Budget debate

GST hike can't be scrapped, money required for critical needs: DPM

Heng explains why Govt cannot fund future expenditure with surpluses accrued this term

The planned goods and services tax hike will not kick in next year, while $6 billion has been set aside this year to help cushion the impact when the increase does take effect. ST PHOTO: LIM YAOHUI

The planned goods and services tax (GST) hike cannot be put off or scrapped because Singapore needs the money to pay for critical needs in future, especially the healthcare of an ageing society, said Deputy Prime Minister Heng Swee Keat.

And since all Singaporeans benefit from such spending, it is fair that everyone bears part of the costs, he added in his speech to round up the debate on the Budget yesterday.

"This is about all of us taking shared responsibility to pay for our needs and our society's needs, and sharing in the effort to provide for them," Mr Heng said.

He noted that the $6 billion Assurance Package and permanent GST Voucher scheme will ensure that the poor pay less than those who are well off, and delay the impact of the increase on most Singaporeans by five years or more.

In his speech, the Finance Minister laid out the rationale for raising the GST rate to 9 per cent by 2025.

National priorities such as healthcare, education and defence are best met by government provision through taxes, he said.

The Government also redistributes resources to give everyone a share in the fruits of progress.

And as Singapore's population ages, its healthcare needs will grow.

In 2000, healthcare expenditure was about 0.7 per cent of Singapore's gross domestic product (GDP). This went up to 2.1 per cent in 2015, as the Government ramped up measures to improve healthcare accessibility and affordability.

Remote video URL

Mr Heng said that public healthcare spending as a proportion of GDP is expected to grow by one percentage point between 2015 and 2030. Singaporeans have to understand that this money must come from somewhere, he said.

"Our healthcare needs are not one-off needs. They are recurrent needs - meaning that these needs will be there year after year. In fact, growing year after year."

"We need to fund them using recurrent revenues, not one-off surpluses seen in this term of government," he said, noting that the surpluses were the result of unexpected rallies in the financial markets and the boom in the property market.

"We cannot hope to keep on being so pleasantly surprised," he said. "Things can very quickly swing in the opposite direction, as we have seen with the Covid-19 outbreak."

In fact, the outbreak is a reminder of why Singapore needs to plan ahead to raise revenues, he said.

"We must ensure that we have enough resources to meet our people's needs, driven by structural factors. Otherwise, we will find ourselves short and have to raise taxes or cut spending in difficult times, precisely when businesses and people need a boost."

He added: "Planning ahead entails being honest with ourselves and with citizens, and having the discipline to raise revenues in a timely manner."

Addressing questions on whether the Government can spend less, or more efficiently, Mr Heng said the Government is always looking for cost-effective ways to improve outcomes.

It already achieves good outcomes at a lower cost than in many other countries, he added.

"But efficiency savings will never be enough to fully offset the growth in healthcare spending as the population ages and medical sciences improve," he said.

"Efficiency savings can only mitigate this. To believe otherwise is wishful thinking."

Mr Heng also went on to explain why the Government cannot fund future expenditure using surpluses accrued during this term, as well as its stance on raising income and wealth taxes as a source of revenue.

During the three-day debate, MPs had also called on the Government to raise income and wealth taxes, rather than GST.

Mr Heng pointed out that such initiatives have been put in place over the past decade, while the GST rate has stayed at 7 per cent since 2007.

For example, the property tax regime was made more progressive in 2010 and 2013, while the top marginal personal income tax rate went up in 2015.

In 2018, the Government also raised the buyer's stamp duty rate for residential properties in excess of $1 million in value.

"But we should bear in mind that there is a limit to raising income taxes," Mr Heng said.

"If we keep raising income taxes, it will eventually hurt middle-class Singaporeans, who presently pay very light income taxes. It will also risk losing our ability to attract talent and keep our own talents."

He added that a fine balance has to be struck between Singapore's corporate income tax rate and economic competitiveness.

Many countries in the region and elsewhere have standard GST rates that exceed 9 per cent, he noted.

In Nordic countries, value added tax rates are as high as 25 per cent, and top personal income tax rates can exceed 50 per cent - which their people accept as the price for their higher social spending.

Mr Heng also made the point that the extra revenue from the GST hike will not be enough to pay for Singapore's increased healthcare spending needs.

"So we will continue to adjust our income and wealth taxes, to raise revenue in a progressive and fair manner," he said.

Taken as a whole, Singapore's tax system is progressive, he added.

"Lower-and middle-income households receive proportionately more benefits than the taxes they pay, whereas higher-income groups contribute a far higher share of taxes than the share of benefits they receive."

He added:"I hope that you will understand and appreciate the care and concerns behind the careful planning," he told the House. "If we did not care as much for our collective future, we would not have thought so long and hard, and expended so much political capital."

Join ST's Telegram channel and get the latest breaking news delivered to you.

A version of this article appeared in the print edition of The Straits Times on February 29, 2020, with the headline GST hike can't be scrapped, money required for critical needs: DPM. Subscribe