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.”

‘Doomsday’ predictions over past GST hikes did not pan out: Murali Pillai
By Jean Iau, The Straits Times, 7 Nov 2022

The PAP Government’s consistent approach of meeting Singapore’s fiscal pressures through a goods and services tax (GST) has broadened its tax base while keeping the city-state competitive, said Mr Murali Pillai (Bukit Batok).

Conversely, history has shown that while the Workers’ Party has always objected to the GST and argued that the tax would leave lower-income earners worse off, such doomsday predictions did not materialise, he added.

Speaking during the debate on the GST (Amendment) Bill on Monday, Mr Murali recounted the key chapters in the history of GST here, starting from its introduction in 1993.

Then, Singapore’s economy was strong and its people were young, and it was already felt that GST was needed for the long term given that direct tax made up 60 per cent of the city-state’s tax revenue and there was a need to diversify such revenues for greater stability.

The WP had strenuously objected to the GST’s introduction and argued that such a tax was regressive. The People’s Action Party responded by recognising possible shortcomings and introduced GST offsets for low-income households, said Mr Murali.

The result was that corporate and personal income tax rates came down even though tax revenues did not, and social spending that benefited the poorest went up, he said.

“Today, when we are older and the economy is struggling, it turns out that our 1993 decision was correct,” said Mr Murali.

In 2003, when Singapore was still recovering from the 1997 Asian financial crisis and the 2001 recession and had to contend with Sars, its economy was struggling and the Government decided to raise GST progressively from 3 per cent to 5 per cent to help fund expenses.

The WP was once more against it, said Mr Murali, noting that its then leader Low Thia Khiang expressed concern about the impact on inflation and argued instead for an increase of the net investment income (NII) ceiling and higher property and sin taxes.

The result of the GST hike was that Singapore kept its fiscal discipline, turned in positive economic growth and improved Singaporeans’ livelihoods, said Mr Murali.

He noted that the WP had also objected to the 2007 increase of the GST to 7 per cent, and had called on the Government to get revenue from other areas, such as using more of the NII, land sales, corporate tax and stamp duties.

Yet what has happened since 2007 is that Singapore managed to achieve broad-based social uplift: jobs, homes and rising incomes for all, as well as quality schools and public healthcare, he said.

“The Government is not perfect. But by and large, the doomsday predictions of the poor becoming poorer owing to GST hikes simply did not happen,” said Mr Murali.

Set against this historical context, there is nothing significantly new in what the WP has suggested this time as alternative proposals to the GST for Parliament to consider, he said.

Pointing to a July article in the WP’s Hammer newsletter against the GST hike that said political courage means being able to recognise that contrary arguments have merit even if they come from political opponents, Mr Murali said the statement applies both ways.

“Rhetoric for effect seldom helps. Political courage commands a price, but mere talk of political courage is cheap,” he said.

The PAP is not so naive as to think that the GST will gain it political favour, and yet it is asking this of Singaporeans because of the “hard, immovable economic and fiscal realities”, he said.

“We ask this at this difficult time, because we truly believe that it will give us a fairer and more progressive way of financing our government, and build a stronger foundation for our nation,” he said. “That is political courage.”

Other PAP MPs also spoke in support of the Bill, but questioned how the increase in revenue will be redistributed to those who need it most.

Ms Jessica Tan (East Coast GRC) asked if means-testing for GST vouchers can be further calibrated to help certain groups.

She suggested that criteria be tweaked to include those living with extended family members in private homes but do not own the property, and for a threshold with a lower cash payment for retirees that own property but require support.

Mr Saktiandi Supaat (Bishan-Toa Payoh GRC) asked if the Government conducts regular reviews to assess the need to raise the per capita income threshold so more households can qualify for permanent GST vouchers.

Meanwhile, Ms Joan Pereira (Tanjong Pagar GRC) asked if the Government would consider higher MediSave top-ups for seniors.

Earlier on Monday, Deputy Prime Minister Lawrence Wong announced in Parliament that there will be a $1.4 billion boost to the support package for households to offset the impact of the upcoming GST hike, given higher inflation. More details on the enhancements to the package will be announced in Budget 2023.

