GST hike did not ‘turbocharge’ inflation, says PM Lawrence Wong as he acknowledges cost-of-living concerns

Budget 2025 Debate Round Up Speech

This Government will always uphold fiscal responsibility, says PM Lawrence Wong

By Wong Pei Ting, The Straits Times, 1 Mar 2025

The PAP Government will never take risks with Singaporeans’ lives and their future – this means ensuring that it keeps public finances healthy year after year and spending within its means, said Prime Minister Lawrence Wong.

PM Wong also cautioned against attempts to portray a healthy surplus as somehow detrimental to Singaporeans as he addressed criticism from opposition MPs about poor budget marksmanship.

“Let’s try not to put a wedge between the Government and the people... A strong fiscal position for Singapore is not at the expense of Singaporeans,” he said. “In fact, it benefits Singaporeans in so many ways, because we are able to invest more in Singaporeans.”

In an hour-long speech wrapping up the Budget debate on Feb 28, he also responded to the opposition’s suggestion that the Government had raised the goods and services tax earlier than it needed to, given an expected surplus of $6.4 billion for financial year 2024, compared with the $778 million that had earlier been projected.

Singapore is in a strong fiscal position today precisely because it took the necessary steps early in this term of government to raise revenues ahead of expected structural spending needs as the population ages, said PM Wong.

While the Republic was fighting the Covid-19 pandemic, it could already foresee spending needs going up on the horizon.

“This was 2020, 2021 – we had no way of knowing when the pandemic would end, how the virus would mutate, how many more new waves of infection would we face, how many more restrictions we have to impose, and how much deeper a fiscal hole we would end up with,” PM Wong said.

The authorities made the decision to proceed with the GST increase in Budget 2022, accompanied by enhancements to a package to delay the increase for most Singaporean households, when there were signs that the economy had stabilised.

“We must ask ourselves, do we want short-term populism or long-term stability?” PM Wong asked. “Do we want to kick the can down the road or take the hard but necessary decisions?”

With the GST increase in place, the Government has the additional revenues – mostly from those who are better off, foreigners and tourists – that it needs to improve healthcare infrastructure and take better care of seniors, he said.

Were it not for the GST hike, and unexpected upsides in corporate income tax collections, FY2024 would have ended in deficit, as would projections for FY2025, he added.

“That would have meant less funding for essential services, less support for our seniors and fewer resources to invest in our future,” he said.

“Basically, Singapore and Singaporeans would have ended up in a much weaker position.”

PM Wong refuted Leader of the Opposition and Workers’ Party (WP) chief Pritam Singh’s proposition that the GST hike had “turbocharged” inflation.

As Singapore is a small and open economy, inflation was driven primarily by global factors, such as war and supply chain disruptions, said the Prime Minister.

In the two years when GST was raised, price increases actually moderated, from 6.1 per cent in 2022 to 4.8 per cent in 2023 and 2.4 per cent in 2024, he pointed out.

He noted that in most countries, poor budget marksmanship refers to when governments severely overestimate revenue collections and underestimate expenditures.

This results in unfunded promises that a country cannot keep, because there is not enough money. Alternatively, it borrows to meet these commitments, thereby leaving a growing burden for the next generation.

This is not the case in Singapore, as the Republic practises responsible and prudent budgeting, PM Wong said.

Earlier in the debate, Mr Singh had called the Government’s fiscal projections “so unpredictable, but somehow always so healthy when elections have to be called”.

This point was echoed by Progress Singapore Party (PSP) Non-Constituency MP Leong Mun Wai, who said that “so much pain” had been inflicted on Singaporeans by the decision to raise GST in 2023 and 2024.

PM Wong said that, ultimately, it was not a matter of marksmanship, but a question of right or wrong fiscal principles.

“The WP and the PSP may think that we are being overly cautious in our projections, but this Government will never take risks with Singaporeans’ lives and future,” he said.

This includes raising revenues should new spending needs arise, he added.

On the charge by opposition MPs that the Government had been relying on temporary measures such as vouchers to deal with cost pressures instead of making structural reforms, PM Wong said that cost-of-living support and the SG60 package accounted for just 5 per cent of the Budget.

A far larger part of government spending is in structural programmes such as SkillsFuture to empower Singaporeans through skills and job training, he said.

