Wednesday 9 November 2022

Why is Singapore raising the GST?

Singapore's GST hike to go through after Bill passed in Parliament on 7 Nov 2022

GST will increase from 7 per cent to 8 per cent from Jan 1, 2023 and from 8 per cent to 9 per cent from Jan 1, 2024

Tourists, foreigners living in Singapore paid half of net GST in 2018 and 2019

Assurance Package to help households offset GST hike to get $1.4 billion boost, will now total $8 billion

Workers’ Party’s alternatives to GST hike do not add up, GST hike among options needed to meet funding gap: DPM Lawrence Wong
By Hariz Baharudin and Ng Wei Kai, The Straits Times, 7 Nov 2022

The suggestion that the goods and services tax (GST) increase should be postponed due to current inflationary pressures does not hold water, Deputy Prime Minister Lawrence Wong told Parliament on Monday.

The Government’s support measures delay the effect of the hike by at least five years for the majority of Singaporean households, he said.

That the support is targeted at lower- to middle-income households, rather than broad-based, will also minimise any additional inflationary pressures, he added.

“We have designed the overall package to ensure we neither stoke inflation inadvertently nor choke aggregate demand, and this is an appropriate macroeconomic stance to adopt at this juncture,” he said.

Rounding up the debate on the GST (Amendment) Bill, which saw 15 MPs speak, Mr Wong rebutted alternatives raised by Workers’ Party MPs Louis Chua and Jamus Lim (both Sengkang GRC) saying these entailed spending more from past reserves and leaving less for the future.

The Government has also explored other sources of revenue, and still needs to raise the GST, he said.

Why increase GST now?

The Government had considered the GST hike carefully and decided that it was necessary to do so, given how Singapore’s economic challenges are not just near-term or cyclical in nature, Mr Wong said.

The ongoing war in Ukraine, disruptions to energy and food supplies, rising geopolitical tensions and more fragmented supply chains are realities Singapore has to deal with possibly for a more prolonged period, he added.

“International economic conditions have fundamentally changed,” he said.

While inflationary pressures here are expected to ease in the second half of next year, inflation rates are unlikely to go back to what they were over the past decade, he added.

It is for this reason that the Government has extended comprehensive support to Singaporeans, especially lower and middle income families.

Mr Wong had at the start of the debate announced a $1.4 billion boost to the support package for households to offset the GST hike’s impact, amid higher inflation. This means the Assurance Package, first announced in 2020, will now be worth $8 billion, up from $6.6 billion before.

Responding to a point Mr Chua made on how households’ annual expenditure will increase due to inflation, Mr Wong said that the support they get will increase.

Mr Chua had cited the example of a middle-income couple with two young children, and estimated that with inflation, their annual expenditure would go up by $2,500.

Mr Wong acknowledged the rise in spending, but pointed out that the support they get this year would be around $1,500.

This support will keep to the Government’s commitment to offset more than half of the inflation-driven increase in cost of living this year for middle-income households, he said, adding this does not take into account wage rises for individuals which many will likely enjoy.

Associate Professor Lim had also cited how Japan saw an increase in inflation after it increased its version of the GST three times in the past 25 years.

Mr Wong pointed out that Japan was in a deflationary environment, and had raised the GST and had its inflation double from a “chronically low” 1 per cent to 2 per cent - and temporarily.

“Let’s avoid raising these alarmist examples that may not be so relevant to our context,” he said, adding that Singapore must continue to learn the right lessons from others.

He noted that while there are considerable uncertainties in the economic outlook, there is nothing uncertain about government expenditures, especially in healthcare.

Noting that MPs like Mr Liang Eng Hwa (Bukit Panjang), Mr Sharael Taha (Pasir Ris-Punggol GRC) and Ms Joan Pereira (Tanjong Pagar GRC) had made this point, Mr Wong said even as Singapore deals with healthcare spending, it has to resource many other spending needs.

These include planned investments on early childhood education, efforts to uplift lower wage workers as well as helping to ease concerns of SMEs, self-employed persons and those keen to purchase HDB flats.

“It’s a few billion here, a few billion there, they all add up. None of these needs has become less urgent because of the global economic situation. On the contrary, we must do more, especially in an uncertain and volatile environment,” said Mr Wong.

“That is why having considered this so carefully before the Budget, after the Budget, even in the last few months when the global economic environment had deteriorated, we felt that there was no possibility for us to delay the GST increase any further.”

Why not try alternatives to the GST hike?

Mr Wong also addressed four alternatives to the GST hike that WP MPs had raised.

