Dear readers, Budget 2023 has finally been announced and is over.
While there is a slew of measures announced at the Budget, what struck me most was the announcement that the income ceiling for Income Tax will be raised progressively from $6,000 to $8,000 as follows:
From 1 Sep 23: $6,300 salary ceiling
From 1 Jan 24: : $6,800 salary ceiling
From 1 Jan 25: : $7,400 salary ceiling
From 1 Jan 26: $8,000 salary ceiling
These measures aim to help individuals save more through their CPF.
But what I find as a result is that disposable income arising from the higher income tax cap will be reduced.
Take for example, an individual earning $8,000.
Currently, the individual will pay $1,200 for the $6,000 of his income.
From Sep 23, the individual will pay extra 20% of $300 more ($60) month, all the way to an extra ($400) of $2,000 more a month more from 1 Jan 26 on.
$400 per month equals to close to $5,000 a year going into CPF and it also means the individual has $5,000 less a year as disposable income to spend. But it also means $5,000 more into CPF (and just the employee’s portion) that will also earn risk-free income.
And assuming the individual is midway on his or her career, with 20 more years to go, that will equal to $100,000 less in total as disposable income to spend. But it also means $100,000 more into CPF (and just the employee’s portion) that will also earn risk-free income.
So, is this Good or Bad? It really depends on what the individual would use the additional income going into the CPF for. If the intention is to use the monies to reap interest rates better than CPF on a long-term basis, this can be done but the possibility of beating CPF’s interest rates risk-free is not high if investing in stocks due to volatility though this can be done.
And if the individual would use the monies to spend on wants, then I would prefer he or she save more in CPF.
The thing for me about more monies going into CPF is that these monies are not as liquid as there is a set of terms and conditions to using CPF monies and less monies for my investment warchest. Other than that, no other gripes.