The Government has yet to decide on the exact timing of the planned goods and services tax (GST) hike by two percentage points to 9 per cent, and it will exercise care in doing so, Finance Minister Heng Swee Keat said yesterday.
"We will continue to monitor the prevailing economic conditions, spending trends and the buoyancy of our revenues carefully," he said in a speech rounding up debate on Budget 2019.
Addressing points raised by 55 MPs over three days, Mr Heng noted the reservations some had over the GST hike announced in last year's Budget that is slated to kick in between 2021 and 2025.
Ms Foo Mee Har (West Coast GRC) had urged the Government to delay the planned hike for as long as possible, suggesting that funds set aside in this term of government as well as the decision to use government debt to finance infrastructure could provide some leeway to postpone the increase.
But Mr Heng said the increase is necessary, and a decision that was not made lightly.
This year alone, he said, the Health Ministry is expected to spend $6.1 billion to subsidise patient bills through existing permanent schemes enjoyed by all Singaporeans. This excludes further spending to boost healthcare facilities and medical research.
"Such healthcare spending is of a completely different scale and nature from the cohort-based package set aside for the Merdeka Generation or the Pioneer Generation," he said.
"As our population ages, spending on permanent healthcare schemes and other parts of the healthcare system will continue to increase structurally. Funding this requires a structural increase in our operating revenues," he added.
A GST hike is therefore necessary to support this structural increase in healthcare spending, among other critical needs like pre-school education and security, the minister said.
INCREASE IN SPENDING
As our population ages, spending on permanent healthcare schemes and other parts of the healthcare system will continue to increase structurally. Funding this requires a structural increase in our operating revenues.
FINANCE MINISTER HENG SWEE KEAT, on the necessity of a GST hike.
Mr Heng also said the GST increase is similar to measures taken by other governments with ageing societies. "To address the growing fiscal burden... without further ballooning of public debt, there is a need for these governments to raise primary revenues," he added.
Mr Heng cited a recent Organisation for Economic Cooperation and Development (OECD) paper which highlighted that public health spending in the median OECD country is projected to increase by almost 5 percentage points of gross domestic product (GDP) between 2018 and 2060.
The median OECD government is also estimated to require additional revenues of 6.5 percentage points of GDP by 2060, said Mr Heng. "To put it in perspective, we expect to raise about 0.7 percentage point of GDP with the planned 2 percentage point GST increase," he added.
Workers' Party MP Low Thia Khiang (Aljunied GRC) sought clarification on how long this structural increase will last, saying that the biggest ageing demographic now is the Merdeka Generation, which will diminish in size over time.
Mr Heng replied that the Merdeka Generation will continue to stay active and live longer. Singapore has been studying the experience of others, and many variables go into the cost of long-term care and support.
Drawing laughter from the House, he said he has spent a lot of time with Health Minister Gan Kim Yong, and each time, Mr Gan comes up with a higher set of figures on healthcare costs. Mr Heng said: "So, if you ask me how long will this last, I will not want to mislead this House. We are continuing to study this very carefully. All I can say is that, it is going to last for quite a number of years."
There are many variables that are not certain, he said. "For instance, how will our lifespan change and what is the extent to which our seniors will continue to be healthy?"
"We are looking at all these long-term needs very carefully and we will share these when ready," he added.
Mr Heng noted there are many doctors in the House, but they will not be able to give a definitive answer, given this uncertainty.
Responding to Mr Liang Eng Hwa (Holland-Bukit Timah GRC) on the role of surpluses accumulated in this term of government, Mr Heng said the monies will be re-invested into the reserves. Half of the long-term returns can be spent in future Budgets under the Net Investment Returns framework.
These are part of the Government's obligation to prepare for uncertainties such as economic downturns, he said. Many commentators have in recent days said the cumulative surpluses since 2015 allow the Government to run deficits of up to an estimated $18.8 billion in the remaining term of government.
Mr Heng said: "We should not have the mentality of trying to spend everything that we have before the end of each term of government. As part of our approach, we continue to review our plans for the long term and will deploy financial resources where necessary."
WP chief Pritam Singh (Aljunied GRC) added that his party was against the GST hike. Last year, the WP said it supported the Budget, but voted against it because of the announcement on the GST. "This year, we support the Budget, but our position on the GST has not changed. And I just want to put that down for the record," he said.