The GST will go up by one percentage point from 7 per cent to 8 per cent on Jan 1, 2023, and another percentage point to 9 per cent on Jan 1, 2024.

A recurring point during the debate was how much of the reserves the Government should be able to draw on.

Mr Murali and Mr Sitoh Yih Pin (Potong Pasir) both said the current framework that lets the Government spend up to 50 per cent of the net investment returns on net assets invested by GIC, the Monetary Authority of Singapore and Temasek is equitable, as it leaves half aside for the future.

Both called for the Government to continue saving more than less, given that it is impossible to predict future emergencies and spending needs.

“If somebody says he knows, he’s probably a snake oil salesman,” said Mr Murali.

‘Irresponsible’ to raise GST amid uncertain inflation and higher prices: Jamus Lim
By Hariz Baharudin, Assistant News Editor, The Straits Times, 7 Nov 2022

Raising the goods and services tax (GST) amid the uncertain inflation outlook and higher prices is an “irresponsible” move that should be postponed, Workers’ Party MP Jamus Lim said on Monday.

Hitting back at comments by Deputy Prime Minister Lawrence Wong on how it is “more responsible” to proceed with the GST increase, Associate Professor Lim (Sengkang GRC) told Parliament that this was not the case.

Mr Wong had said on Oct 14 that while the global inflation outlook may be uncertain, the spending needs of Singapore are clear, and proceeding to increase the GST in the coming years is a “more responsible approach”.

On Monday, Prof Lim said that in principle, tax increases could well dampen overall demand and tame rising prices, but added that these taxes could also end up raising the costs faced by firms and they could instead end up constricting supply, which will push up prices.

He also said it has been observed that increases in inflation follow the introduction of value-added taxes like the GST. He said that Japan has increased its version of the GST thrice over the past 25 years, and each time, the inflation rate would more or less double for up to a year.

“Imagine a doubling of inflation from our current, already unbearable levels,” said Prof Lim.

In October, official data showed that core inflation hit 5.3 per cent year on year. This was higher than the 5.1 per cent rate in August, and marked its highest level since it touched 5.5 per cent in November 2008.

Prof Lim spoke of how inflation has hit Singaporeans hard, and noted that food prices overall have risen by 6.9 per cent, compared with a year ago.

The cost of utilities has also jumped by more than 16 per cent, with electricity rising by more than 26 per cent, which Prof Lim said has led to shock and dismay among some residents who approach MPs at Meet-the-People Sessions, seeking help for overdue utilities bills they have difficulty paying.

“While Singaporeans accept that inflation is very much a global phenomenon, the reality is that inflation has inadvertently become a tax on our people,” he said.

The range of measures that the Government has rolled out, like additional U-Save rebates, service and conservancy charges credits and Community Development Council vouchers, have helped with higher costs, said Prof Lim. But these appear “piecemeal and inadequate” as they cater to the average household within each group, he added.

Prof Lim said residents have pointed out to him how the prices of their cai png (mixed rice) have increased from $3 to $5, and how their utilities bills have doubled.

“Herein lies the conundrum: Nobody is truly ‘average’, and so those who consume a narrower basket of goods and services will feel the pinch more acutely. This leaves many individuals and families feeling like the coupons, subsidies and rebates fail to make up for the magnitude of the price increases that they face,” said Prof Lim.

“Their worries are compounded since, by definition, spending on such necessities is seldom viewed as optional.”

A simpler way to address this problem is to temporarily exempt these categories of essential goods and services from the GST hike, he said, noting that these categories have been subject to the greatest price volatility in recent months.

“It is reasonable to offer temporary, targeted relief for these essentially non-discretionary aspects of their spending,” added Prof Lim.

Mr Louis Chua (Sengkang GRC) on Monday also questioned the need for the GST increase now, and asked if there was a need to contribute to inflationary pressures.

He brought up how inflation was not going back to the very low rates in the past, and said that even if inflation eases eventually, prices are not going to come down and instead will continue to increase and affect the cost of living pressures of Singaporean households.