“This will ensure Singaporeans do not just receive help, but are able to stand on their own feet and seize better opportunities for themselves and thrive in a rapidly changing world,” he said.

Objectively speaking, this has helped Singaporean households across different income levels achieve higher real income growth in the past decade than countries like the United States and Japan, he added.

For instance, the bottom 20 per cent of households here saw their wages rise 3.6 per cent per annum between 2013 and 2023, compared with 2.1 per cent in the US and minus 1.6 per cent in Japan.

Singapore’s fiscal approach has also stood it in good stead – while many countries use their tax revenues to service interest payments, the Republic instead receives an annual boost from its investment returns.

“Countries that have this luxury of investment returns are the ones that are endowed with oil and gas or some other natural resources – they have been blessed by the heavens with these endowments,” PM Wong said.

‘We have nothing, and yet we are in this position. It is truly unique, and it is a Singapore miracle.”

Singapore’s fiscal strength is a vital source of competitive advantage in these turbulent times, which look likely to get worse, said PM Wong.

He flagged the ongoing wars in Europe and the Middle East, and the possibility of conflict in Asia.

Today’s environment means global responses to these threats will sadly not be as well coordinated or effective as before, he added.

“But in Singapore, we know that if such shocks were to arise, we have the ability to respond swiftly to them, like we did during Covid-19,” he said.

“Our reserves and our fiscal strength will enable us to protect Singaporeans when it matters, and to turn adversity into opportunity.”

In a Facebook post in the evening, Senior Minister Lee Hsien Loong said Singapore must continue to spend prudently, so that it can tackle and recover from future challenges swiftly, as it did with Covid-19.

Reflecting on SG60 – the country’s 60th year of independence – SM Lee said the country’s strong fiscal footing has been built through the careful stewardship of the earlier generations. He said: “It gives us confidence to move forward sustainably, so that future generations can enjoy the fruits of Singapore’s progress.”

PM Wong said the Government’s approach has also achieved outcomes that reflect Singapore’s values as a society – one that is fair, prudent and progressive, where the better off contribute more to lift up those with less.

For instance, the bottom quintile of households receives $4 in benefits for every dollar of tax paid, while the top quintile of income earners receives 30 cents.

“There is no fiscal system in the world that can deliver perfect precision and equity. But I think we have found an approach in Singapore that works for us,” he said. “It’s not perfect, but we continue to make it better.”

At the end of the day, PM Wong said, Singaporeans will decide whether they prefer a government that underestimates needs and spends more from the reserves, leaving the country weaker, or one that steadfastly upholds fiscal responsibility and discipline so that current and future generations have the resources to handle unexpected challenges.

“We will continue to do our best to convince Singaporeans that ours is the right approach. It has served us well these last 60 years, and it will continue to keep Singapore on the right track in the years ahead,” he said.

Stakes high in GE2025; no guarantee PAP will win and form a stable government, says PM Lawrence Wong

People’s Action Party Awards and Conference 2024

By Kenneth Cheng, Assistant News Editor, The Straits Times, 25 Nov 2024

The upcoming general election in 2025 will be a high-stakes one, and Singapore risks ending up with a much weaker government if there is just a modest swing in popular votes against the ruling party, said Prime Minister Lawrence Wong.

Speaking at the People’s Action Party conference at the Singapore Expo on Nov 24, he told party members: “Please don’t think it is guaranteed that the PAP will win and form a stable government.”

In a speech lasting about 40 minutes, the Prime Minister also highlighted the need for Singaporeans to stay united in the midst of trying circumstances beyond the country’s borders, and spoke of the urgency for the PAP to have a fresh crop of younger candidates who can take the nation forward.

He noted that in the 2020 General Election, the opposition had warned Singaporeans against an “opposition wipe-out”.

“Actually, there is no chance of that happening at all,” he said, adding that the opposition in Singapore is here to stay.

There have been opposition MPs in Parliament since 1981, and the Non-Constituency MP scheme guarantees at least 12 opposition MPs in the House, noted PM Wong, who is set to take over as PAP secretary-general. He is now the party’s deputy secretary-general.

“In fact, given the desire for more opposition voices, the bigger risk we face is the loss of a stable and strong and good government,” he said.

