Some will find it perplexing that the Government plans to raise the goods and services tax (GST), although only some time in the future, in spite of a substantial Budget surplus.
Recognising that proposing a tax rise in such a context is a tough sell, Finance Minister Heng Swee Keat sought to explain yesterday that the surplus was a one-off event in a good year that might not be replicated in a bad year. In contrast, the challenges that lie ahead - in the form of financing healthcare in an ageing society, meeting infrastructure needs and ensuring security - are imminent demands on the national coffers that will have to be provided for by any government in charge of the country when those big bills arrive, as they most certainly will.
Furthermore, fiscal sustainability, a mainstay of Singapore's economic planning since independence, takes on a special meaning when the context in which choices have to be made is marked by economic disruption and the acceleration of technological change. The shift in the global economy towards Asia is an opportunity, but Singapore companies and workers will have to be better prepared to seize that moment.
It is with an eye to Singapore's economic future as well that it needs to invest in infrastructure. The building of Changi Airport's Terminal 5, Tuas Port and the Kuala Lumpur-Singapore High Speed Rail represents a massive stake in expanding Singapore's external economic space. Expanding the rail network and redeveloping various parts of Singapore embody the internal dimension of the effort to reposition the Republic on the economic map of a resurgent Asia. Climate change being the threat to the world that it is, the introduction of a carbon tax on large emitters of greenhouse gas in 2020 reveals the need for Singapore to stay abreast of moves to secure humanity's common ecological future.
This is the context in which the announcement on the GST and other tax increases must be placed. The exact timing of the plan to raise the GST by 2 percentage points to 9 per cent, some time in the period from 2021 to 2025, is predicated on the state of the economy, how much expenditures grow, and how buoyant existing taxes are. This framework would allow the government of the day to moderate the impact of the higher tax on Singaporeans.
In their different ways, the taxes in the Budget are meant to pay for bills that will be due inevitably. While finance ministers elsewhere might envy Mr Heng having a huge surplus to fund his spending plans, few would have had the gumption to signal tax increases so far ahead of time. In doing so, Mr Heng and his colleagues spent precious political capital to win voters round to the ineluctable reality that taxes must rise in tandem with public spending.
