2. WHY CAN'T WE USE MORE OF THE RESERVES?
3. WHEN WILL THE TAX HIKE BE?
Taxing questions: A hike into the future
It has been a week of speculation since the Prime Minister signalled that a tax hike is on the horizon, saying that such a move is inevitable given increased government spending. But not all are convinced. Insight examines the issues.
By Tham Yuen-C, Assistant Political Editor, The Sunday Times, 26 Nov 2017
You would think it hard to find fault with cuddly pandas.
But the Singapore Zoo's Kai Kai and Jia Jia have become the target of some vitriol, ever since Prime Minister Lee Hsien Loong said last Sunday that taxes are set to rise as government spending grows.
The bears have been labelled a "waste of taxpayers' money" by some discussing the impending hike online - though erroneously, as taxpayers' funds were not used to bring them in from China. The pandas were sponsored by real estate company CapitaLand.
That Kai Kai and Jia Jia have become collateral damage in the debate on the tax hike speaks of how hairy the issue is.
The Government argues that a tax hike is a necessary move. Investments in infrastructure and social spending are costly, and the bill has to be footed somehow, said PM Lee at the People's Action Party convention. So raising taxes "is not a matter of whether, but a matter of when".
Already, government spending more than doubled between 2007 and last year, from $33 billion to $71 billion, and looks set to grow due to infrastructure needs, and also because the country takes care of both an ageing and aged populace.
But questions remain: Is the Government spending taxpayers' monies wisely? Must taxes be raised to foot the bill? And just how will this hike eventually happen?
IS THE GOVERNMENT SPENDING WISELY?
Few quarrel with the Government's broad principle that it needs to spend on social services such as healthcare and education, ramping up infrastructure such as rail networks, and preparing Singaporeans for the future economy.
In fact, some economists and politicians believe that Singapore should spend more, such as on schemes to help reduce the rich-poor gap, and projects to improve transport infrastructure.
But some big-ticket items have come in for criticisms for wastefulness. Take the new, gleaming Changi Airport Terminal 4. Critics point out that the $45 million Budget Terminal was used for just six years before it was torn down in 2012. It was recently rebuilt as T4 to the tune of $985 million.
Asked about this by Insight, Senior Minister of State for Finance and Law Indranee Rajah said the idea to have a terminal for budget carriers was first proposed when such airlines were becoming popular, but had to be changed "to keep up with current trends" as technology advanced.
Experts acknowledge that hindsight is perfect, but said that given the cost of mega infrastructure - infrastructure shot up from 15 per cent of government spending in 2007 to 22 per cent last year - policymakers have to be better in deciding which projects to embark on.
This is even as the Government grapples with the challenges of setting priorities as needs evolve: To build flats ahead of demand or just in time to meet demand? Build an underground road network for cars or pour the billions into public transport?
Another category of spending identified by PM Lee was on social services. Over the same period, it went up from about 35 per cent of expenditure to about 41 per cent.
Singapore actually spends relatively less on education, healthcare and welfare compared with other countries in the Organisation for Economic Cooperation and Development (OECD), but the Government has said it gets bang for its buck. For example, government expenditure on health makes up just 2.1 per cent of gross domestic product here - compared with 6 per cent to 9 per cent in countries like Australia, Britain and France, but Singapore's healthcare system has consistently been ranked highly.
Still with the Budget running an operating deficit three years in a row, there are those like Nominated MP Randolph Tan who feel spending can and should be slashed in some areas.
"We should never rule out cutting down on social spending if it is necessary," said the Singapore University of Social Sciences economist, acknowledging that this would be an unpopular and difficult line to take for any government.
The self-professed fiscal conservative is also a supporter of means-testing as a way to limit spending.
"There will always be needs that the Government will have to step in to provide, but we should not cast the net so wide that it is spread out too thinly," he said.
So for instance, the Pioneer Generation Package, rolled out in 2014 and costing $8 billion, entitles anyone in the cohort - regardless of whether he has three properties or nothing to his name - to benefits such as healthcare subsidies.
An outreach programme linked to the package came under criticism by Straits Times reader Elsie Loo, who wrote to the paper's Forum page last Friday lamenting that taxpayers' money funnelled into the programme "could be better used elsewhere".
"The cost incurred will grow and will be huge considering the fast-growing number of seniors," she wrote, urging the authorities to consider mass briefings instead.
It has been a week of speculation since the Prime Minister signalled that a tax hike is on the horizon, saying that such a move is inevitable given increased government spending. But not all are convinced. Insight examines the issues.
By Tham Yuen-C, Assistant Political Editor, The Sunday Times, 26 Nov 2017
You would think it hard to find fault with cuddly pandas.
But the Singapore Zoo's Kai Kai and Jia Jia have become the target of some vitriol, ever since Prime Minister Lee Hsien Loong said last Sunday that taxes are set to rise as government spending grows.
The bears have been labelled a "waste of taxpayers' money" by some discussing the impending hike online - though erroneously, as taxpayers' funds were not used to bring them in from China. The pandas were sponsored by real estate company CapitaLand.
That Kai Kai and Jia Jia have become collateral damage in the debate on the tax hike speaks of how hairy the issue is.
The Government argues that a tax hike is a necessary move. Investments in infrastructure and social spending are costly, and the bill has to be footed somehow, said PM Lee at the People's Action Party convention. So raising taxes "is not a matter of whether, but a matter of when".
Already, government spending more than doubled between 2007 and last year, from $33 billion to $71 billion, and looks set to grow due to infrastructure needs, and also because the country takes care of both an ageing and aged populace.
But questions remain: Is the Government spending taxpayers' monies wisely? Must taxes be raised to foot the bill? And just how will this hike eventually happen?
IS THE GOVERNMENT SPENDING WISELY?
Few quarrel with the Government's broad principle that it needs to spend on social services such as healthcare and education, ramping up infrastructure such as rail networks, and preparing Singaporeans for the future economy.
In fact, some economists and politicians believe that Singapore should spend more, such as on schemes to help reduce the rich-poor gap, and projects to improve transport infrastructure.
But some big-ticket items have come in for criticisms for wastefulness. Take the new, gleaming Changi Airport Terminal 4. Critics point out that the $45 million Budget Terminal was used for just six years before it was torn down in 2012. It was recently rebuilt as T4 to the tune of $985 million.
Asked about this by Insight, Senior Minister of State for Finance and Law Indranee Rajah said the idea to have a terminal for budget carriers was first proposed when such airlines were becoming popular, but had to be changed "to keep up with current trends" as technology advanced.
Experts acknowledge that hindsight is perfect, but said that given the cost of mega infrastructure - infrastructure shot up from 15 per cent of government spending in 2007 to 22 per cent last year - policymakers have to be better in deciding which projects to embark on.
This is even as the Government grapples with the challenges of setting priorities as needs evolve: To build flats ahead of demand or just in time to meet demand? Build an underground road network for cars or pour the billions into public transport?
Another category of spending identified by PM Lee was on social services. Over the same period, it went up from about 35 per cent of expenditure to about 41 per cent.
Singapore actually spends relatively less on education, healthcare and welfare compared with other countries in the Organisation for Economic Cooperation and Development (OECD), but the Government has said it gets bang for its buck. For example, government expenditure on health makes up just 2.1 per cent of gross domestic product here - compared with 6 per cent to 9 per cent in countries like Australia, Britain and France, but Singapore's healthcare system has consistently been ranked highly.
Still with the Budget running an operating deficit three years in a row, there are those like Nominated MP Randolph Tan who feel spending can and should be slashed in some areas.
