Why It Matters

Tax kitty must grow with needs

Singapore's spending needs will continue to rise in the coming years, even as it becomes tougher to raise revenue in a maturing economy.

This is why higher taxes - while unpalatable - are inevitable. Prime Minister Lee Hsien Loong told the People's Action Party convention on Sunday that Singapore will be raising taxes as government spending grows.

There has been a great deal of speculation over what form this tax hike might take.

Most economists and tax specialists are expecting an eventual increase in the goods and services tax, which last went up in 2007 and is low relative to its peers in the region.

There have also been other possibilities raised, including taxes on e-commerce spending.

Regardless of the policy tool that will eventually be chosen, it is clear that higher taxes are necessary to keep Singapore in good fiscal shape.

Singapore's Budget spending has exceeded operating revenues since the 2015 financial year.

The population is ageing and healthcare expenditure is on the rise, even as infrastructure needs are growing.

Singapore has been able to produce overall Budget surpluses in recent years only by drawing on the net investment returns framework, which allows the Government to spend up to half of the long-term expected real returns from the GIC, the Monetary Authority of Singapore and Temasek Holdings.

The Government has made some moves to manage costs, including implementing a permanent 2 per cent downward adjustment to the budget caps of all ministries and organs of state from this April.

In addition to prudent spending, however, government revenue also needs to grow in a sustainable way.

This means Singaporeans will have to get used to contributing more for these resources.

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A version of this article appeared in the print edition of The Straits Times on November 23, 2017, with the headline 'Tax kitty must grow with needs'. Print Edition | Subscribe