On the Assurance Package announced by the Government to help with the GST hike, which will offset five years worth of additional GST for most households, Mr Chua questioned if such measures will help Singaporeans after their benefits wear off.

“Assurance packages are temporary, while a GST hike is forever,” he said.

Assurance Package to help households offset GST hike to get $1.4 billion boost, will now total $8 billion
By Goh Yan Han, Political Correspondent, The Straits Times, 7 Nov 2022

There will be a $1.4 billion boost to the support package for households to offset the impact of the upcoming goods and services tax (GST) hike, given higher inflation, Deputy Prime Minister Lawrence Wong told Parliament on Monday.

This means that the Assurance Package will now be worth $8 billion, up from $6.6 billion before. The package was first announced in 2020, with a top-up of $640 million announced in Budget 2022.

Mr Wong, who is also Finance Minister, was speaking at the start of the debate on the GST (Amendment) Bill, which saw 15 MPs speak.

He said that with higher inflation, household expenditure and the additional GST expenses are expected to increase. The size of the support package would therefore need to be correspondingly increased to meet the Government’s committed level of offsets.

The GST will increase by one percentage point from 7 per cent to 8 per cent on Jan 1, 2023, and another percentage point to 9 per cent on Jan 1, 2024.

The Government had committed to ensuring that the package would offset the impact of the GST increase for the majority of Singaporean households for at least five years, and for lower-income households for about 10 years.

He also reiterated the reasons for the GST rate increase. The tax hike is an important revenue move that will provide Singapore with additional resources to meet its growing healthcare expenditures and to take better care of the growing number of seniors, he said.

Mr Wong noted that the Government has been expanding support including in the areas of healthcare, social and ageing needs. It also wants to improve social mobility, invest in skills upgrading and green the economy and city.

“To achieve all this, we will need more government spending – on a structural and recurring basis.”

That is why, apart from increasing the GST, he had also announced increases in the personal income tax and property tax, among other measures, noted Mr Wong.

“This is how, as a responsible government, we plan ahead and meet our future needs in a sustainable way.”

Mr Wong said that for those who ask the Government to delay the GST rate increase, the Assurance Package “in effect does precisely that, for the majority of households”.

He also highlighted the GST Voucher (GSTV) scheme – “another important design feature of the GST system in Singapore”, which helps lower- to middle-income households defray a significant part of their GST expenses permanently. Apart from the voucher scheme, the Government also continues to absorb GST for publicly subsidised healthcare and education.

“After putting together the permanent GSTV and the GST absorption – what we have is an overall GST system that taxes consumption in a fair and effective manner,” said Mr Wong. “In effect, we have a multi-tiered GST system, one that is tiered by income levels, with lower-income households paying a much lower effective GST rate than higher-income households.”

He noted that on average, the bottom 10 per cent of households – which include many retiree households without income – do not pay any GST at all after the permanent offsets.

Even after the GST increase, the effective GST rate for households in the first three income deciles remains unchanged at below 3 per cent, which means the GST increase will not negatively impact them, he added.

The full impact of the GST will be borne largely by high-income households, as well as tourists and foreigners based here, said Mr Wong. This is also the group that contributes the biggest share to net GST revenues from households and individuals, he added.

He said: “We have designed our GST system carefully to achieve these outcomes. And as the inflationary outlook evolves, we will continue to monitor our scheme parameters to ensure that we uphold and maintain these objectives.”

“The GST is therefore a key part of our fair and progressive system of taxes and transfers – that takes care of the less well-off, and ensures that those who are better off contribute their fair share in revenues.”

Mr Wong also explained another proposed amendment in the Bill, which updates the GST treatment of travel-arranging services to be based on the “place of belonging rule” from Jan 1, 2023. Under the changes, if the customer belongs in Singapore, the travel arranging service, such as the facilitation of accommodation bookings, will be standard-rated.

Travel-arranging services would qualify for zero-rating, or zero per cent of GST, only if the services are supplied to a consumer outside of Singapore, and directly benefits people who either belong outside of Singapore or are GST-registered in Singapore.