"We should never rule out cutting down on social spending if it is necessary," said the Singapore University of Social Sciences economist, acknowledging that this would be an unpopular and difficult line to take for any government.
The self-professed fiscal conservative is also a supporter of means-testing as a way to limit spending.
"There will always be needs that the Government will have to step in to provide, but we should not cast the net so wide that it is spread out too thinly," he said.
So for instance, the Pioneer Generation Package, rolled out in 2014 and costing $8 billion, entitles anyone in the cohort - regardless of whether he has three properties or nothing to his name - to benefits such as healthcare subsidies.
An outreach programme linked to the package came under criticism by Straits Times reader Elsie Loo, who wrote to the paper's Forum page last Friday lamenting that taxpayers' money funnelled into the programme "could be better used elsewhere".
"The cost incurred will grow and will be huge considering the fast-growing number of seniors," she wrote, urging the authorities to consider mass briefings instead.
Asked about the package, Ms Indranee said it was conceived to thank the first generation of Singaporeans for their contributions, adding that it was "fitting that we recognise them".
Economist Tan Khee Giap from the Lee Kuan Yew School of Public Policy (LKYSPP) said that the Government also needs to think about the "exit mechanism" of schemes such as the Workfare Income Supplement, which tops up the income of low-wage workers. First announced in 2007, it was paying out at least $300 million a year for a start, and is expected to pay out $770 million this year.
At some point, the responsibility should fall on employers to train such workers and increase their pay, he added.
To put such comments in perspective, government spending makes up 18 per cent of GDP here, which is in line with Hong Kong and lower than OECD countries like South Korea (21 per cent) and Switzerland (33 per cent). Ms Indranee said all spending is approved only after many levels of internal checks, and is measured in terms of "the outcome and what that particular expenditure achieves".
The Government has also moved to rein in costs, such as by implementing a permanent 2 per cent downward adjustment to the budget caps of all ministries and organs of state from this April.
But those hoping that such moves will help to stave off tax hikes will be disappointed, since economists said these are not likely to push spending below current levels.
Rather, these are done to control the growth of spending, to guide Singapore onto a gentler trajectory as expenditure grows.
WHY CAN'T WE USE MORE OF THE RESERVES?
The next question then, is whether raising taxes is really the inevitable option.
Instead of making today's taxpayers fork out more, why not tap the reserves and their investment returns instead, some ask.
Currently, the net investment returns contribution (NIRC) framework allows the Government to spend half of the long-term investment returns generated by the Monetary Authority of Singapore, Temasek Holdings and GIC, the three entities tasked to manage and invest the reserves.
Some, such as Maybank Kim Eng economist Chua Hak Bin, call for more of the investment returns to be used.
After all, only 50 per cent can be used now, and there is room to tweak the formula, he said.
Dr Chua believes this can be done without eroding Singapore's savings, as long as enough of the investment returns are ploughed back for the principal sum to grow at the same rate as nominal GDP.
WHY CAN'T WE USE MORE OF THE RESERVES?
The next question then, is whether raising taxes is really the inevitable option.
Instead of making today's taxpayers fork out more, why not tap the reserves and their investment returns instead, some ask.
Currently, the net investment returns contribution (NIRC) framework allows the Government to spend half of the long-term investment returns generated by the Monetary Authority of Singapore, Temasek Holdings and GIC, the three entities tasked to manage and invest the reserves.
Some, such as Maybank Kim Eng economist Chua Hak Bin, call for more of the investment returns to be used.
After all, only 50 per cent can be used now, and there is room to tweak the formula, he said.
Dr Chua believes this can be done without eroding Singapore's savings, as long as enough of the investment returns are ploughed back for the principal sum to grow at the same rate as nominal GDP.
If the reserves are meant for a rainy day, is not the rainy season here, others wonder.
But even using up to 50 per cent of the returns is not uncontroversial. Before the NIRC was put in place in 2009, only half of the net investment income of the reserves - which excludes capital gains - could be drawn upon.
During earlier debates, the Government had warned of the slippery slope of touching more of the returns from investment, saying it could lead to endless demands to do more and spend more. Emeritus Senior Minister Goh Chok Tong, when he was prime minister, described the reserves as Singapore's golden goose. Killing the golden goose to get at its meat would be to the country's detriment, he said.
Others say the Government could also review the way it uses revenue from land sales, by allowing a portion of it to go towards funding big development projects such as Changi Airport's Terminal 5.
Under current laws, proceeds from land sales must be locked away as reserves, a unique feature of Singapore's Budget. But past reserves can be used to fund land-related projects such as land reclamation and land acquisition as this is seen as converting the reserves from financial assets to state land.
Dr Chua points out that Singapore's conservative system of budgeting means a Budget deficit here is not really considered one under the International Monetary Fund rules. If proceeds from land sales were included in the operating revenue, Singapore is deemed to run surpluses.
But those against the move to unlock the funds point to Hong Kong as a counter example. With land sales going directly towards the government's operating revenue, there is pressure for land to be priced higher - a hidden tax - to meet spending needs, and this has driven property prices in the special administrative region sky high.
LKYSPP's Professor Tan contends that "taking more money to spend without making more money is not very good". He argues that the question should not be about what proportion of returns on investing the reserves to spend, but how to aim for better profits.
"The big reserves we have built up are a blessing from the earlier generations. Without them, we will be crying now. We should think of whether GIC can generate better investment returns instead," he said.
GIC's 20-year annualised real rate of return was 3.7 per cent for the year ended March 31, down from the previous year's 4 per cent.
Ms Indranee said the funds play a key role in maintaining confidence in the Singapore dollar and acting as a buffer in the event of a crisis.
Though the full size of Singapore's financial reserves is never revealed for strategic reasons, it is estimated at more than $1 trillion.
"It would be easy to spend the reserves, because then you don't have to do anything right?" she said.
She added that it is a delicate balance that the Government is trying to strike in drawing the line at using 50 per cent of the projected returns on investment. "You use a portion of the expected returns, but you don't dip into your principal and do away with your nest egg," she said. "That, taken as a whole, actually reflects our value system which is resilience, hard work... It is also the story that each generation tries to hand over something to the next generation, each generation plans ahead for the future."
Others note that with the NIRC having tripled in the past 10 years, it already makes up a substantial proportion of revenue.
For the first time, the reserves component overtook corporate tax collections as the single largest contributor to government coffers last year. It made up 17.3 per cent of operating revenue - up from just 5.6 per cent in 2007, while corporate taxes, typically the biggest chunk, comprised 16.3 per cent.
"The big reserves we have built up are a blessing from the earlier generations. Without them, we will be crying now. We should think of whether GIC can generate better investment returns instead," he said.
GIC's 20-year annualised real rate of return was 3.7 per cent for the year ended March 31, down from the previous year's 4 per cent.
Ms Indranee said the funds play a key role in maintaining confidence in the Singapore dollar and acting as a buffer in the event of a crisis.
Though the full size of Singapore's financial reserves is never revealed for strategic reasons, it is estimated at more than $1 trillion.
"It would be easy to spend the reserves, because then you don't have to do anything right?" she said.
She added that it is a delicate balance that the Government is trying to strike in drawing the line at using 50 per cent of the projected returns on investment. "You use a portion of the expected returns, but you don't dip into your principal and do away with your nest egg," she said. "That, taken as a whole, actually reflects our value system which is resilience, hard work... It is also the story that each generation tries to hand over something to the next generation, each generation plans ahead for the future."
Others note that with the NIRC having tripled in the past 10 years, it already makes up a substantial proportion of revenue.
