Parliament Debate on support measures

Tax hikes will take into account fiscal needs, economy: Minister

GST increase necessary to fund growing healthcare spending as population ages: Lawrence Wong

In deciding the timing of any increase to tax rates, including the goods and services tax (GST), the Government will take into account Singapore's fiscal needs as well as the prevailing economic conditions, said Finance Minister Lawrence Wong yesterday.

The GST hike had come up for discussion as Parliament debated support measures for businesses and workers affected by the periods of heightened alert since May, with some MPs suggesting the hike should be put off until the economy recovers from the pandemic.

The increase in GST rate from 7 per cent to 9 per cent is to take place by 2025, but Mr Yip Hon Weng (Yio Chu Kang) asked if it could be pushed back a few years, urging the Government to exercise flexibility and sensitivity.

"Even the traditional arguments for hiking GST and then providing rebates to the people worst affected, may not be salient in a crisis like today," he said.

Workers' Party MP Louis Chua (Sengkang GRC) suggested the Government could look to corporate taxes to boost its coffers, before revisiting the GST increase.

In response, Mr Wong said the Government has already been growing its revenue sources over the years, by raising income tax, property tax and stamp duty, among others, and will continue to review these and other options.

But he added that the increase in GST would still be necessary to fund the growing spending in healthcare as Singapore's population ages.

As these are broad-based needs, they should be funded by a broad-based tax like GST, he explained, stressing that Singapore must have a sustainable fiscal strategy.

GST currently contributes about 15 per cent of the Government's operating revenue.

Nominated MP Hoon Hian Teck also highlighted the need to look beyond Covid-19 to recognise other fundamental spending needs of the country and to find the tax revenues to pay for the expected increase in spending.

He said: "Today, we will need to confront the reality, even under the challenges of Covid-19, that an ageing population - resulting from increased life expectancy, as well as reduced fertility rate, and therefore consequently the highest spending on health - will require additional fiscal resources."

Some MPs had previously expressed concerns about GST being regressive and thus disproportionately affecting the poor, and Mr Wong yesterday urged Singaporeans not to see the GST in isolation.

He said the GST is tied to the permanent GST Voucher scheme, which offsets the GST for lower-income Singaporeans. The Government had also announced a $6 billion package to cushion the impact of the impending GST hike, and an enhancement of the permanent GST voucher scheme, and Mr Wong noted that lower-and middle-income families get more help.

The minister said that taken as a whole, Singapore's system of taxes and transfers is progressive. "Concerns about regressivity have been mitigated, and will continue to be, as we plan for the GST increase."

He also cautioned against taking the easy way out by relying heavily on past savings or borrowing to finance spending, noting that many advanced economies were grappling with annual budget deficits that have been made worse as the Covid-19 pandemic further pushed up government borrowing.

For many countries, borrowing often started with good intentions, to raise public spending on healthcare or welfare schemes, he noted.

But he said this could result in a downward spiral as spending balloons and outpaces the ability to raise revenues, and a country is forced to borrow year after year to finance its annual deficits.

He added: "What's more worrying is that societal norms and individual expectations change and an entitlement mindset sets in. It becomes politically very challenging to roll back any benefit and to raise taxes, or even to mention it.

"There's a tendency to short-change the future, and to overspend on the present. That's why we must always resist the siren song of easy money. And we must do our part to uphold a culture of fiscal responsibility and stewardship."

To this end, Singapore's reserves protection framework helps to achieve a balance of safeguarding past savings while allowing some spending, he said, describing it as "a balance between spending for today's needs, and saving for the future needs of today's generations and generations to come".

Under the Net Investment Returns Contribution (NIRC) framework, the Government can spend up to half of the long-term expected investment returns generated by Temasek, GIC and the Monetary Authority of Singapore - the three entities tasked to invest Singapore's reserves.

Mr Liang Eng Hwa (Bukit Panjang) said the NIRC had increased to $19.6 billion based on the latest available revised estimates, compared with $18.4 billion in financial year 2020, and $17.04 billion in financial year 2019.

"We have to expect markets and asset valuations to be constantly fluctuating in the years ahead, and hence this sound and prudent computation of NIRC by smoothing out the expected investment returns over a long period is necessary to ensure steady and predictable net investment returns contributions for the purpose of budget and cash flow planning," he added.

Mr Wong said the Government is not closed off to adjusting the framework, but noted this was done not too long ago, in 2015, in a careful and considered manner.

The framework was not meant to cover every funding need, he said. "Therefore we should not, at the first sign of need, push for changes in the rules now just to take the easy way out and avoid having to raise tax revenues to meet our growing recurrent expenditure needs. That would not be the responsible thing to do."

Singapore has drawn a total of $53.7 billion from the reserves for this and the last financial years to fund Covid-19 support measures.

As to how additional support for workers and businesses might be funded if the need arises later this financial year, Mr Wong said this would come from tightening operating and development expenditures, instead of dipping into the reserves. "That's what we would do if we had to do another package within this financial year," he said.

A version of this article appeared in the print edition of The Straits Times on July 28, 2021, with the headline 'Tax hikes will take into account fiscal needs, economy: Minister'. Subscribe