Mr Wong said this amendment will also ensure consistent GST treatment for travel-arranging services, regardless of whether they are rendered by local or overseas providers.

Other amendments include changes in the transitional rules in the GST Act for greater clarity in rules application; refining the rules for taxing low-value goods and services to prevent double taxation, provide tax certainty and ease the compliance burden of businesses; as well as the introduction of criminal sanctions to counter Missing Trader Fraud schemes.

In a speech rounding up the debate, Mr Wong addressed concerns from MPs about why the GST increase was going ahead as planned, and why alternative measures would not be feasible.

He acknowledged the inflationary pressures and challenging economic environment but noted that the economy and labour markets are still holding steady here while the resident unemployment rate has recovered to pre-pandemic levels.

He added that inflation rates are unlikely to go back to what they were over the past decade, and that the Government had rolled out support packages to tackle inflation.

Mr Wong said alternative ideas had been considered carefully by the Government and debated rigorously in Parliament. Increasing other taxes such as the personal income tax, property tax or corporate tax would not be feasible as this could affect Singapore’s attractiveness to investors and businesses, among others.

As for suggestions to use more from the past reserves, or slow down the accumulation of reserves, this would mean leaving less for the next generation and is not the responsible thing to do, he added.

“We will not just go for politically expedient measures that may very well end up being unviable or unsustainable,” said Mr Wong. “Instead, we focus our efforts on designing effective policies to benefit all Singaporeans.”

The Bill was passed on Monday evening, with nine Workers’ Party MPs and two Progress Singapore Party Non-Constituency MPs recording their dissent.

Debate on GST hike: A difficult but necessary decision
By Grace Ho, Opinion Editor, The Straits Times, 8 Nov 2022

It has been more than three years since I started writing about the goods and services tax (GST) hike, and every Parliament debate on it feels like Groundhog Day.

On one side of the House, MPs argue that recurring revenue is required to fund increasing healthcare and social expenditure needs. On the other, opposition politicians argue there are other ways to raise revenue and object strenuously to the hike.

We have heard the technical arguments many times, so I will not rehash them. What I really wanted to see during the debate was heart and history. I wanted fight.

On Monday, a visibly exasperated Mr Sitoh countered Associate Professor Jamus Lim (Sengkang GRC) on the subject of “over-saving” for a small country like Singapore, especially when the savings are not hoarded but reinvested for future generations.

He also got into a protracted debate with Workers’ Party MP Leon Perera (Aljunied GRC), which was ended only through Speaker Tan Chuan-Jin’s intervention.

Mr Sitoh’s analogy of analgesia was a vivid one: Not only does it require a lot of resources to make sure the patient is pain-free, but it is also not ideal for the patient to feel no pain for a long time.

“This is because pain is a sensation, and not to have any sensation is dangerous,” he said, likening the postponement of the hike to a wound that, if left to fester, could cause more problems later on.

“It is therefore neither possible nor advisable that the Government shield Singaporeans from difficult economic conditions worldwide, so that they feel no pain at all.”

What the Government aims to do with the GST hike, he added, is to reduce the pain by providing effective and substantial relief, with the most relief targeted at the most severe pain.

He also had strong words for Non-Constituency MP Leong Mun Wai, who told the tale of a miserly grandfather Ah Gong who refused to divulge the amount of assets he owned, or to help his grandson Ah Seng financially even though Ah Seng was struggling.

“So basically, Mr Leong is saying that the Government comes from a very, very rich family, and he keeps taking money from Ah Seng until Ah Seng himself is out of breath... I think that this is very, very rare,” said Mr Sitoh, pointing out that the tale of inter-generational woe is quite extreme in the Asian context.

But the point is not that all Asian families do not behave like Ah Gong. The point is that stories like Mr Leong’s are at best entertaining, on average not very helpful for understanding a complex issue, and at worst misleading.

Mr Murali pointed out that when the GST Bill was introduced in 1993, the WP, too, raised strenuous objections.