For the first time, the reserves component overtook corporate tax collections as the single largest contributor to government coffers last year. It made up 17.3 per cent of operating revenue - up from just 5.6 per cent in 2007, while corporate taxes, typically the biggest chunk, comprised 16.3 per cent.
Drawing more from it could result in a less diverse revenue stream, which may leave Singapore more susceptible to investment fluctuations, they said.
In the end, determining how much to use is more an art than a science, said Dr Chua. Ultimately, it is about balancing the needs of the current and future generations.
He is of the view that future generations of Singaporeans will probably be better educated and be in a better place to take care of themselves, compared with ageing baby boomers.
To him, some philosophical question are worth re-examining as Singapore's population continues to age: "How much reserves do we really need, and is it really necessary to have such a big sum? Which generation are we saving for?"
WHEN WILL THE TAX HIKE BE?
Since the tax hike is impending, when then might it kick in?
Ms Indranee said that the Government is still working on the "when".
But some of those reading the tea leaves are glimpsing a hint in comments by PM Lee, along with Deputy Prime Minister Tharman Shanmugaratnam who spoke on the matter in 2015. Both have said the Government has enough money for its current term, which will last until the end of the decade.
WHEN WILL THE TAX HIKE BE?
Since the tax hike is impending, when then might it kick in?
Ms Indranee said that the Government is still working on the "when".
But some of those reading the tea leaves are glimpsing a hint in comments by PM Lee, along with Deputy Prime Minister Tharman Shanmugaratnam who spoke on the matter in 2015. Both have said the Government has enough money for its current term, which will last until the end of the decade.
This has led some to speculate that while the announcement for the hike may be made by the next Budget, it will likely take effect only after the next general election.
This also gives the Government time to plan ahead "well before the time comes" and explain to Singaporeans what the money is needed for and how it will be spent to benefit everyone, as PM Lee said had to be done.
Those predicting a goods and services tax hike believe it could be announced first, with the increases staggered over a few years, as it was done in the past when GST was first introduced.
Mr Low Hwee Chua, regional managing partner for tax at Deloitte Singapore and South-east Asia, said Singapore's GST at 7 per cent is still considered low, compared with the rates in Australia (10 per cent) and New Zealand (15 per cent), and has room to go up to a potential ceiling of about 10 per cent.
If this were so, the Government may need to give retailers and businesses a lead time of at least a year from the date of announcement to prepare. Even when it raised income taxes in the past, the Government announced it first and then implemented it later. This was the case when the most recent round of income tax increases was announced during the 2015 Budget, but implemented this year.
Some have ascribed political motives to the move, such as Workers' Party assistant secretary-general and Aljunied GRC MP Pritam Singh.
In a Facebook post, he linked the increase in taxes to the PAP's leadership transition.
"Raising taxes before a new PAP prime minister takes office would allow the new leader to start on a relatively 'clean slate', preserving his political capital," he said, adding that PM Lee had said he would hand over to the next generation of leaders after the next general election due by 2021.
If he is right, this would mean the tax hikes would have to be announced and take effect sooner rather than later, for the political sting to be taken out for the future government.
Ms Indranee disagrees with Mr Singh's "underlying suggestion that it is being done for purely political purposes", and reiterated that taxes are being raised because of increased spending. Declining to be drawn into discussing the timing, she said: "Both PM Lee and DPM Tharman have explained that we have enough revenue for the current term of government. The question is what you do going ahead."
Ms Indranee disagrees with Mr Singh's "underlying suggestion that it is being done for purely political purposes", and reiterated that taxes are being raised because of increased spending. Declining to be drawn into discussing the timing, she said: "Both PM Lee and DPM Tharman have explained that we have enough revenue for the current term of government. The question is what you do going ahead."
Taxes introduced over the years and how the public reacted
By Seow Bei Yi, The Sunday Times, 26 Nov 2017
"It's a lethal thing to suddenly raise taxes."
Doing so would be "political suicide", cautioned Nobel Prize-winning economist Robert Mundell in the run-up to the 2008 United States presidential election. Governments and politicians across the world that do not heed the warning have found themselves burnt. Taxes are one of the hottest potatoes in politics.
Similarly, in Singapore, the issue can easily ignite - and the Government has moved quickly to dampen the heat. For instance, when stickers with the slogan "Say No to 10 per cent GST - vote wisely" were distributed one month before the 2015 General Election, the Finance Ministry briskly came out to say there was no basis to claims that it would raise the GST after the polls.
Now, while Prime Minister Lee Hsien Loong has said that the Government has enough revenue for this term, he has also made it clear that with infrastructure and social spending set to grow, it was not a question of whether taxes would be raised - but when.
"There's never a single right time (to raise taxes) but occasionally, they are necessary," said Senior Minister of State for Finance Indranee Rajah in an interview with Insight. When doing so, she said, people and businesses must have enough time to adjust to the changes, while the lower income and vulnerable have to be "sufficiently buffered".
Signalling its intentions early - sometimes two years in advance - is a key part of the Government's tax hike toolbox. Others include offset packages and staggered increases.
Insight looks at major tax changes in Singapore over the years, and the political price - if any - they have exacted on the ruling People's Action Party.
GOODS AND SERVICES TAX
INTRODUCED WHEN?
1994, at 3 per cent
REASONS
• Will boost Singapore's competitiveness by allowing for cuts in individual and corporate income taxes.
• Prepares for an ageing population, while avoiding excessive tax burden on working population.
PREPARING THE GROUND
It took about eight years.
The idea of a general consumption tax came up as early as in the 1986 Report of the Economic Committee, urging that groundwork should begin. MPs cried foul.
Finance Minister Richard Hu told Singaporeans then, and in subsequent Budget speeches, that the Government was still studying the tax, which would be implemented only when necessary.
The nation learnt about GST on Feb 9, 1993, when the GST White Paper was released - about 14 months before it was to kick in on April 1, 1994. At a press conference releasing the White Paper, Dr Hu promised that it would be capped at 3 per cent for at least five years.
The Government sweetened the deal with an offset package of cuts in personal and corporate income taxes, and higher personal reliefs and rebates for taxpayers.
Help was also given to low-income households, and the combination of income tax cuts and rebates, said Dr Hu at the 1993 Budget, would be enough to fully offset GST for nearly all households earning at least $1,500 a month.
In 1995, the offset package came to $1.8 billion, higher than the $1.6 billion of GST collected.
REACTION
A booming economy and the generous offset measures helped to cool anger over the move.
By Seow Bei Yi, The Sunday Times, 26 Nov 2017
Doing so would be "political suicide", cautioned Nobel Prize-winning economist Robert Mundell in the run-up to the 2008 United States presidential election. Governments and politicians across the world that do not heed the warning have found themselves burnt. Taxes are one of the hottest potatoes in politics.
Similarly, in Singapore, the issue can easily ignite - and the Government has moved quickly to dampen the heat. For instance, when stickers with the slogan "Say No to 10 per cent GST - vote wisely" were distributed one month before the 2015 General Election, the Finance Ministry briskly came out to say there was no basis to claims that it would raise the GST after the polls.
Now, while Prime Minister Lee Hsien Loong has said that the Government has enough revenue for this term, he has also made it clear that with infrastructure and social spending set to grow, it was not a question of whether taxes would be raised - but when.
"There's never a single right time (to raise taxes) but occasionally, they are necessary," said Senior Minister of State for Finance Indranee Rajah in an interview with Insight. When doing so, she said, people and businesses must have enough time to adjust to the changes, while the lower income and vulnerable have to be "sufficiently buffered".
Signalling its intentions early - sometimes two years in advance - is a key part of the Government's tax hike toolbox. Others include offset packages and staggered increases.