One, the suggestion that Singapore has enough fiscal surplus to delay the hike of 1 percentage point set for January 2023.

Mr Wong said: “I wish that were so.”

He noted Prof Lim had suggested the Government is shielded from inflation because when inflation goes up, so does its revenues as prices also increase.

“But he didn’t mention this: Government spending must also go up correspondingly,” said Mr Wong, citing public servants’ salaries and support schemes for residents.

He added that while the Government collected more revenue than expected in the last financial year and had a surplus of $1.9 billion, it had already used this surplus as well as the return from the first half of this year to fund two support packages.

In June and October 2022, the Government announced two $1.5 billion support packages targeting lower-and-middle income Singaporeans.

Mr Wong said: “The bottom line is that any surpluses are imaginary - they are not there and will not allow us to delay the GST.”

Two, there have been suggestions to use more of Singapore’s reserves, including increasing the proportion used from returns on investments and changing the definition of land sales revenues.

Mr Wong said WP’s position, which it said was not raiding but slowing down the rate of accumulating reserves, sounds attractive but will leave future generations with less resources.

Such a move would be irresponsible, he added. “Let’s not succumb to the temptation of taking this easy way out, making things worse for our children and grandchildren.”

Mr Wong noted that global uncertainties are also likely to slow the growth of Singapore’s investments anyway, making tapping on these to delay a GST hike even more untenable.

Three, Prof Lim had suggested exempting essential items from GST, a point that had been raised by Ms He Ting Ru (Sengkang GRC) at the Budget Debate in February.

Mr Wong said this does not work in practice.

Such tiered GSTs are cumbersome, he said, citing a recent BBC article about India’s system.

In August, an Indian firm making pizza toppings went to court claiming their mozzarella topping should be classified as cheese - which had a GST of 12 per cent.

The court disagreed, arguing that because the topping had other ingredients such as vegetable oil it should be taxed at 18 per cent in a class known as ‘edible preparations’.

Mr Wong said there is no end to these challenges, and such tiered systems are not effective.

“When you exempt a basket of goods or essential items in the end you benefit the well-to-do, because the well-to-do will spend more on everything, not just luxury items but basic necessities as well,” he said.

This was a conclusion also reached by studies from numerous governments and the Organisation for Economic Co-operation and Development (OECD), he added.

Mr Wong said Singapore’s GST system - with its series of offsets and rebates - is deliberately designed to be fair and effective, contrary to Prof Lim’s view that these were a patchwork of offsets.

Four, suggestions continue to be made that Singapore should explore other streams of revenue such as property, income, corporate and sin taxes.

Mr Wong said while these have been carefully considered, the sums do not add up.

Increasing corporate and income taxes could result in investors leaving Singapore, especially amid tight global competition for talent and investments, he said.

He added that GST revenue alone is in fact not enough to fund policies the Government wants to push through, from healthcare spending to improving conditions for low-wage workers.

“Really, that question is not GST or these other alternatives - we need GST, and these other alternatives,” he said.

Mr Wong added: “The WP is entitled to your own position. By all means, oppose the GST, adopt a different position, fine.”

Monday 7 November 2022

Singaporeans cannot have it both ways – more opposition MPs but also effective PAP government: PM Lee Hsien Loong at PAP Conference 2022

PAP needs strong mandate to govern Singapore firmly and decisively: PM Lee
By Hariz Baharudin, Assistant News Editor, The Straits Times, 6 Nov 2022

Singaporeans cannot have it both ways, where many want the People’s Action Party (PAP) to continue governing the country but also to have more opposition MPs elected to keep the Government on its toes, said Prime Minister Lee Hsien Loong.

After many years of the PAP in power, many Singaporeans want the party to continue governing the country as it has been doing a good job, and no one else can do it better, he noted.

So they vote for the opposition, fully expecting that the PAP will still be returned to power and can function as effectively, regardless of whether it receives strong or weak support at the polls, he said in a speech at the PAP’s biennial party conference on Sunday.

“Unfortunately, we cannot have it both ways. Whether voters give the new Government a strong or weak mandate makes a very big difference,” he told over 3,000 party members and activists.

“With a strong mandate, when the Government needs to act strongly and decisively – whether at home and abroad – everyone will know that it is acting with the people’s support. And everyone will know that Singaporeans are united, tackling problems as one and moving ahead together.”

PM Lee, who is the PAP’s secretary-general, said a strong mandate will give the government the confidence and backing to make tough calls and steer Singapore safely through ups and downs. He cited how the Government could impose tough measures such as the circuit breaker, mandatory mask-wearing, strict border controls and vaccination regimes as there was no doubt it had the people’s full confidence.

