Taxes will go up as investment needs and social spending grow: PM Lee

Economists said a rise in Goods and Services Tax (GST) could be in the works.
Economists said a rise in Goods and Services Tax (GST) could be in the works.PHOTO: ST FILE

SINGAPORE - Singapore will be raising its taxes as government spending on investments and social services grows, said PrimeMinister Lee Hsien Loong on Sunday (Nov 19).

"(Finance Minister) Heng Swee Keat is right when he said that raising taxes is not a matter of whether, but when," said PM Lee at the People's Action Party (PAP) annual convention.

PM Lee was referring to Mr Heng's remarks during his Budget speech earlier this year, where the minister outlined how spending on healthcare and infrastructure will rise rapidly and spoke of the need for new taxes or higher tax rates.

He told some 2,000 party members that "well before that time comes, we have to plan ahead, explain to Singaporeans what the money is needed for, and how the money we earn and we spend will benefit everyone, young and old".

The spending for Singapore's economy, infrastructure and social safety nets are all necessary, and are a vote of confidence in the country's future, said PM Lee, who is PAP secretary-general.

Just as older generations saved and invested, this generation must "plant trees in order that our sons and daughters, and their sons and daughters, will be able to enjoy the shade", he added.

Economists said a rise in Goods and Services Tax (GST) could be in the works. It was last raised in 2007 by two percentage points to 7 per cent.

UOB economist Francis Tan said GST is the second-largest generator of government revenue, after corporate and personal income tax, so even a 1 percentage point increase will mean potentially very large returns.

As a broad-based tax, GST is hard to evade and also collects from foreigners, said Singapore University of Social Sciences economist Walter Theseira.

Dr Theseira also suggested cutting income tax exemptions as an alternative.

In terms of timing, Mr Tan said the Government would be unlikely to raise taxes the year before a general election.

"PM Lee said we are nearly half way through the term, so it would probably be announced in next year's Budget," he said, adding that the move would come on the back of stronger economic growth, which provides some leeway to implement the change.

Both he and Dr Theseira said any rise in taxes should be combined with measures such as GST vouchers to help the lower-income group cope.

In his speech at Big Box in Jurong, PM Lee outlined why government revenue has to increase to match spending.

The Government is helping workers and companies through economic restructuring.

For now, Singapore's economy is benefiting from the improving global economy. Growth this year may even exceed 3 per cent, better than the initial forecast of 1.5 per cent and the revised forecast of 2 to 3 per cent, said PM Lee.

But to sustain this growth, workers must acquire the right skills and know how to upgrade themselves, while companies must also adapt, upgrade and compete in the global marketplace so they can create jobs for locals, he said. Workers must also be matched to quality jobs.

The Government is working on all three fronts to support workers and companies, he said.

On the social side, annual spending on preschools will double to $1.7 billion by 2022.

At the same time, the proportion of Singapore's population aged 65 years and above is rising. "Two years ago it was one in nine, last year it was one in eight, this year one in seven, and I joined them," said PM Lee, to laughter.

On a more serious note, he pointed out that by 2030, one in four will be above 65 - creating greater demand for healthcare.

To keep care affordable, more facilities are being built and health insurance is being improved, which raises state spending on healthcare, he said.

While there is enough revenue for the current term of Government, which will stretch its dollars and make every dollar count, the investments and social spending are costly, PM Lee said.

"We have to make sure that we can afford them."