Insight looks at major tax changes in Singapore over the years, and the political price - if any - they have exacted on the ruling People's Action Party.
GOODS AND SERVICES TAX
INTRODUCED WHEN?
1994, at 3 per cent
REASONS
• Will boost Singapore's competitiveness by allowing for cuts in individual and corporate income taxes.
• Prepares for an ageing population, while avoiding excessive tax burden on working population.
PREPARING THE GROUND
It took about eight years.
The idea of a general consumption tax came up as early as in the 1986 Report of the Economic Committee, urging that groundwork should begin. MPs cried foul.
Finance Minister Richard Hu told Singaporeans then, and in subsequent Budget speeches, that the Government was still studying the tax, which would be implemented only when necessary.
The nation learnt about GST on Feb 9, 1993, when the GST White Paper was released - about 14 months before it was to kick in on April 1, 1994. At a press conference releasing the White Paper, Dr Hu promised that it would be capped at 3 per cent for at least five years.
The Government sweetened the deal with an offset package of cuts in personal and corporate income taxes, and higher personal reliefs and rebates for taxpayers.
Help was also given to low-income households, and the combination of income tax cuts and rebates, said Dr Hu at the 1993 Budget, would be enough to fully offset GST for nearly all households earning at least $1,500 a month.
In 1995, the offset package came to $1.8 billion, higher than the $1.6 billion of GST collected.
REACTION
A booming economy and the generous offset measures helped to cool anger over the move.
"We capitalised on the sweetness of a booming economy to introduce a very bitter pill," recalled tax academic Stephen Phua of the National University of Singapore. Nominal GDP growth hit 13 per cent in 1993 and 14 per cent in 1994.
This was partly why it was tolerated despite being "one of the worst things for a government to justify in front of its voters", he said.
It also helped that the GST rate was low, at 3 per cent. The Government, not needing the revenue collected then, was able to return it to the people with handouts.
"Rate cuts, reliefs and rebates resulted in more than two-thirds of taxpayers falling outside the income tax net," said Prof Phua.
POLITICAL PRICE
In the GE that followed - three years later, in 1997 - GST came under fire from opposition parties. Mr Chiam See Tong of the Singapore People's Party asked if it would be raised, and Mr J. B. Jeyaretnam of the Workers' Party called it an example of how the PAP government made decisions without consulting the people.
But the issue did not appear to seize the electorate enough. Instead, the PAP's dangling of estate and property upgrading and other carrots for the electorate helped propel its vote share to 65 per cent, from 61 per cent in 1991.
GST hike round 1
In May 2002, Mr Lee Hsien Loong, who was then Finance Minister, announced that GST was to rise to 5 per cent with from January 2003. There was an outcry by consumers and businesses hit by the economic downturn. In response, Mr Lee said in December the hike would be phased in over two stages: to 4 per cent in January 2003, and to 5 per cent in January 2004.
This time, Economic Restructuring Shares were given out. The package came up to $4 billion in total, going to areas such as HDB rental for low-income households, as well as service and conservancy rebates.
REACTION
Singapore Management University accounting professor Sum Yee Loong said that although the Government increased GST in two stages to make the changes gradual, it became "cumbersome for trading" and spread unhappiness over a longer time among Singaporeans.
It upset retailers which had little chance to recover from the 2001 recession before being hit by the spread of the severe acute respiratory syndrome, though most still said they would absorb the GST rise. In 2003, the Singapore Retailers Association tried unsuccessfully to convince the Government to postpone the next hike.
POLITICAL PRICE
The PAP's vote share dropped to 66.6 per cent at the 2006 election, from 75.3 per cent in 2001.
That year, opposition candidates criticised the Government for not keeping the cost of living low, pointing out that GST and carpark fees rose after the last election in 2001.
But a post-election survey by the Institute of Policy Studies found that the cost of living, the job situation and upgrading were not the issues of primary concern, possibly due to strong economic and job growth. Instead, top concerns included the need for an efficient government and fairness of policy.
GST hike round 2
The increase to 7 per cent was announced in November 2006, after the election. It took effect in July 2007. It came with a $4 billion offset package of GST credits, with the poor getting the largest share, as well as senior citizens' bonuses and other assistance. Prime Minister Lee Hsien Loong this time drew an explicit link between the hike and the need to spend more to help the poor. GST vouchers were made permanent in 2012.
REACTION
In 2007, there appeared to be a quieter response than before, with fewer consumers and businesses expressing unhappiness .
POLITICAL PRICE
PAP's vote share slid to 60.1 per cent at the 2011 polls, and the party lost-for the first time - a GRC.
POLITICAL PRICE
In the GE that followed - three years later, in 1997 - GST came under fire from opposition parties. Mr Chiam See Tong of the Singapore People's Party asked if it would be raised, and Mr J. B. Jeyaretnam of the Workers' Party called it an example of how the PAP government made decisions without consulting the people.
But the issue did not appear to seize the electorate enough. Instead, the PAP's dangling of estate and property upgrading and other carrots for the electorate helped propel its vote share to 65 per cent, from 61 per cent in 1991.
GST hike round 1
In May 2002, Mr Lee Hsien Loong, who was then Finance Minister, announced that GST was to rise to 5 per cent with from January 2003. There was an outcry by consumers and businesses hit by the economic downturn. In response, Mr Lee said in December the hike would be phased in over two stages: to 4 per cent in January 2003, and to 5 per cent in January 2004.
This time, Economic Restructuring Shares were given out. The package came up to $4 billion in total, going to areas such as HDB rental for low-income households, as well as service and conservancy rebates.
REACTION
Singapore Management University accounting professor Sum Yee Loong said that although the Government increased GST in two stages to make the changes gradual, it became "cumbersome for trading" and spread unhappiness over a longer time among Singaporeans.
It upset retailers which had little chance to recover from the 2001 recession before being hit by the spread of the severe acute respiratory syndrome, though most still said they would absorb the GST rise. In 2003, the Singapore Retailers Association tried unsuccessfully to convince the Government to postpone the next hike.
POLITICAL PRICE
The PAP's vote share dropped to 66.6 per cent at the 2006 election, from 75.3 per cent in 2001.
That year, opposition candidates criticised the Government for not keeping the cost of living low, pointing out that GST and carpark fees rose after the last election in 2001.
But a post-election survey by the Institute of Policy Studies found that the cost of living, the job situation and upgrading were not the issues of primary concern, possibly due to strong economic and job growth. Instead, top concerns included the need for an efficient government and fairness of policy.
GST hike round 2
The increase to 7 per cent was announced in November 2006, after the election. It took effect in July 2007. It came with a $4 billion offset package of GST credits, with the poor getting the largest share, as well as senior citizens' bonuses and other assistance. Prime Minister Lee Hsien Loong this time drew an explicit link between the hike and the need to spend more to help the poor. GST vouchers were made permanent in 2012.
REACTION
In 2007, there appeared to be a quieter response than before, with fewer consumers and businesses expressing unhappiness .
POLITICAL PRICE
PAP's vote share slid to 60.1 per cent at the 2011 polls, and the party lost-for the first time - a GRC.
During the campaign, opposition parties accused the PAP of jacking up GST after the 2006 election, warning of further hikes.
But the most hotly debated issues during the campaign were HDB policies, an overburdened public transport system and the liberal immigration policy. These bolstered the desire among many for a check on the ruling party.
PERSONAL INCOME TAX
INTRODUCED WHEN?
1948, with the top rate at 30 per cent. Since then, it has gone down over the years to 20 per cent - with just one increase since independence: It was increased to 22 per cent this year.