Then WP MP Low Thia Khiang felt there was no basis to suggest that high income and corporate taxes had the effect of driving talent and entrepreneurialism away – and, much like the WP today, Mr Murali noted that Mr Low was concerned about the technically regressive nature of the tax which could hit the lower-income the hardest.

How did the Government respond? It worked in policy fixes such as GST offsets for low-income households. Historically, the top rate of corporate and personal income taxes was at 40 per cent in 1985. After the GST was enacted, this came down to 28 per cent, and soon it will be 24 per cent for personal income tax. The corporate tax rate today is 17 per cent.

Meanwhile, Singapore’s economy grew and social spending went up. “The doomsday prediction that the poor and the lower-income people will be left behind did not materialise,” said Mr Murali.

Rinse and repeat. In 2003 and 2007, the WP again objected to GST hikes and proposed alternatives such as revenue from land sales, higher corporate tax and stamp duties, much like what is being sought now.

Same playbook, same song

On Monday, Prof Lim also suggested something which his fellow WP MP He Ting Ru had proposed before: Postponing the GST hike on essential items. The empirical evidence does not support such a move: 80 per cent of countries which introduced the GST after 1995 have opted for a single rate.

Deputy Prime Minister and Finance Minister Lawrence Wong flagged a BBC article which showed just how convoluted a multi-tier GST system can be: An Indian pizza toppings company argued that its mozzarella topping should be classified as cheese, which attracts a lower GST rate. But a court disagreed, saying that because the toppings contained vegetable oil, it should be taxed at a higher rate.

It is not just India. For a long time, in what was infamously known as the “tampon tax”, menstrual products were taxed at a higher rate in Germany than many other everyday necessities. In Britain, while foodstuffs are generally exempt from value-added tax, a distinction is made between zero- or standard-rated food items.

Mr Wong also made some points which, I think, clear the air on some misperceptions that people have.

The first misperception – and the biggest one of all – is that there is not a real need to raise the GST rate, especially during this time of high inflation. But Singapore’s population is rapidly ageing, and healthcare spending needs are going up. If the huge spending gap is not dealt with now and decisively, the problem will only snowball.

Second, that it is better to just delay the GST hike for another one or two years. But government support has to be seen in totality – the Assurance Package, which will now be bumped up, effectively delays the impact of the hike by at least five years for the majority of Singaporean households.

“So, I am not sure why I would want to delay only for one, two years because I can delay for much longer. And with the design of the scheme that we have done... delaying for the vast majority of Singaporeans, but getting those who can pay (such as foreigners and the more well-off) to pay first. Isn’t that better?” Mr Wong asked.

Third, that the Government is swimming in fiscal slack which would enable it to delay the GST hike. To Prof Lim’s point that the Government is shielded from inflation because it automatically collects more revenues when prices are higher, Mr Wong noted that government spending – for everything from public servants’ salaries to support schemes – has to go up too, and the Government is not expecting a surplus for this year.

Fourth, the notion that using more of the past reserves is just to “slow down” the accumulation in reserves, and this will not leave the next generation with less resources.

Mr Wong – echoing the concerns of Mr Derrick Goh (Nee Soon GRC) – said the growth of the reserves is already expected to slow given significant headwinds in the global investment environment. Long-term structural changes, from the rise in geopolitical tensions and climate change to ageing populations and lower productivity growth, will all affect future long-term returns.

Fifth, that there are plenty of revenue alternatives to GST, from property tax and personal income tax (PIT), to corporate tax and sin taxes.

Some, like property tax and PIT, were already recently increased, and there is a limit to how much more revenue can be squeezed out of them. For property tax, this inevitably means covering a wider group of property owners, including the middle-income. And if PIT top rates were increased punitively, it would disincentivise top earners from staying in Singapore.

Which is why on Monday, Mr Wong took issue with the way that opposition members have characterised the Government’s position – that it is not open to new ideas, and is just stubbornly pushing away at something it already made up its mind to do.

But that is completely false, said Mr Wong, because the Government has carefully explained “why many of these alternatives are not substitutes for GST”.

