Brace yourselves for possible personal income tax hike

High income earners can expect 1-2ppt raise.

According to DBS, the government will announce the FY13 budget on 25 Feb (next Monday). This budget will focus more on longer-term challenges than short-term risks to the economy. 

Specifically, to sustain longer-term growth given an aging population and the moderation in labour growth, productivity improvement and fostering inclusive growth will continue to take centre-stage in this budget.

Concrete medium-term measures to improve public infrastructure will also be introduced to ease some of the current bottlenecks.

Here's more from DBS:

We expect many measures to help companies offset the transition costs from the ongoing restructuring and to boost productivity. Companies can expect more generous productivity enhancement measures and the streamlining of existing assistance schemes.

However, there will be further curbs on low wage foreign workers despite the existing labour crunch. But the pace of tightening will moderate to allow companies more time to restructure.

In addition, some tweaking in the mid-skilled segment (i.e., employment pass 2 and S-pass holders) is also possible to cater to the rapidly rising number of Singaporean Professionals, Managers, Engineers and Technicians (PMETs).

For households, an outright cash handout or a generous special transfer package will be visibly lacking in this budget. The focus this time will be on preparing the baby boomers for retirement, catering to an aging population, as well as skills upgrading to mitigate against the side effects of the restructuring.

Furthermore, the massive public infrastructure expansion in the coming years and potential rise in social expenditure from an aging population are expected to take a toll on the fiscal position.

To finance the higher expenditure, apart from higher utilisation of the investment returns from the fiscal reserves, personal income tax rates are likely to be raised. Hikes in the personal income tax rates of about 1%-2%-pt for the top income brackets can be expected.

The final fiscal position in FY12 will be slightly better than expected despite the slower growth. An overall fiscal surplus of SGD 1.6bn (0.5% of nominal GDP) is expected.

This is a tad better than the budgeted surplus of SGD 1.3mn. Separately, the projected overall fiscal position for FY13 would be a surplus of SGD 940mn (approx. 0.3% of nominal GDP).