PREPARING THE GROUND
The hike was announced in Budget 2015 and kicked in two years later, for taxes paid this year.
This higher personal income tax rate for the top 5 per cent of earners is expected to bring in about $400 million more revenue a year. Then finance minister Tharman Shanmugaratnam stressed that Singapore's philosophy was to keep the burden on the middle-income low.
REACTION
While there have been no reports of a backlash, National University of Singapore's Professor Stephen Phua cautioned that there may be "resistance" from top earners eventually if such hikes continue.
Already, the top 11.5 per cent of taxpayers bear about 80 per cent of personal income tax revenue, he noted.
In Hong Kong, about two in five workers pay salaries tax, with 60 per cent of revenue from the top 5 per cent of earners. For those who pay income tax, the rate is a progressive 2 to 17 per cent.
Other analysts have said that while tax rates are important, they are not the main factor in where people choose to live.
CORPORATE INCOME TAX
INTRODUCED WHEN?
1948, at 40 per cent.
REASON
An urgent need for money to balance the Budget, and to introduce a steady and equitable form of taxation for future revenue.
REACTION
When the Income Tax Bill was first introduced in 1947, some objected, saying that such a tax was not necessary to balance the 1948 Budget. Singapore Advisory Council members were critical of the expenditure and astounded at trading losses. They felt that such an important change should await the decision of the Legislative Council, which would come into being in 1948.
While they were not against the tax itself, taxpayers were reportedly unhappy with the relentless manner that tax collectors "forced the issue". Some said they could not afford to pay the tax, which was seen as sprung upon them, and there were calls to postpone imposition.
Since 1987, the PAP Government has been slashing the rate till it reached 17 per cent in 2010. A low corporate income tax rate is seen as key to keeping Singapore competitive.
Today, the rate is among the world's lowest, at just 0.5 points higher than that of Hong Kong.
Many firms pay lower rates due to the partial tax exemption regime introduced in 2002.
But the most hotly debated issues during the campaign were HDB policies, an overburdened public transport system and the liberal immigration policy. These bolstered the desire among many for a check on the ruling party.
PERSONAL INCOME TAX
INTRODUCED WHEN?
1948, with the top rate at 30 per cent. Since then, it has gone down over the years to 20 per cent - with just one increase since independence: It was increased to 22 per cent this year.
PREPARING THE GROUND
The hike was announced in Budget 2015 and kicked in two years later, for taxes paid this year.
This higher personal income tax rate for the top 5 per cent of earners is expected to bring in about $400 million more revenue a year. Then finance minister Tharman Shanmugaratnam stressed that Singapore's philosophy was to keep the burden on the middle-income low.
REACTION
While there have been no reports of a backlash, National University of Singapore's Professor Stephen Phua cautioned that there may be "resistance" from top earners eventually if such hikes continue.
Already, the top 11.5 per cent of taxpayers bear about 80 per cent of personal income tax revenue, he noted.
In Hong Kong, about two in five workers pay salaries tax, with 60 per cent of revenue from the top 5 per cent of earners. For those who pay income tax, the rate is a progressive 2 to 17 per cent.
Other analysts have said that while tax rates are important, they are not the main factor in where people choose to live.
CORPORATE INCOME TAX
INTRODUCED WHEN?
1948, at 40 per cent.
REASON
An urgent need for money to balance the Budget, and to introduce a steady and equitable form of taxation for future revenue.
REACTION
When the Income Tax Bill was first introduced in 1947, some objected, saying that such a tax was not necessary to balance the 1948 Budget. Singapore Advisory Council members were critical of the expenditure and astounded at trading losses. They felt that such an important change should await the decision of the Legislative Council, which would come into being in 1948.
While they were not against the tax itself, taxpayers were reportedly unhappy with the relentless manner that tax collectors "forced the issue". Some said they could not afford to pay the tax, which was seen as sprung upon them, and there were calls to postpone imposition.
Since 1987, the PAP Government has been slashing the rate till it reached 17 per cent in 2010. A low corporate income tax rate is seen as key to keeping Singapore competitive.
Today, the rate is among the world's lowest, at just 0.5 points higher than that of Hong Kong.
Many firms pay lower rates due to the partial tax exemption regime introduced in 2002.
Raising taxes not a bad idea
The Prime Minister has forewarned Singaporeans that his government will be raising taxes to meet higher social spending and investments.
This is a welcome move, if three interrelated conditions are met.
One, the increased spending will not only boost economic development but will also make Singapore a more equitable society.
The benefits of more growth must be distributed widely and evenly in society.
Two, the new taxes must be significantly progressive.
People with higher income must pay more taxes.
It is a privilege to become rich in Singapore, and not a right. Wealthier residents should give back to the community for that opportunity.
Three, the new taxes must be value-for-money.
The new taxes must be considered essential, and quality of life for the whole community must markedly improve.
Paying more taxes to support the whole community and to redistribute welfare makes our nation compassionate.
Willingness to pay fair taxes demonstrates solidarity.
All Singaporeans can be proud that we are in the same boat, even though not all of us have the same opportunities.
Exploitative tax avoidance behaviour should be punished.
We should not cultivate a culture that such anti-social behaviour is expected and considered normal.
Paying high taxes and staying happy are two things we can learn from the Scandinavian countries.
Ooi Can Seng (Dr)
ST Forum, 24 Nov 2017
The Prime Minister has forewarned Singaporeans that his government will be raising taxes to meet higher social spending and investments.
This is a welcome move, if three interrelated conditions are met.
One, the increased spending will not only boost economic development but will also make Singapore a more equitable society.
The benefits of more growth must be distributed widely and evenly in society.
Two, the new taxes must be significantly progressive.
People with higher income must pay more taxes.
It is a privilege to become rich in Singapore, and not a right. Wealthier residents should give back to the community for that opportunity.
Three, the new taxes must be value-for-money.
The new taxes must be considered essential, and quality of life for the whole community must markedly improve.
Paying more taxes to support the whole community and to redistribute welfare makes our nation compassionate.
Willingness to pay fair taxes demonstrates solidarity.
All Singaporeans can be proud that we are in the same boat, even though not all of us have the same opportunities.
Exploitative tax avoidance behaviour should be punished.
We should not cultivate a culture that such anti-social behaviour is expected and considered normal.
Paying high taxes and staying happy are two things we can learn from the Scandinavian countries.
Ooi Can Seng (Dr)
ST Forum, 24 Nov 2017
Date for tax hike not fixed yet: Indranee Rajah
Comments follow week of speculation on its timing after PM's remarks on issue last Sunday
By Tham Yuen-C, Assistant Political Editor and Seow Bei Yi, The Sunday Times, 26 Nov 2017
The Government has not decided on the date of the impending tax hike, said Senior Minister of State for Finance Indranee Rajah.
In deciding when the hike should kick in, the Government will take into account factors such as setting aside enough time for people to absorb the news, and ensuring the poor and needy "have enough buffer" against the impact, she said in an interview with The Sunday Times.
"We're still working on the 'when'," she said.
Her comments came after a week of speculation on the timing of the tax hike after Prime Minister Lee Hsien Loong said last Sunday that with infrastructure and social spending set to grow, it was not a question of whether taxes would be raised but when.
Ms Indranee, who is also Senior Minister of State for Law, declined to spell out the specifics of the move.
But she pointed to how PM Lee and Deputy Prime Minister Tharman Shanmugaratnam had both said the Government has enough revenue for the current term, or until the end of this decade. The Finance Ministry had also said in 2015 that there was "no basis" to claims that the GST would increase after the general election that year.
Some analysts have taken this to mean the increases may come only in the next term of government, even if the announcement comes at the next Budget in February.