I have always felt that the Government did not have to choose this difficult path, at this particular time, before the next general election. Even to the most hardened sceptic, surely this gives at least some credence to its argument that it truly has considered every possible alternative, scratched them, and come to the conclusion that there are powerful reasons why the hike must go ahead, despite the potential political cost.

Tourists, foreigners living here paid half of net GST in 2018 and 2019: Chee Hong Tat
By Adeline Tan, , The Straits Times, 8 Nov 2022

Tourists and foreigners in Singapore accounted for close to $3 billion, or about half of the net annual goods and services tax (GST) paid by households and individuals in 2018 and 2019, Senior Minister of State for Finance Chee Hong Tat said on Tuesday.

Mr Chee, who was speaking in Parliament, said households and individuals paid around $6.8 billion of GST annually in 2018 and 2019, after deducting refunds under the Tourist Refund Scheme.

After further deducting GST vouchers of over $1 billion provided annually to Singaporean households, the net annual GST collected from households and individuals was estimated to be around $5.7 billion.

Tourists and foreigners residing here accounted for about 50 per cent of that, said Mr Chee. The top 20 per cent of resident households in Singapore accounted for another 20 per cent or thereabouts.

Data from 2020 and 2021 was not cited as it is not representative of consumption patterns due to the Covid-19 pandemic.

“The bulk of the net GST that the Government collects is actually borne by two groups of people. What this means is that the remaining 30 per cent is spread over the rest – the 80 per cent of households and individuals,” he said.

While this means that there will be some part of the net GST that is paid for by different groups of society, including those from the middle- and the upper-middle income, the impact that they bear is not the “full amount”, he added.

Mr Chee was responding to a question from Workers’ Party MP Jamus Lim (Sengkang GRC), who had asked about the breakdown of net GST that various groups, such as foreigners, accounted for.

Associate Professor Lim also raised concerns about the impact of GST on the middle class, who may not qualify for the full suite of support measures due to their income bracket.

In response, Mr Chee said the support package that the Government provides extends to middle-income households. Some parts of the package also benefit those who earn more or live in private properties.

Mr Chee said that refunds under the Tourist Refund Scheme are not substantial. From 2010 to 2019, an average of around $200 million per year was refunded to tourists. This works out to around 2 per cent of the total GST collected.

He added that the refunds in 2020 and 2021 were much lower, at around $22 million per year, due to the travel restrictions associated with Covid-19.

The scheme allows tourists buying goods from participating retailers in the Republic to claim a refund of the GST paid on their purchases.

Enhanced offsets ease GST concerns
The Straits Times, 10 Nov 2022

With Singapore’s inflation running at a 14-year high and expected to remain elevated, the $1.4 billion boost to the GST offset package announced by Deputy Prime Minister and Finance Minister Lawrence Wong on Nov 7 was appropriate. The increase, which raises the size of the package to $8 billion, from $6.6 billion previously, will enable the Government to meet its commitment to ensure that it would offset the impact of the GST increase for most Singaporean households for at least five years and for lower-income households for about 10 years. The offsets, together with the GST Voucher Scheme, add significantly progressive elements. Even after the GST increase from 7 per cent to 8 per cent from January 2023, the effective GST rate for households in the bottom three income deciles will be below 3 per cent and most of the tax will be borne by high-income households, tourists and foreigners.

However, the GST continues to be a contentious issue, as the recent parliamentary debate on the GST (Amendment) Bill attested. While there is broad agreement that future spending will need to increase, particularly on healthcare, as well as on housing subsidies, skills upgrading, protection against climate risks and green initiatives, the debate centred around how to raise the necessary resources. Opposition parties, which long opposed the GST hike, suggested alternatives, including raising direct taxes and property taxes as well as contributions from net investment returns.

But these fall short in many respects. Personal income tax was already hiked in Budget 2022, with the top rate now at 24 per cent. Raising it to punitive levels would discourage high-income earners from staying here, while hikes in corporate tax would dampen investment, competitiveness and economic growth. Trying to broaden property tax – which was also increased in Budget 2022, with properties at the higher end seeing steeper hikes – would hit middle-income owners, while the suggestion to raise the contribution from net investment returns would erode the resources available to future generations.