Had the PAP won the 2020 General Election narrowly with a 51 per cent vote share, instead of 61.2 per cent, it would have still formed the government and ruled Singapore to the best of its ability, said PM Lee.

But it would have lost many good MPs and ministers, and its leadership team would have been considerably weakened, he added.

“Singapore would have gone into battle with Covid-19 divided and disheartened. It would have been much harder for the Government to act decisively, or for Singaporeans to respond cohesively and resolutely,” he said.

“Our Covid-19 experience might well have been very different... And I can assure you our international position would have been considerably weakened too, both regionally and globally. A Singapore ruled by a government hanging on to power by its fingernails is bound to be pushed from pillar to post by other countries.”

PM Lee said the stakes are raised at each successive election. The more seats the opposition wins, the more the general election becomes a decision on which party will form Singapore’s next Government, he added. At the 2020 election, the Workers’ Party won 10 seats – two group representation constituencies in Aljunied and Sengkang, as well as the Hougang single seat. The PAP has delivered on its policies and promises through the decades, but this is not enough, PM Lee said, stressing that it needs to convert people’s approval of its performance into votes.

He sketched out three things it must do to “win the political battle”.

First, the party must put across its political message so that people know PAP leaders are “conviction politicians” who adopt policies and programmes because they are convinced these will benefit Singapore in the long term.

“But, more important than the details of policies, we have got to convince Singaporeans why the policies matter to them, and how they match people’s needs and aspirations,” he said.

Second, the PAP has to counter moves by the opposition and show voters where the opposition falls short, he said.

While it is the opposition’s job to scrutinise government policies and highlight mistakes, the PAP, too, has to point out instances when its opponents fail to measure up or they act against Singaporeans’ interests, he added.

“It is very easy for the opposition to support only the pleasant things the Government does, but to oppose the harder moves that are sometimes not avoidable,” he said, adding that a responsible opposition should be accountable for what it proposes and what it opposes.

Third, PAP MPs and branch activists must work the ground and show residents how the party makes a difference to them by improving the amenities in their towns, resolving conflicts and issues and advocating their concerns.

PM Lee said that party branches need to ramp up physical activities, which were paused during Covid-19, and make up for lost time by wearing their party whites and covering the ground comprehensively.

He also paid tribute to party members working in opposition wards in Aljunied, Hougang and Sengkang, and commended them for engaging residents, helping needy households and supporting bereaved families, even though they cannot hold Meet-the-People Sessions.

If Singapore’s politics go wrong, its governance will go wrong too, and so will the lives of all Singaporeans, he warned.

He cited how politics in other countries have turned contentious and volatile – governments get distracted and paralysed, and society becomes divided.

“The government has neither the ability nor the mandate to push through hard decisions or to see beyond immediate problems. What is politically expedient overrides what is in the longer-term good of the people and country. And then, we are all in deep trouble,” he said, noting this has happened in the United States and United Kingdom.

PM Lee noted that the US is having its midterm elections on Tuesday. “There is great foreboding on how the results will turn out, and how that will change their politics, possibly even making it worse”, he said.

Some think that Singapore politics will always work well as it has for 60 years, and that the natural order of things is for the country to keep on succeeding, with the Government always thinking and planning 30 or 50 years ahead, PM Lee said.

But what Singapore has today is not natural at all, and the sort of Government that it has is rare, he said.

Almost everywhere else, the Government hardly thinks beyond the next general election, and Singapore has only become like this through the blood, sweat and tears of many generations.

The PAP does not take its duty lightly, and things can easily go wrong here as well. PM Lee said that Singaporeans are not inherently better, smarter or more virtuous than people in other countries.

“Maybe we are more cohesive (but) there is no vaccine to protect us from the same dark forces of anger, fear, racism, xenophobia,” he said.

“Similar divisive emotions and tensions can build up here too, can well up here too, can explode here too. We can end up with the same messy politics and broken country that we see elsewhere.”

“To prevent this and to keep things working well for Singaporeans, the PAP must stay true to its founding mission. Not only to continue to deliver results, but to keep on convincing minds and appealing to hearts, and winning the political battles.”

On party renewal, PM Lee said the PAP has already identified some promising potential candidates for the next election, with more in the pipeline.

“I am confident that come the next general election, we will again be able to present a talented, diverse and representative team of candidates, both experienced and new, ready to work with voters and take Singapore forward.”