The next general election has to be held by 2021, and Workers' Party assistant secretary-general Pritam Singh was among those who have linked the tax hike to it.
In a Facebook post last Tuesday, he asked if Singaporeans will be over-taxed and noted that PM Lee had said he would step down after the next general election. He wrote: "Raising taxes before a new PAP prime minister takes office would allow the new leader to start on a relatively 'clean slate', preserving his political capital."
He pointed to the staggered increase in the goods and services tax in 2003 and 2004, which took place before PM Lee took over from then Prime Minister Goh Chok Tong, "in spite of the negative economic environment".
To this, Ms Indranee responded: "The thrust of the post is that there's actually no need to raise taxes because we have more than enough money and there is an underlying suggestion that it is being done for purely political purposes, and I disagree entirely with that suggestion."
She added that while Mr Singh "may not be cognisant of the facts", spending in the areas of healthcare, education, housing and general social support had greatly increased in the last 10 years and was driving the need to boost tax revenue.
PM Lee himself had rebutted a suggestion that elections were a factor in deciding on tax hikes, saying in 2015: "Raising, adjusting taxes are a very big decision. You consider it carefully, you discuss it thoroughly and you do it only when you absolutely have to do it."
He was responding to WP chief Low Thia Khiang's warning during the election campaign that if voters gave the PAP too free a rein, the Government may raise the GST rate after the polls. WP Non-Constituency MP Leon Perera said the Government will have to "make the case for why (raising taxes) is necessary, and whether it has exhausted all other possibilities".
Jurong GRC MP Tan Wu Meng, who is on the Government Parliamentary Committee for Finance and Trade and Industry, said: "No one wants to pay more taxes. But, if people see that there is a pressing need to fund essential services and support society, to be more fair and progressive, there is room for people to be persuaded."
Comments follow week of speculation on its timing after PM's remarks on issue last Sunday
By Tham Yuen-C, Assistant Political Editor and Seow Bei Yi, The Sunday Times, 26 Nov 2017
The Government has not decided on the date of the impending tax hike, said Senior Minister of State for Finance Indranee Rajah.
In deciding when the hike should kick in, the Government will take into account factors such as setting aside enough time for people to absorb the news, and ensuring the poor and needy "have enough buffer" against the impact, she said in an interview with The Sunday Times.
"We're still working on the 'when'," she said.
Her comments came after a week of speculation on the timing of the tax hike after Prime Minister Lee Hsien Loong said last Sunday that with infrastructure and social spending set to grow, it was not a question of whether taxes would be raised but when.
Ms Indranee, who is also Senior Minister of State for Law, declined to spell out the specifics of the move.
But she pointed to how PM Lee and Deputy Prime Minister Tharman Shanmugaratnam had both said the Government has enough revenue for the current term, or until the end of this decade. The Finance Ministry had also said in 2015 that there was "no basis" to claims that the GST would increase after the general election that year.
Some analysts have taken this to mean the increases may come only in the next term of government, even if the announcement comes at the next Budget in February.
The next general election has to be held by 2021, and Workers' Party assistant secretary-general Pritam Singh was among those who have linked the tax hike to it.
In a Facebook post last Tuesday, he asked if Singaporeans will be over-taxed and noted that PM Lee had said he would step down after the next general election. He wrote: "Raising taxes before a new PAP prime minister takes office would allow the new leader to start on a relatively 'clean slate', preserving his political capital."
He pointed to the staggered increase in the goods and services tax in 2003 and 2004, which took place before PM Lee took over from then Prime Minister Goh Chok Tong, "in spite of the negative economic environment".
To this, Ms Indranee responded: "The thrust of the post is that there's actually no need to raise taxes because we have more than enough money and there is an underlying suggestion that it is being done for purely political purposes, and I disagree entirely with that suggestion."
She added that while Mr Singh "may not be cognisant of the facts", spending in the areas of healthcare, education, housing and general social support had greatly increased in the last 10 years and was driving the need to boost tax revenue.
PM Lee himself had rebutted a suggestion that elections were a factor in deciding on tax hikes, saying in 2015: "Raising, adjusting taxes are a very big decision. You consider it carefully, you discuss it thoroughly and you do it only when you absolutely have to do it."
He was responding to WP chief Low Thia Khiang's warning during the election campaign that if voters gave the PAP too free a rein, the Government may raise the GST rate after the polls. WP Non-Constituency MP Leon Perera said the Government will have to "make the case for why (raising taxes) is necessary, and whether it has exhausted all other possibilities".
Jurong GRC MP Tan Wu Meng, who is on the Government Parliamentary Committee for Finance and Trade and Industry, said: "No one wants to pay more taxes. But, if people see that there is a pressing need to fund essential services and support society, to be more fair and progressive, there is room for people to be persuaded."
E-commerce tax may level playing field, say local retailers
By Tiffany Fumiko Tay, The Sunday Times, 26 Nov 2017
Snapping up that deal from a website overseas may soon be costlier, if plans to subject lower-value imports to the goods and services tax (GST) come to pass.
Now, goods purchases totalling less than $400 and digital services such as music downloads from e-commerce firms based abroad are exempt from the 7 per cent GST.
But Singapore could join other countries such as Australia and South Korea in levying GST on foreign companies that sell goods and services to their residents online.
The Ministry of Finance said in response to queries that the current goods concession recognises that the cost of ensuring compliance could outweigh revenue collected.
But "as cross-border transactions have grown in recent years, we are studying the exception for purchases of imported goods below $400", the ministry said, adding that relevant stakeholders are being consulted.
By Tiffany Fumiko Tay, The Sunday Times, 26 Nov 2017
Snapping up that deal from a website overseas may soon be costlier, if plans to subject lower-value imports to the goods and services tax (GST) come to pass.
Now, goods purchases totalling less than $400 and digital services such as music downloads from e-commerce firms based abroad are exempt from the 7 per cent GST.
But Singapore could join other countries such as Australia and South Korea in levying GST on foreign companies that sell goods and services to their residents online.
The Ministry of Finance said in response to queries that the current goods concession recognises that the cost of ensuring compliance could outweigh revenue collected.
But "as cross-border transactions have grown in recent years, we are studying the exception for purchases of imported goods below $400", the ministry said, adding that relevant stakeholders are being consulted.
Internet sales in Singapore amounted to $1.5 billion last year, nearly triple the amount from 2011, according to market research firm Euromonitor International.
Senior Minister of State for Law and Finance Indranee Rajah told Bloomberg last Tuesday that e-commerce will likely come under the local tax regime soon to keep it up to date and further diversify Singapore's tax base.
The move, first mooted during this year's Budget by Finance Minister Heng Swee Keat, has heartened local retailers, who said that this will help to level the playing field.
E-commerce platforms Lazada, Qoo10 and eBay said that they have been consulted by the Inland Revenue Authority of Singapore, and provided feedback on potential challenges with marketplace collection models, for instance. Amazon did not respond to queries.
Qoo10's Singapore country manager Hyun Wook Cho told The Sunday Times that about 70 per cent of the site's transactions here involve local merchants, and thus are already subject to GST.
"Cross-border merchants may have to go through more steps and generally, the price may rise because of this... but we don't think it will have a significant impact on overall e-commerce," said Mr Cho.
Wing Tai Retail, which operates 96 stores here under brands such as Uniqlo, adidas and Topshop, said it supports removing tax exemptions for imported online purchases.
"Overseas e-commerce vendors have (an) unfair advantage... Singapore's implementation of this practice is following the global market practices so as to align a level playing field for bricks-and-mortar and local businesses," said its executive director Helen Khoo.