As to the concern expressed by an opposition MP that “assurance packages are temporary while the GST hike is forever”, it is worth pointing out that wage levels will not remain stagnant – they will rise with economic growth, as well as the expansion of the progressive wage model to more lower-income groups and tighter restrictions on foreign workers. Another proposal was to exempt essential items from GST. This would not only lower revenues, but also distort the tax structure, raise compliance costs and benefit the better-off, who consume more of such items in absolute terms. Targeted assistance is a far superior approach. With this now enhanced, the GST should go ahead as scheduled.

Workers’ Party wants to fund spending while avoiding moves like GST by taking more from reserves: Chee Hong Tat
By Wong Shiying, The Straits Times, 22 Nov 2022

While the People’s Action Party Government has always been prudent and pragmatic in its fiscal approach, the Workers’ Party (WP) has consistently opposed the goods and services tax (GST), from its adoption to each increase, Senior Minister of State for Finance and Transport Chee Hong Tat said on Tuesday.

WP believes that higher government expenditures can be met without unpopular moves such as raising the GST by taking more from the reserves, never mind that this will leave future generations of Singaporeans with less money and a weakened financial position, he said.

Mr Chee’s article, which he shared on Facebook, comes a fortnight after Parliament debated and passed a Bill to raise the GST from 7 per cent to 8 per cent on Jan 1, 2023, and another percentage point to 9 per cent on Jan 1, 2024.

“It is important to consider these differences especially since WP has grown in strength over the years and is now positioning itself as the Government in waiting,” said Mr Chee.

During the debate on Nov 7, WP MPs had argued and voted against the GST hike, saying that raising the tax amid uncertain inflation outlook was irresponsible.

In place of a hike, they proposed raising the proportion of the Net Investment Returns Contribution (NIRC) that can be spent in the Budget each year to 60 per cent, up from the current 50 per cent. They also suggested using proceeds from land sales to fund current expenditure.

But both proposals mean using more from the reserves and leaving less behind for future generations, Mr Chee said.

“If earlier generations of Singaporeans had done what WP proposed and spent more of our reserves and investment returns in previous years, we will have less reserves and NIRC today,” he added.

Had earlier Governments embarked on this path, Singapore would be facing an even greater GST increase to 11 per cent or 13 per cent to fund its current and future spending needs, he said.

He said the PAP government prefers to maintain the 50:50 ratio between spending investment returns from NIRC and saving the rest, as this strikes a fair and necessary balance between the needs of today and tomorrow, and current and future generations.

“For PAP, a vote for the GST increase is to accept our moral and social responsibility of caring for our ageing population today, without taking away resources from or borrowing against future generations,” said Mr Chee.

This must be done at a time when Singapore has the ability to do so even if conditions are less than ideal, accepting that there is no ideal time to raise taxes, added Mr Chee.

As for WP, Mr Chee said it should be providing policy alternatives that are workable in practice and cater not only for immediate needs but also to needs in 10, 20 or even 50 years’ time.

“And they must explain clearly to Singaporeans the details of their proposals and the associated trade-offs,” he said.

Mr Chee said WP spoke of political courage in its party newsletter even though it opposed the GST hike, an irony that was not lost on fellow PAP MP Murali Pillai.

In his speech during the debate, Mr Murali said true political courage is raising the GST at a difficult time to provide a fairer and more progressive way of funding government spending.

Mr Chee also reiterated the Government’s point that any decision to increase taxes, especially a broad-based tax like the GST, is taken only after it has carefully explored and considered all options.

He said the Assurance Package was enhanced to $8 billion in November to ensure the Government keeps to its commitment to offset additional GST expenses for most Singaporean households for five years, and a decade for lower-income households.

The Ministry of Finance had also announced more than $3.5 billion of support measures to help Singaporeans – especially lower- and middle-income families and retirees – cope with higher inflation in 2022, he added.

“Our approach reflects PAP’s values to build a fair and just society, supported by a fair and progressive tax and benefits system,” said Mr Chee.


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