GST hike will go ahead, but support measures will offset impact even amid inflation, says Lawrence Wong

GST will be raised by 2 percentage points in two stages. ST PHOTO: KUA CHEE SIONG

SINGAPORE - The goods and services tax (GST) will increase as planned from next year even amid a sharp rise in tax revenue of more than 22 per cent, Deputy Prime Minister and Finance Minister Lawrence Wong said on Monday.

This is because the higher revenue stemmed mostly from higher-than-expected stamp duty takings, which can fluctuate from year to year and was therefore not a sustainable source of revenue, he explained.

The Government is committed to offsetting the GST increase even amid inflation, and the majority of households will not feel the impact of the tax hike for at least five years, while lower-income households will not feel it for 10 years, he stressed.

"We will uphold this commitment even with the higher inflationary outlook and will further enhance the assurance package if necessary," he said, referring to the $6.6 billion package to offset additional GST expenses.

DPM Wong was responding to Ms Foo Mee Har (West Coast GRC), Mr Yip Hon Weng (Yio Chu Kang) and Workers' Party MP Jamus Lim (Sengkang GRC), who asked if there were plans to defer the GST increase given growing inflation and the increase in tax revenue in financial year 2021.

GST will be raised by 2 percentage points in two stages, from 7 per cent to 8 per cent on Jan 1 next year, and to 9 per cent on Jan 1, 2024.

MPs have been periodically asking if the hike can be delayed, as living costs rise amid global inflationary pressures.

On Monday, Mr Wong noted that the 22.4 per cent increase in tax revenue for the 2021 financial year was partly due to a lower tax base in the previous financial year arising from the impact of the Covid-19 pandemic.

The collection of "sentiment-based" revenue was also higher than expected, with stamp duty accounting for the lion's share of the increase as the property market recovered at a much faster rate than market observers had anticipated, he said.

He added that the higher revenue collected had been used to fund spending such as enhancements to the Progressive Wage Credit Scheme - which offsets mandatory wage increases for lower-wage workers - as well as to provide short-term relief for businesses and families through Covid-19 support packages, among others.

Cautioning against using such revenue to fund recurrent spending, he said: "Just as a bullish property market can provide upsides, there can also be downsides in a muted market, as past experience has shown.

"We therefore cannot rely on such sentiment-driven collections, which can fluctuate from year to year, as a stable and sustainable source of revenue to meet our rising recurrent expenditure needs."

Asked by Mr Yip if there was a better way to project tax revenue in future so that fiscal policies can be tuned more finely, Mr Wong said market observers never expected the property market to rally as strongly as it did.

This underscores the difficulty in predicting revenue items based on asset prices, which are often volatile, he added.

There will always be a high degree of uncertainty in predicting Singapore's revenue, given that the economy is small and open and subject to external demand fluctuations, he said.

Mr Wong reiterated that spending needs are growing, largely driven by higher healthcare expenditure as the population ages. There is also a need to accelerate Singapore's economic and green transformation, and shore up resilience in food and energy amid global economic uncertainty, he said.

Referring to higher taxes on wealth announced at Budget 2022 and the GST hike, he said: "These will provide us with the resources we need to meet our longer-term priorities in a responsible manner. We will proceed with these measures, including the GST increase as planned."

Asked by Ms Foo about projections for the 2022 financial year, Mr Wong said it was still too early to tell as revenue and expenditure fluctuate from month to month.

"Our aim is not to accumulate a surplus. Let's be very clear about this. Our aim is to run a balanced budget over the medium term. That's our consistent fiscal policy," he added.

Associate Professor Lim asked if the Ministry of Finance had done any studies on the impact of inflation on real wage growth on different segments of the population.

To this, Mr Wong said the Government was closely monitoring how inflation is impacting income growth of the different segments of society, taking into consideration the various support packages such as Workfare income supplements.

"We fully understand that higher inflation disproportionately impacts the lower-income groups, which is why our measures have already taken that into consideration," he said, adding that government support packages tilt heavily towards lower-income households.

In June, the Government announced a $1.5 billion support package to help lower-income families and vulnerable groups cope with rising costs.

Mr Wong added on Monday that if some groups still face difficulties coping with higher inflation despite these support measures, the Government will "certainly consider doing more to help these families cope through these challenging times".

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