Senior Minister of State for Law and Finance Indranee Rajah told Bloomberg last Tuesday that e-commerce will likely come under the local tax regime soon to keep it up to date and further diversify Singapore's tax base.
The move, first mooted during this year's Budget by Finance Minister Heng Swee Keat, has heartened local retailers, who said that this will help to level the playing field.
E-commerce platforms Lazada, Qoo10 and eBay said that they have been consulted by the Inland Revenue Authority of Singapore, and provided feedback on potential challenges with marketplace collection models, for instance. Amazon did not respond to queries.
Qoo10's Singapore country manager Hyun Wook Cho told The Sunday Times that about 70 per cent of the site's transactions here involve local merchants, and thus are already subject to GST.
"Cross-border merchants may have to go through more steps and generally, the price may rise because of this... but we don't think it will have a significant impact on overall e-commerce," said Mr Cho.
Wing Tai Retail, which operates 96 stores here under brands such as Uniqlo, adidas and Topshop, said it supports removing tax exemptions for imported online purchases.
"Overseas e-commerce vendors have (an) unfair advantage... Singapore's implementation of this practice is following the global market practices so as to align a level playing field for bricks-and-mortar and local businesses," said its executive director Helen Khoo.
Still, local retailers may not see an immediate benefit as bigger vendors may absorb the GST for the first several months, and price is not the sole reason that shoppers buy from overseas sites, she said.
Mr Pang Fu Wei, managing director of baby supplies store Mothercare, said: "Singapore retailers have not been able to offer as competitive prices as international retailers; we don't have the volume to bring down cost prices like Amazon...
"This definitely helps to level the playing field for us - 7 per cent is a lot to any retailer."
Associate Professor Simon Poh of the department of accounting at the National University of Singapore Business School said: "It is important to stress that while the Government wants to tax foreign operators, it must be on the same rules."
Only Singapore companies with an annual taxable turnover of more than $1 million are required to be GST-registered, for example, and the same should apply to overseas companies, he said.
Related
Singapore to raise taxes as govt spending increases: PM Lee Hsien Loong at People’s Action Party Convention 2017Only Singapore companies with an annual taxable turnover of more than $1 million are required to be GST-registered, for example, and the same should apply to overseas companies, he said.
* Reserves help Singapore weather crises, keep economy stable: Heng Swee Keat
Any decision to tap savings should not be taken lightly even as needs grow, says Heng
By Chia Yan Min, Economics Correspondent, The Straits Times, 6 Dec 2017
Singapore's reserves deliver long-term economic stability while also giving the country firepower to weather crises that many other economies do not possess, said Finance Minister Heng Swee Keat.
The reserves have been accumulated over many years as a result of prudent spending by past generations, and Mr Heng said that any decision to tap them should not be taken lightly, even as spending needs grow.
He was responding to a question from Bank of Singapore chief economist Richard Jerram at The Straits Times Global Outlook Forum yesterday. Mr Jerram asked why recent talk on raising taxes - a point Prime Minister Lee Hsien Loong mentioned last month - has not been accompanied by discussions about tapping more of the earnings from Singapore's significant reserves.
In the 2017 Budget, the Government spent more than $15 billion from returns generated on past savings, Mr Heng said. "This is equivalent to several percentage points of GST, corporate income tax, personal income tax and so on. How did we as a country with no natural resources accumulate that?"
Any decision to tap savings should not be taken lightly even as needs grow, says Heng
By Chia Yan Min, Economics Correspondent, The Straits Times, 6 Dec 2017
The reserves have been accumulated over many years as a result of prudent spending by past generations, and Mr Heng said that any decision to tap them should not be taken lightly, even as spending needs grow.
He was responding to a question from Bank of Singapore chief economist Richard Jerram at The Straits Times Global Outlook Forum yesterday. Mr Jerram asked why recent talk on raising taxes - a point Prime Minister Lee Hsien Loong mentioned last month - has not been accompanied by discussions about tapping more of the earnings from Singapore's significant reserves.
In the 2017 Budget, the Government spent more than $15 billion from returns generated on past savings, Mr Heng said. "This is equivalent to several percentage points of GST, corporate income tax, personal income tax and so on. How did we as a country with no natural resources accumulate that?"
He said he was "humbled" by earlier generations who prudently saved for the future, even when the economy was growing rapidly and government revenues were rising.
In addition, the net investment returns framework was put in place to allow the Government to spend up to half of the long-term expected real returns from the assets managed by three Singapore investment entities - GIC, the Monetary Authority of Singapore (MAS) and Temasek Holdings.
The net investment returns contribution overtook corporate income tax to be the top contributor to government coffers for the first time in the 2016 financial year.
Mr Heng also recounted his experience at the MAS during the global financial crisis.
"My first concern was that the Singapore dollar would come under attack and it would go under," he said, citing American investor George Soros, who shorted US$10 billion worth of pound sterling and made US$1 billion in profit in 1992.
"If that attack had come to Singapore, we would not be sitting here today discussing this," he added.
The net investment returns contribution overtook corporate income tax to be the top contributor to government coffers for the first time in the 2016 financial year.
Mr Heng also recounted his experience at the MAS during the global financial crisis.
"My first concern was that the Singapore dollar would come under attack and it would go under," he said, citing American investor George Soros, who shorted US$10 billion worth of pound sterling and made US$1 billion in profit in 1992.
"If that attack had come to Singapore, we would not be sitting here today discussing this," he added.
A second concern was the potential for large outflows of funds. "At that point, money was flowing all over the world at an alarming rate. But people knew that if they tried to attack the Singdollar, we had the firepower to deal with it."
Mr Heng added: "Having those reserves gives our economy long-term stability and allows us to weather crises in a way that many other economies cannot."
"We need to leave (the reserves) to future generations so that their future is more secure," he said, adding that demographics would be very different in 15 years' time, with one in four Singaporeans older than 65, compared with one in eight now.
He sees fiscal sustainability as key to coping with future challenges, saying that Singapore must make sure government spending remains sustainable even as needs grow and it becomes tougher to raise revenue. The country is ramping up investment in key areas - such as defence and economic development - to prepare for an increasingly uncertain future.
"This is about staying responsible and spending within our means," Mr Heng said.
"We need to leave (the reserves) to future generations so that their future is more secure," he said, adding that demographics would be very different in 15 years' time, with one in four Singaporeans older than 65, compared with one in eight now.
He sees fiscal sustainability as key to coping with future challenges, saying that Singapore must make sure government spending remains sustainable even as needs grow and it becomes tougher to raise revenue. The country is ramping up investment in key areas - such as defence and economic development - to prepare for an increasingly uncertain future.
"This is about staying responsible and spending within our means," Mr Heng said.
It also means the Government must prepare for revenue risks in the face of technological changes and evolving business models.
This involves making sure Singapore's tax system remains pro-growth and progressive, while maintaining a diversified revenue base, he said.
OCBC Premier Banking was the presenting sponsor for the ST Global Outlook Forum, and Mercedes-Benz was the official car.
OCBC Premier Banking was the presenting sponsor for the ST Global Outlook Forum, and Mercedes-Benz was the official car.
Addressing tough questions on tax hikes
By Elgin Toh, Insight Editor, The Straits Times, 12 Dec 2017
Three things are certain in life: death, taxes and tax increases - at least since Prime Minister Lee Hsien Loong gave a clear indication last month that tax rates will have to go up before long.
It is not yet known which taxes will rise, when they will rise and by how much. But Mr Lee's political aim of sounding the alarm in advance was, no doubt, to kick-start the work of persuading people on the principle of the matter - the need for a hike - so that when the specifics come, they will be less jarring.
