GST hike to 9% will happen between next year and 2025

Shoppers at Marina Bay Sands yesterday. Deputy Prime Minister Heng Swee Keat said the GST hike will happen "sooner rather than later". ST PHOTO: KUA CHEE SIONG
Shoppers at Marina Bay Sands yesterday. Deputy Prime Minister Heng Swee Keat said the GST hike will happen "sooner rather than later". ST PHOTO: KUA CHEE SIONG

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

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 would not kick in this year, in view of the economic conditions then.

That has not changed, he said in his annual Budget speech.

"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 the economic outlook."

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 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," he said.

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 hike for the majority of Singaporean households by at least five years, he said. For lower-income Singaporeans, the offset will be higher, with those living in one-to three-room Housing Board flats receiving about 10 years' worth of additional GST expenses incurred, he added.

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

No finance minister likes to talk about tax increases, especially with a raging pandemic 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 we have enough to provide for our nation's future."

The country's fiscal situation is expected to get tighter in the coming years, he said. The Government had already expected a structural increase in recurrent spending needs before Covid-19, especially in areas such as healthcare.

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

He added that Covid-19 has also raised the economic uncertainties for citizens and workers, which calls 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 and fair for current and future generations.

The entire system of taxes and benefits is a progressive one, he added. Last year, the top 20 per cent of households by income paid 56 per cent of the taxes and received 11 per cent of the benefits, he said. The bottom 20 per cent paid 9 per cent of the taxes and received 27 per cent of the benefits.

On GST, he said that based on past collections, more than 60 per cent of net GST borne by households and individuals come from foreigners living here, tourists and the top 20 per cent of resident households. The last GST hike, from 5 per cent to 7 per cent, took effect in 2007.

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A version of this article appeared in the print edition of The Straits Times on February 17, 2021, with the headline GST hike to 9% will happen between next year and 2025. Subscribe