The opposition admits it is far from ready to form the Government, he told an audience of about 3,000 PAP cadres, activists and guests.

“They say that partly because they know that Singaporeans will not support them if they openly declare their intention to govern,” he added.

But if more and more voters are persuaded by the opposition’s argument to vote them in so they can oppose the government of the day, “you can be sure that what is now the opposition will soon be the Government”, said PM Wong.

He cautioned that such a scenario would not require a large swing in votes at the next general election, which must be held by November 2025.

A modest swing in popular votes against the PAP, he noted, can lead to very different electoral outcomes, and very possibly the loss of another three or four group representation constituencies or GRCs.

This means the party will lose four or five ministers – or a quarter of the Cabinet.

“We will end up with a much weaker government, with far less ability to solve the problems facing our people and our country at a time when the world is becoming more uncertain and troubled,” he said.

“So, comrades, the stakes in the next election are high.”

PM Wong urged the party to work hard for every vote, to earn the confidence and trust of Singaporeans, win the mandate to govern, and ultimately, serve fellow Singaporeans.

“We know from the last election, and more so in the next election, there are no longer any safe seats,” he said.

“So every resident, every vote counts, and all our efforts matter.”

He noted that the PAP faces a rather unique political challenge, having governed Singapore for 65 years.

It is the party’s desire to keep serving Singaporeans for as long as possible, but he warned that members must never assume they will not see a change in government in their lifetime.

Hawker culture debate: The missing ingredient is our willingness to pay

Nostalgia over hawker culture may have trapped us into an outdated view that hawker fare must always be very cheap.

By Chua Mui Hoong, Senior Columnist, The Straits Times, 23 Nov 2024

Perhaps it is no coincidence that while we wring our hands about how to make hawker culture sustainable in Singapore, hawker fare is thriving in Perth.

This crossed my mind while I was having kopi-o gau and kaya toast one morning in Perth, where I now live, and the thought developed over the next day, when I had nasi lemak and kopi peng.

For those who don’t know, Perth is home to a multitude of Singaporean and Malaysian restaurants and cafes whose selling point is hawker food.

My nasi lemak here cost A$14.50 (S$12.70) and came with a small mix of fried peanuts and anchovies, one hard-boiled egg and a whole deep-fried chicken thigh. Kopi peng was A$5. My kaya toast and kopi-o set was A$12.50.

I have gone beyond feeling shock at the higher prices for hawker food in Perth. This is Australia, after all, where the minimum wage is A$24.10 an hour. Restaurants close in the afternoon before reopening for dinner, as it isn’t worth paying wages to remain open for the odd customer who comes in mid-afternoon. Eating out is expensive, so most people cook and eat at home.

In Singapore, cooked food prices remain very affordable, especially in hawker centres and coffee shops. A similar kaya toast set with a beverage, plus two soft-boiled eggs, would cost me around $3 in a hawker centre or coffee shop in Singapore. NTUC Foodfare even sells this signature breakfast set for $2.20, with union members getting a special price of $1.80 for a beverage, one slice of kaya toast and two soft-boiled eggs.

How little is too little for a kaya toast set?

Local food chain Toast Box charged $7.40 for its kaya toast set, drawing flak online. A reader posted a photo that showed the same set had cost $5.70 in 2020. A subsequent online poll found that 88 per cent of 7,425 respondents thought a kaya toast set should not cost above $5.

It got me wondering why hawker culture is facing an existential threat in Singapore, but Malaysian and Singaporean eateries, offering similar fare, do a roaring trade in Perth. Could the prices of hawker fare hold the key?

The issue cropped up in Parliament last week, when the Progress Singapore Party’s leaders moved a motion calling for a review of hawker policies. The motion was reworded by People’s Action Party MPs to call for a regular review of hawker policies that can “sustain and grow Singapore’s hawker culture so that Singaporeans can continue to enjoy good and affordable hawker food while enabling hawkers to earn a fair livelihood” (italics mine). The amended motion was passed by all MPs, showing cross-party support for hawker culture.

Hawker culture unifies Singaporeans. Hawker centres bring together diners of different races, ages, and social strata to enjoy food derived from our multiracial heritage. A millionaire towkay may sweat through his bowl of mee rebus, seated at the same table as the single mum sharing wonton mee with her child.

