The Budget's new $6 billion Assurance Package will effectively delay the impact of the goods and services tax (GST) increase for the majority of Singaporean households for at least five years, Deputy Prime Minister Heng Swee Keat said yesterday.
For lower-income Singaporeans, the offset will be even higher, and there will effectively be no increase for them for 10 years, said Mr Heng, responding to concerns raised by MPs during the debate on the Budget statement about the impact of the GST hike on households.
There have been questions over the logic of raising GST and providing an Assurance Package, and whether Singapore can delay or not even increase the GST rate, which will rise from 7 per cent to 9 per cent by 2025, noted Mr Heng.
But he clarified that delaying the GST increase is not the same as raising the GST and providing offsets because of the design of Singapore's system and the resulting incidence of the GST burden.
The GST Voucher scheme, which will be enhanced when the GST hike kicks in, reduces the net GST borne by lower-and middle-income households, said Mr Heng.
The net GST refers to the amount of GST borne by each household, after accounting for the GST Voucher it receives. On the other hand, foreigners do not benefit from the GST Voucher and offsets.
"When we eventually raise the GST rate to 9 per cent, foreigners pay the higher rate immediately," pointed out Mr Heng. "In contrast, Singaporeans receive offsets to cushion the impact, through both the permanent GST Voucher and the Assurance Package."
Administratively, this will also make it easier for Singapore businesses to implement the GST hike when it kicks in, said Mr Heng, as they make the changes to their IT systems only once.
Launched in 2012, the GST Voucher is given in three components - cash, Medisave top-ups and Utilities-Save (U-Save) rebates, which help households offset their utilities bills.
The Assurance Package means all adult Singaporeans will get cash payouts of between $700 and $1,600 over five years, so most households will get enough to offset at least five years' worth of additional GST expenses.
Those living in one-to three-room flats will get enough to offset about 10 years' worth.