Pundits are betting on a goods and services tax (GST) hike to be announced in Budget 2018. But one theory is that it may be years before anyone pays more than the current 7 per cent, as some believe the rise will kick in only after the next general election. After all, Mr Lee has said revenues are sufficient for this term, which ends in 2021, unless an election is called early.
Whether the tax hike takes effect before or after the election, the Government's priority now is to get Singaporeans on board. This Mr Lee has begun to do, listing three major items that need more funding: economic restructuring, infrastructure investment and social spending.
Economic restructuring is happening when technological change is accelerating and jobs are being disrupted globally. Concurrently, Singapore is reducing its reliance on foreign workers, forcing firms to raise productivity. Spending will be needed to retrain displaced workers and to help firms make productivity-enhancing changes to their work processes.
Infrastructure improvements - the second area - are expensive but vital for raising the quality of life and economic competitiveness. Projects take years, even decades, to realise. If work does not begin now, nobody will feel the effects for a time, but at some point, Singapore will fall behind. Upgrades in the works include the airport, the seaports and water infrastructure.
Finally, social spending will go north because an ageing population will require more healthcare expenditure.
Trying to keep expenditure constant will mean lowering the subsidy level per person, which would be unfair to the baby boomer generation. They are a bigger drag on national finances because of their size - but they have also contributed a larger share to the nation's progress during their working years.
By Elgin Toh, Insight Editor, The Straits Times, 12 Dec 2017
Three things are certain in life: death, taxes and tax increases - at least since Prime Minister Lee Hsien Loong gave a clear indication last month that tax rates will have to go up before long.
It is not yet known which taxes will rise, when they will rise and by how much. But Mr Lee's political aim of sounding the alarm in advance was, no doubt, to kick-start the work of persuading people on the principle of the matter - the need for a hike - so that when the specifics come, they will be less jarring.
Pundits are betting on a goods and services tax (GST) hike to be announced in Budget 2018. But one theory is that it may be years before anyone pays more than the current 7 per cent, as some believe the rise will kick in only after the next general election. After all, Mr Lee has said revenues are sufficient for this term, which ends in 2021, unless an election is called early.
Whether the tax hike takes effect before or after the election, the Government's priority now is to get Singaporeans on board. This Mr Lee has begun to do, listing three major items that need more funding: economic restructuring, infrastructure investment and social spending.
Economic restructuring is happening when technological change is accelerating and jobs are being disrupted globally. Concurrently, Singapore is reducing its reliance on foreign workers, forcing firms to raise productivity. Spending will be needed to retrain displaced workers and to help firms make productivity-enhancing changes to their work processes.
Infrastructure improvements - the second area - are expensive but vital for raising the quality of life and economic competitiveness. Projects take years, even decades, to realise. If work does not begin now, nobody will feel the effects for a time, but at some point, Singapore will fall behind. Upgrades in the works include the airport, the seaports and water infrastructure.
Finally, social spending will go north because an ageing population will require more healthcare expenditure.
Trying to keep expenditure constant will mean lowering the subsidy level per person, which would be unfair to the baby boomer generation. They are a bigger drag on national finances because of their size - but they have also contributed a larger share to the nation's progress during their working years.
None of the three reasons for raising taxes is controversial. The Government is likely to put out different permutations of these arguments at dialogue sessions with various segments of the population in the coming months.
That said, in an era of better-educated voters, to make the most convincing case, the Government may have to go one step further: by pre-empting and addressing difficult yet reasonable questions.
In economic restructuring, the Government will do well to show that the schemes are effective in helping employers and employees make the transition. It is a well-reported fact that during the implementation of the Productivity and Innovation Credit (PIC) scheme, for example, con men went around trying to get businesses to sign up for it in a fraudulent way - with the two sides splitting the gains, to the taxpayer's disadvantage. Under the PIC, the Government gave financial incentives to firms that invested in machinery and training, among other things.
Some of these con men were caught and convicted. Others had their applications rejected.
It will be useful if the Government can show that enforcement against such abuses is effective, and that money spent on economic restructuring in general yields fair returns.
In infrastructure, a growing view among experts is that Singapore can afford to be less averse to financing infrastructure through debt. This was done in the early post-independence years, when finances were tight. After the economy took off, the general approach has been to fund them using current revenues.
The advantages of paying upfront include savings on interest payments, and not having to face external scrutiny by prospective creditors. But a key disadvantage has to do with inter-generational fairness. The Government is making the present generation pay for long-term projects that benefit future generations.
That said, in an era of better-educated voters, to make the most convincing case, the Government may have to go one step further: by pre-empting and addressing difficult yet reasonable questions.
In economic restructuring, the Government will do well to show that the schemes are effective in helping employers and employees make the transition. It is a well-reported fact that during the implementation of the Productivity and Innovation Credit (PIC) scheme, for example, con men went around trying to get businesses to sign up for it in a fraudulent way - with the two sides splitting the gains, to the taxpayer's disadvantage. Under the PIC, the Government gave financial incentives to firms that invested in machinery and training, among other things.
Some of these con men were caught and convicted. Others had their applications rejected.
It will be useful if the Government can show that enforcement against such abuses is effective, and that money spent on economic restructuring in general yields fair returns.
In infrastructure, a growing view among experts is that Singapore can afford to be less averse to financing infrastructure through debt. This was done in the early post-independence years, when finances were tight. After the economy took off, the general approach has been to fund them using current revenues.
The advantages of paying upfront include savings on interest payments, and not having to face external scrutiny by prospective creditors. But a key disadvantage has to do with inter-generational fairness. The Government is making the present generation pay for long-term projects that benefit future generations.
Spreading out payments over the term of the debt would involve paying more money overall, but would arguably be a more equitable way of evening out the burden between Singaporeans today and in the future. It would reduce the need to increase the current tax burden.
Concerns about inter-generational fairness have also been raised in relation to the upcoming tax hike by some economists who say a bigger share of gains from the reserves can be used for current needs.
Finally, in social spending, one question is whether healthcare and other facilities being built to meet elderly needs today are designed so they can be re-purposed for other uses - in anticipation of the elderly population shrinking in the years after the baby boomer generation.
This is a point that environmental gerontologist Emi Kiyota of Japan has raised during her recent visits to Singapore as a visiting fellow of the Centre for Liveable Cities.
She notes that in the early years of dealing with its silver tsunami, Japan built many elderly-related facilities - not unlike what Singapore is now doing. Later on, there was a surplus of such facilities when the demographics shifted. She suggests that Singapore builds facilities that can be re-configured for other uses, to avoid wasting resources.
The broader question here is whether Singapore has given enough thought not just to the silver tsunami landscape, but the post-silver tsunami one as well.
This Government has a reputation for considering any major policy change from all possible angles. The questions above and others that people will pose in the months to come would have been considered at length. If the answers are communicated well, it will minimise the fallout from the tax hike.
This is a point that environmental gerontologist Emi Kiyota of Japan has raised during her recent visits to Singapore as a visiting fellow of the Centre for Liveable Cities.
She notes that in the early years of dealing with its silver tsunami, Japan built many elderly-related facilities - not unlike what Singapore is now doing. Later on, there was a surplus of such facilities when the demographics shifted. She suggests that Singapore builds facilities that can be re-configured for other uses, to avoid wasting resources.
The broader question here is whether Singapore has given enough thought not just to the silver tsunami landscape, but the post-silver tsunami one as well.
This Government has a reputation for considering any major policy change from all possible angles. The questions above and others that people will pose in the months to come would have been considered at length. If the answers are communicated well, it will minimise the fallout from the tax hike.
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