Hawker culture also comes with a certain heritage. The early hawker centres built in the 1970s housed former street hawkers and rented out food stalls at low rates to a generation of less-educated, low-income Singaporeans who sold cooked food or drinks to make a living. A hawker stall provided a humble, yet secure, means of livelihood. My parents, who emigrated from China to Singapore in the 1950s, belonged to that group. Their stall in an ulu (remote) part of Singapore in Pasir Panjang, near an oil refinery, enabled them to sell char kway teow and other dishes, and to put three children to school.

Many Singaporeans, like me, are deeply proud of the working-class roots of hawker culture. We want hawker centres to continue being mass dining halls for all. We don’t want them gentrified or made hipster.

Most Singaporeans will have their favourite hawker stall or coffee shop where they enjoy their morning teh or kopi, where they go for their fix of mee siam, chicken rice or nonya kueh. As an emigrant who now lives overseas, I plan my visits back to Singapore around the hawker food I miss – my favourite bak chor mee in the Veerasamy area, the prawn noodle and chicken rice at Shunfu Mart near my old home, and a recent discovery – the Teochew soon kueh at the social enterprise Yoon’s Social Kitchen in Aljunied. When I meet a new Singaporean kaki in Perth, it is nearly always to catch up over hawker fare in a Singaporean or Malaysian eatery.

Singapore hawker culture has become a strong unifier for its people. We should do our best to promote it, and sustain it.

National Day Message 2024: Prime Minister Lawrence Wong promises more support for families, help with employment setbacks

More support for families, help for Singaporeans facing employment setbacks: PM Wong

By Tham Yuen-C, Senior Political Correspondent, The Straits Times, 9 Aug 2024

Families will get more support, and help will be given to Singaporeans who have met with setbacks in employment, Prime Minister Lawrence Wong said on Aug 8 as he set out how the Government intends to work with the people to build a better Singapore.

PM Wong said he will share plans to boost social safety nets at the National Day Rally, which will be held on Aug 18.

In his first National Day message, PM Wong outlined three strategies to take Singapore forward: Forging new opportunities for the people, redoubling efforts to keep the cost of living stable and strengthening the system of social support.

Addressing the nation in front of Sri Temasek within the Istana grounds, he said the two-storey bungalow – where his temporary office is while the main building is renovated – was where founding prime minister Lee Kuan Yew and his family spent the night of Aug 8, 1965.

Mr Lee had tossed and turned that night before Singapore’s formal separation from Malaysia and independence, consumed with worry over how to build a nation from scratch.

What keeps PM Wong awake at night are the challenges brought by developments such as the conflicts in Europe and the Middle East, tensions between the United States and China, growing populism, economic nationalism and protectionism across the world, and politics turning vicious in many countries.

“These are powerful forces that shape our operating environment,” said Singapore’s fourth prime minister.

While Singapore has become a shining red dot on the global stage, the country cannot afford to cruise along and just rely on existing formulas, as the world has changed dramatically, he noted.

“We have to act with agility, foresight and gumption. We have to seek fresh solutions, and chart our own path to take Singapore forward.”

He devoted the rest of his message to the strategies to navigate this new world.

One of them is to strengthen social support, since there will be those who will find it hard to keep pace with the rapid changes, he said.

Singapore’s ageing population will require more help, and so will those who are “sandwiched”, having to look after children as well as elderly parents, he added.

This is why the Government is investing more in social infrastructure, including launching schemes to boost retirement adequacy and the pay of lower-wage workers, as well as initiatives like Healthier SG to take better care of seniors, he said.

“We intend to do more,” he added.

Cost of living means different things to different folks in Singapore

The Economist’s Worldwide Cost of Living index does not shed light on the bills that ordinary Singaporeans pay.

By Lin Suling, Opinion Editor, The Straits Times, 13 Dec 2023

As a sign of the lengths Singapore will go to in a bid to up its wow factor and entice more travellers here, consider the dramatic four-storey waterfall display unveiled at the recently refurbished Changi Airport Terminal 2 in November.

Just about everyone I know has already visited the attraction, now the centrepiece of the T2 departure hall, and told me the four-minute musical extravaganza is not to be missed.

