will this signify the end of an era of consistently high variable bonuses in the civil service and other government linked entities? Maybe so. It would be prudent to budget year-end overseas holidays more carefully, accumulating a small sum of money monthly for your holidays rather than count on it to be funded by variable bonuses. The last thing we  want to do is to fund our holidays by credit card debt or be forced to deny ourselves a small treat for a year's worth of hard work.

2. Protect your human capital, secure job security and fluidity
The pressure on the top line for Singapore businesses, especially in consumer discretionary sectors such as retail and F&B will mean that companies may undergo cost cutting measures. Colleagues who resign after getting their annual bonus and yearly pay increment may not be replaced. Companies may also take the opportunity to undergo restructuring to operate more cost efficiently.  

Singapore Press Holdings (SPH) Headquarters. SPH cut 5% of media jobs as part of restructuring exercise

The impact of this is two-fold:

  1. There is a higher chance that there will be an increase in unemployment
  2. Companies are less likely to open up job positions

The job market will be more competitive as more people fight for less jobs. Singaporeans should take the opportunity to keep their employability up, using the $500 Skills future top-up given by the Government to take new courses.  This will sharpen existing skill sets and keep one up to speed with latest trends.

3. Be diversified across sectors, and globally, if you are not already

The Straits Time Index (STI), has dropped -1.3% in SGD terms from the period that the Chinese government locked down Wuhan, to 17 February 2020. In contrast, the MSCI World Index has increased 3.9% in Sing dollar terms, largely due to the depreciation of the Sing dollar.

The bearish sentiments around the STI is expected as the STI is made up of many Singapore companies with operations and revenue from Singapore, China and Hong Kong.

DBS Group Income Breakdown Source: DBS 2018 Annual Report
Capitaland's EBITDA by Geography, Source: CapitaLand 2018 Annual Report

Similarly, REITs with China, Hong Kong and Singapore exposure have experienced increased volatility. This is due to the sentiment around expected lower rental revenue due to COVID-19 cases.

Source: Time.com

We believe that it is innately difficult to determine whether the poorer business performance has been priced in with some of these predictions. Rather than bearing concentrated risk in real estate and the Singapore economy, investors may want to consider having a greater allocation of their equities exposure (>90%) in global equities.

Our net worth is not just made up of our investments; it is inclusive of our property ownership, CPF holdings, and our human capital. With the gloomy economic prospects ahead, and the biggest forecasted budget deficit of $10.95 billion in recent years, we can expect greater volatility and limited upside from these components of our net worth. All in all, this is a great time to consider being more globally diversified, and we definitely encourage you to take a look at our offerings and beyond when investing this year.