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THE article, 'Inflation in '08: Mild cold or high fever?' (ST, Jan 5) highlighted the difficulties households face with increases in the cost of living but omitted two significant points.
First, one of the primary reasons Consumer Price Index (CPI) inflation has increased is the revision of annual values of HDB homes. Rising property values have meant higher rental values. However, as 95 per cent of Singaporeans own their homes and do not pay rent, they are not affected by this component of the CPI increase.
Second, CPI inflation has also increased because of the increase in the goods and services tax (GST) rate to 7 per cent in July last year. This has led to a one-off increase in prices and higher year-on-year CPI inflation, not a continuous rise month-on-month.
More important, the GST increase was more than matched by the Government's assistance package of $4 billion to help households offset the impact of the rise. With this package, typical lower-income households living in a three-room flat will receive around $4,000 in total between 2007 and 2011, and this amount is up to 10 times larger than the extra GST they pay each year. Even middle-income households will receive offsets that well exceed the increase in expenditure due to higher GST.
Zero-rating GST for essential items is not a good way to help the poor. Lower-income households account for a small portion of the total GST that is paid on essential items. Further, most of the spending of lower-income households is not on essentials such as basic non-cooked foods. Thus zero-rating GST for such items will have only a limited impact in helping these households.
This is why the Government's approach has been to help the lower-income group directly, through the GST offset package and schemes such as Workfare and ComCare. This way, the lower-income group receive substantial benefits, which they can spend according to their needs.
Inflation and the cost of living are key concerns, particularly with higher global prices of fuel and food. The Government will continue to assist families, especially those in the lower-income group, through targeted and efficient schemes.
Lee Kok Fatt
Director (Fiscal Policy)
for Permanent Secretary
Ministry of Finance
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