Now, you may be forgiven for confusing this 14m by 17m digital display with the man-made, HSBC-sponsored rain vortex at Changi Airport’s Jewel, which was opened a mere four years ago. That spectacular sight remains the world’s tallest indoor waterfall.

If two waterfalls – one digital, one physical – sound like overkill, that is probably precisely the intent. Singapore is already home to the world’s largest air-conditioned glass greenhouse, Gardens by the Bay, and hosted the first Formula One night race globally.

We must keep filling this carousel of new shiny things so we can remain vibrant and attractive to visitors, investors and corporate leaders.

Singapore thus far seems to be doing this well. Why else would expats keep coming back to Singapore despite it being billed the most expensive city nine times in the last 11 years by The Economist?

News of Singapore – along with Zurich – topping the 2023 Worldwide Cost of Living index on Nov 30, nonetheless, raised many eyebrows.

Many Singaporeans have suggested that it confirms their longstanding concerns that making ends meet in Singapore is becoming an uphill climb for the man in the street.

Online, netizens cite anecdotal experiences corroborating this jump in prices, from the doubling of the cost of a bowl of fish soup at their local coffee shop to complaints about certificates of entitlement (COEs).

Another pointed to news of thwarted attempts to smuggle 120kg of beef and pork as an unequivocal sign that more Singaporeans are turning to the black market to fill their stomachs. Never mind that meat smuggling is possibly the most creative strategy to beat inflation nobody has ever heard of.

And most discussions eventually reached the same conclusion: that the Singapore Government has slipped, in letting in foreigners who push up prices while leaving Singaporeans behind.

The most expensive city in the world for whom?

What to make of all this? Some information about how the Worldwide Cost of Living is put together offers perspective.

The full index of how cost of living stacks up across 173 countries is available only with a US$1,195 (S$1,602) fee. Its website suggests this full report is useful for human resources, corporates, financial institutions, and legal and insurance firms, as “this purpose-built Internet tool quickly calculates cost-of-living allowances and (aids in) building compensation packages for expatriates and business travellers”.

A closer look at the items used in this benchmark of relative cost of living, which is meant to be a comprehensive dataset of over 400 individual price points across 200 goods and services, throws up things such as international school tuition fees, public golf course fees and three-course dinners.

These may just be a few outliers that stick out. Even so, not only are they hardly stuff the average Singaporean spends on, they are also more accurately the make-up of what the typical expat around the world splurges on.

Here in Singapore, I would also add to this list the doubling of Additional Buyer’s Stamp Duty for purchases of homes by foreigners, and higher personal income taxes for top earners beginning from the 2024 year of assessment.

Curiously, despite these higher projected expenses, the foreigners just keep coming.

Singapore Budget 2023: Moving Forward in a New Era

Family-friendly Budget offers help to weather inflation, uncertain future

By Goh Yan Han, Political Correspondent, The Straits Times, 15 Feb 2023

• More cash payouts to cope with GST increase

• Higher Baby Bonus and more paternity leave

• CPF salary ceiling to go up to $8,000 by 2026

• Higher taxes for high-end property and luxury cars

Budget 2023 proposes to decisively address the pressing concerns of Singaporeans, such as inflation and long waiting time for flats, while strengthening social safety nets to keep the nation in sound shape over the longer term.

The tax system is also being made more progressive, with changes to the buyer’s stamp duty regime for properties and additional registration fee tiers for cars, to fund the Government’s growing expenses. Buyers of more expensive properties and higher-end cars will have to fork out relatively more.

The Budget unveiled on Tuesday also tackled several longstanding issues such as the low fertility rate and the retirement adequacy of seniors as the Government widened its support for citizens in need. The Central Provident Fund (CPF) monthly salary ceiling is being raised, for example, to ensure that Singaporeans have enough to draw upon in their silver years. Families will also be given more help to offset the expenses of raising children.

At the same time, there will be more measures to reduce waiting times for new Housing Board flats and more monetary support for first-timer families seeking to purchase resale flats.

Deputy Prime Minister Lawrence Wong, in his Budget speech in Parliament, loosened the Government’s purse strings in a $123.7 billion proposal – about 18.2 per cent of Singapore’s gross domestic product.

This comes amid a mixed and uneven global economic outlook, said Mr Wong, who is also Finance Minister.

