Budget 2021: GST hike to take place between 2022 and 2025, 'sooner rather than later', says DPM Heng

The planned hike, from 7 per cent to 9 per cent, was announced in Budget 2018.
The planned hike, from 7 per cent to 9 per cent, was announced in Budget 2018.PHOTO: ST FILE

SINGAPORE - The planned goods and services tax (GST) hike will take place between next year and 2025 - sooner rather than later, and subject to the economic outlook, said Deputy Prime Minister Heng Swee Keat on Tuesday (Feb 16).

The planned hike, from 7 per cent to 9 per cent, was announced in Budget 2018. Mr Heng had said in last year's Budget that the hike will not kick in this year, in view of the economic conditions then.

That remains the plan, he said in his annual Budget speech on Tuesday.

"However, we will not be able to put off the increase for too long. We will have to make the move some time during 2022 to 2025, and sooner rather than later, subject to economic outlook," he said.

Without the increase, Singapore will not be able to meet its rising recurrent spending needs, particularly in healthcare, he said.

"While we are fortunate to be able to tap on our reserves to respond to the Covid-19 crisis, it is not tenable for the Government to run persistent budget deficits outside periods of crisis," said Mr Heng.

He reiterated the Government's commitment that the overall taxes and transfers system will remain "fair and progressive", with a previously announced $6 billion Assurance Package set aside to cushion the impact of the hike when it takes place.

The package will effectively delay the effect of the GST rate increase for the majority of Singaporean households by at least five years, he said.

For lower-income Singaporeans, the offset will be even higher, with those living in one to three-room HDB flats receiving about 10 years' worth of additional GST expenses incurred, he added.

GST on publicly subsidised education and healthcare will continue to be fully absorbed.

No finance minister likes to talk about tax increases, especially with a raging pandemic still going on, he said.

"But we do this because we plan for the long term and do not shy away from explaining to fellow citizens why we need to make tough but necessary decisions to ensure that we have enough to provide for our nation's future."

The country's fiscal situation is expected to get tighter in the coming years, said Mr Heng.

The Government had already expected a structural increase in recurrent spending needs before Covid-19, especially in areas such as healthcare.

Government spending on healthcare has tripled within a decade, from $3.7 billion in FY2010 to $11.3 billion in FY2019, he noted.

"Fellow Singaporeans have often expressed the desire to better care for our seniors, with quality yet affordable health and aged care services. This is possible only if we can muster the resources to do so."

As the country's needs grow, resources to fund these must be planned for, and spending targeted in a fair and equitable way.

"Covid-19 has also raised the economic uncertainties for citizens and workers, which call for stronger social safety nets to protect those who are disadvantaged or more vulnerable. This will mean higher recurrent spending going forward."

Mr Heng said the Government has maintained the principle that recurrent expenditure should be funded by recurrent revenue. This ensures that spending is responsible - fair for current and future generations.

Other than the transitional support provided by the Assurance Package announced last year, the permanent GST Voucher scheme to defray GST expenses for lower- and middle-income households will be enhanced when the hike takes place. This is to provide targeted support to those who need help the most, he said.

Based on past collections, foreigners residing in Singapore, tourists and the top 20 per cent of resident households are estimated to account for more than 60 per cent of the net GST borne by households and individuals.

This is after taking into account the GST Voucher scheme, and GST refunded under the Tourist Refund Scheme for goods bought locally for consumption abroad.

The entire system of taxes and benefits is a progressive one, said Mr Heng.

Last year, the top 20 per cent of households by income paid 56 per cent of the taxes and got 11 per cent of the benefits, he said. The bottom 20 per cent paid 9 per cent of the taxes and got 27 per cent of the benefits.

The last GST hike, from 5 per cent to 7 per cent, took effect in 2007.

Read next: Highlights of Budget 2021 - From household vouchers to GST on imported low-value goods bought online