Singapore will be raising its taxes as government spending on investments and social services grows, Prime Minister Lee Hsien Loong said yesterday.
"(Finance Minister) Heng Swee Keat was right when he said raising taxes is not a matter of whether, but when," he said at the People's Action Party (PAP) convention.
PM Lee was referring to Mr Heng's remarks during his Budget speech earlier this year, where the minister outlined how spending on healthcare and infrastructure will rise rapidly, and spoke of the need for new taxes or higher tax rates.
He told some 2,000 party members that "well before that time comes, we have to plan ahead, explain to Singaporeans what the money is needed for, and how the money we earn and we spend will benefit everyone, young and old".
The spending on Singapore's economy, infrastructure and social safety nets is necessary, and is a vote of confidence in the country's future, said PM Lee, who is the PAP's secretary-general.
Just as older generations saved and invested, this generation must "plant trees in order that our sons and daughters, and their sons and daughters, will be able to enjoy the shade", he added.
Economists said a rise in the goods and services tax (GST) could be in the works. It was last raised in 2007 by two percentage points to 7 per cent.
UOB economist Francis Tan said it is the second-largest generator of government revenue, after corporate and personal income tax, so even a one-point increase will mean very large revenue increases.
As a broad-based tax, the GST is hard to evade and is collected from locals and foreigners, said Singapore University of Social Sciences economist Walter Theseira. He suggested cutting income tax exemptions as an alternative.
In terms of timing, Mr Tan said the Government is unlikely to raise taxes in the year before a general election, and hence may act soon.
"Mr Lee said we are nearly halfway through the term, so it would probably be announced in next year's Budget," he said, adding that the move would come on the back of stronger economic growth, which provides some leeway to implement the change.
Both he and Dr Theseira said a rise in taxes should be combined with measures like GST vouchers to help the lower-income group cope.
In his speech at Big Box in Jurong, PM Lee explained why a tax increase is needed.
First, the Government is investing in infrastructure, including in the country's rail and ports.
Second, it is helping workers and companies through economic restructuring.
For now, the economy is doing well. Growth this year may even exceed 3 per cent, better than the forecast of 2 per cent to 3 per cent, said PM Lee.
But to sustain this growth, workers must acquire the right skills and be matched to quality jobs. Companies must also adapt to compete globally, he said.
Finally, on the social side, annual spending on pre-schools will double to $1.7 billion by 2022.
At the same time, the population is ageing, creating greater demand for affordable healthcare.