While a global recession is not expected, there are major uncertainties ahead, he said. These include the possibility that the United States and European Union economies could decline more steeply than expected and tip the world into recession. The prolonged Russia-Ukraine war may also escalate and disrupt global trade, or a new Covid-19 variant may emerge.

Headline inflation is also expected to remain high in Singapore, at least for the first half of the year, said Mr Wong.

To tackle this, the Assurance Package, meant to offset the impact of the goods and services tax hike, will be further boosted to $9.6 billion, up from $8 billion following a November 2022 update and $6.6 billion announced in Budget 2022.

The enhanced package will see increases in cash payouts for eligible adult Singaporeans, and a boost of $100 to the 2024 tranche of Community Development Council vouchers to a total of $300.

Mr Wong also announced new one-off support measures under the package, such as a Cost-of-Living Special Payment of between $200 and $400 for adult Singaporeans aged above 21 who have an annual assessable income of less than $100,000 and do not own more than one property, to be given out in June.

He also unveiled a Cost-of-Living Seniors’ Bonus cash payout of between $200 and $300 for about 850,000 eligible senior Singapore citizens also to be given out in June.

Budget 2023 also had a strong focus on stepping up support for families in terms of housing and financial needs, and sharing the caregiving load between parents.

Mr Wong acknowledged that while the HDB already sets aside the bulk of its Build-To-Order flats for first-timer families, who are given priority in flat applications, the pool of first-timers covers a wide range, such as those who already have their own homes but have not received housing subsidies before.

The Government will focus on first-time applicants who are families with children, as well as young married couples aged 40 and below who are buying their first home, through measures such as giving them an additional ballot chance in BTO flat applications, said Mr Wong. He also announced enhancements to the CPF Housing Grant for resale flats for first-timer families.

To support parents with the costs of raising children, the Baby Bonus cash gift will be increased by $3,000, such that eligible first- and second-born children will now receive $11,000 and subsequent children will receive $13,000.

The Government will also increase its contributions to the Child Development Accounts, which parents can use to directly offset pre-school and healthcare expenses, said Mr Wong.

Paternity leave will be doubled from two to four weeks, with the extra two weeks given on a voluntary basis for a start, to give more time for employers to adjust, said Mr Wong.

The paternity leave allowance was last doubled from one to two weeks in 2017.

Another key move in Budget 2023 was the announcement of the increase to the CPF monthly salary ceiling, meant to help middle-income Singaporeans save more for their retirement.

This move is expected to have wide repercussions, ranging from increased employer contributions and thus business costs, to a larger pool of funds for Singaporeans to tap for housing loans as well as a bigger nest egg for retirement.

The current ceiling, set at $6,000, was last updated in 2016. Starting this September and in January 2024, 2025 and 2026, the ceiling will move up to $8,000 eventually, to keep up with rising wages.

Mr Wong also announced a slew of tax changes – increased marginal buyer’s stamp duty rates for higher-value properties to take effect on Wednesday and increased additional registration fee rates for higher-end cars to take effect from the next round of certificate of entitlement (COE) bidding.

He also unveiled a 15 per cent increase in excise duty on all tobacco products with effect from Tuesday to discourage the consumption of such products. The tobacco tax was last hiked by 10 per cent in 2018.

Mr Wong, who leads the nationwide Forward Singapore engagement exercise launched in June 2022, also provided an update on the discussions.

He noted that long wait times for new flats and rising resale home prices are key concerns for many young Singaporeans, and parents have also called for help to better balance work and family commitments, which are areas that the Government is moving sooner on in rolling out measures.

He added that to achieve shared aspirations of a fairer and more inclusive society, the Government is pursuing new strategies in some key areas – uplifting lower-wage worker salaries, better support for reskilling and upskilling, giving everyone opportunities throughout their lives to uplift themselves, and better care for the growing number of seniors.

“These are important but complex issues which require further exploration,” said Mr Wong.

“It is not just a matter of having the Government do more to provide greater assurance and support… Government actions must reinforce the values of personal effort, responsibility for the family and mutual support in the community.”

Parliament will debate the Budget and the spending plans of various ministries from Feb 22 to March 6.

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.”

“But at least be honest and responsible, acknowledge that your alternatives would either end up requiring the middle income to pay more or would use more of the past reserves.”