Budget debate: GST has to be increased to fund rising recurring costs, says DPM Heng

The GST is set to go up from 7 per cent to 9 per cent between next year and 2025.
The GST is set to go up from 7 per cent to 9 per cent between next year and 2025.ST PHOTO: KUA CHEE SIONG

SINGAPORE - The goods and services tax (GST) has to be increased to fund rising recurrent spending in key areas like healthcare and to provide for more social safety nets, said Deputy Prime Minister Heng Swee Keat on Friday (Feb 26).

A $6 billion Assurance Package set aside in last year's Budget will ensure that lower-income households will pay less than those that are well-off when the GST goes up, said Mr Heng, who set out in detail in his Budget round-up speech why the upcoming tax hike cannot be delayed or dropped.

Raising the GST is the responsible thing to do in order to not burden future generations, given how there have been structural increases in Singapore's recurrent spending, stressed Mr Heng.

For instance, annual healthcare spending has nearly tripled from $3.9 billion in fiscal year 2011, to $11.3 billion in 2019.

"If we want to spend more, we have to raise the revenue... do not make irresponsible promises which burden future generations," he asked of MPs.

"If these are recurrent needs - which have to be financed year after year - we must find recurrent revenues - which we can collect year after year."

Singapore is not the only country that is planning ahead, and Mr Heng pointed out that even Saudi Arabia, a country blessed with huge oil reserves, recently introduced a 5 per cent value-added tax from 2018, which it increased to 15 per cent from last July.

The GST is set to go up from 7 per cent to 9 per cent between next year and 2025.

Rising costs 

Singapore's healthcare cost is estimated to rise to 3 per cent of Singapore's gross domestic product by 2030, said Mr Heng.

By that year, the number of Singaporeans aged 65 and above will increase from one in six to one in four, and spending for healthcare will increase, given how seniors are four times more likely to be hospitalised than their younger counterparts, and to stay for twice as long, he added.

"Our demographic trends will mean higher spending, outstripping GDP growth," he said.

But healthcare is not the only area where spending will rise.

Mr Heng noted how in the Budget three years ago, he had mentioned that the annual security spending by the Defence and Home Affairs Ministries was likely to rise by 0.2 percentage points of GDP to meet rising threats such as information warfare.

Social spending, due to more funds being set aside for pre-school education and lifelong learning, will also go up.

Infrastructure spending will also jump, given how more resources are needed in this area to enhance Singapore's competitiveness, build homes for its residents and improve its connectivity.

Difficult decisions will need to be made to face these growing spending needs head on, and Mr Heng noted that since 2007, the Government has already increased a range of other taxes to collect more from those who are better off. Wealth-related taxes, for instance, have become more progressive.

These funds are then transferred to the lower-income through social spending - all while the GST remained at 7 per cent, he added.

While the GST is not going to be raised now, given that the economy is still recovering from the Covid-19 pandemic, Singapore is facing structural trends like an ageing population that will increase its recurrent expenditures.

For example, public healthcare capacity is being ramped up, and Mr Heng pointed to a new integrated hospital in Bedok North to be ready by 2030 that will serve the growing population in the east.

"If we defer this spending, we risk being unable to adequately care for our people when the need comes."

Support for GST increase 

Mr Heng assured Singaporeans that the $6 billion Assurance Package will help cushion the impact of the coming GST hike, with more help directed at lower-income households.

This package will effectively delay the GST rate increase for most Singaporean households by at least five years, and lower-income Singaporeans will receive higher offsets of about 10 years worth of additional GST expenses.

This is on top of existing benefits and transfers such as the permanent GST Voucher scheme, said Mr Heng. "These keep our overall taxes and transfers system fair and progressive," he said.

Last year, the top fifth of all Singaporean households by income paid 56 per cent of the taxes and received 11 per cent of the benefits, whereas the bottom quintile paid 9 per cent of the taxes and received 27 per cent of the benefits.

He added that the Government is concerned for the households in between, which paid 35 per cent of taxes while receiving 62 per cent of the benefits.

Mr Heng rejected as baseless Non-Constituency MP Leong Mun Wai's observation that his Progress Singapore Party does not see Singapore facing any shortage of fiscal revenues in the foreseeable future.

Mr Heng stressed that MPs cannot be advocating national policy "on the basis of personal hunches", and should instead focus on the hard work that needs to be done.

"It will be foolhardy to underestimate the risks and uncertainties we are facing," he added.

Budget office

In his speech, Mr Heng also shot down a suggestion by Workers' Party chief and Leader of the Opposition Pritam Singh to set up an independent parliamentary budget office to enhance scrutiny on government spending.

Such an office would be "a wasteful duplication", given that the Government already has such scrutiny in place, he said.

Other than independent audits by the Auditor General's Office, there already is parliamentary scrutiny of its spending through the Estimates and Public Accounts Committees, and Mr Heng noted that the WP is represented in both committees.

The Government has achieved world-leading outcomes while running one of the leanest administrations in the world, and is always looking to do better with less, he said.

"Prudence and stewardship are core values of this Government. We hold ourselves to high standards and work hard to ensure that our spending is cost effective, to deliver the best value for money for taxpayers," he said.

Mr Heng also voiced his concern over how the WP planned to fund this independent parliamentary budget office, and how much it would cost. He mentioned a $20 million figure that he said the WP had proposed be spent to set up this office "to do this job for them".

"Even as they call for more scrutiny on government expenditure, we invite them to hold themselves to the same scrutiny," he said.