Tax increase 'must be handled with caution'

Shoppers seen carrying shopping bags along Orchard Road. PHOTO: ST FILE

The impending tax hike signalled by Prime Minister Lee Hsien Loong at the weekend will exact a political price on the ruling party - unless Singaporeans can be persuaded of its necessity, said People's Action Party (PAP) MPs and political observers.

And the way to do so, they said, is with "open and honest" communication, like through dialogues to explain why such a move is required.

More aid for needy residents, like bursaries, could also help.

"There is always a political cost if you cannot persuade the ground that a hike in taxes is necessary," said Mountbatten MP Lim Biow Chuan. "Nobody likes it, and if people think you are just doing it for no valid reason... they get angry."

Nominated MP Randolph Tan added: "Tax is a very sensitive area, and it can change things for any government."

Public sensitivity to a tax hike - the form of which PM Lee did not specify but which some economists believe could be a goods and services tax (GST) increase - is also heightened, given that the Finance Ministry had said two years ago there was no basis to claims that the Government would raise the GST after the 2015 General Election. It then referred to Deputy Prime Minister Tharman Shanmugaratnam's comments that increased spending planned for the rest of this decade is sufficiently provided for by existing measures.

At the PAP convention on Sunday, PM Lee noted that investments and social spending are costly, and the Government has to make sure "we can afford them".

"For this current term of government, we have enough revenue," he added. But as spending needs will grow, he forewarned that "raising taxes is not a matter of whether, but a matter of when".

Some people view PM Lee's comments as a U-turn. But as MP Liang Eng Hwa, chairman of the Government Parliamentary Committee for Finance and Trade and Industry, noted, Mr Tharman's timeframe was the end of the decade, "which I suppose is 2019 or 2020".

PM Lee did not say when the tax hike could kick in, except that the current term of government, which ends in 2021, had enough revenue.

Dr Tan said PM Lee's speech could be a way to inform the public early of such measures.

Workers' Party MPs did not respond to queries for comment.

On Sunday, when explaining why a tax hike is necessary, PM Lee referred to Finance Minister Heng Swee Keat's Budget speech this year, in which he said social expenditure, in areas such as healthcare and education, almost tripled to $34 billion over a decade.

Investments in infrastructure will also grow; in 2015, Mr Tharman said this would swell to about $30 billion by the decade's end.

Dr Mustafa Izzuddin of the ISEAS - Yusof Ishak Institute said that with public confidence shaken by recent events such as major MRT incidents, "any tax hike... must be handled with caution, tact and effective communication, as there could be a political cost of domestic resentment".

MPs said communication is key to reducing unhappiness.

This echoed PM Lee's promise on Sunday, when he said: "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."

Mr Lim said with messages potentially distorted over social media, the authorities need to explain their position clearly.

Mr Liang noted that the Government is in a basic deficit position that will likely widen after 2020: "It is important to explain the expenditure, what the projection will be like and how the increase will be funded."

MacPherson MP Tin Pei Ling said if the hike was in the GST, now at 7 per cent, MPs could help those hardest hit by giving financial aid like bursaries to children.

Observers said a lengthy timeline could be how the PAP is preparing the ground. Law don Eugene Tan said: "They may be preparing the ground for a tax increase, but there is also the larger game plan, in trying to set the narrative: With the need for increased expenditure, how are we going to pay for it, and who is going to pay for it?"

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A version of this article appeared in the print edition of The Straits Times on November 21, 2017, with the headline Tax increase 'must be handled with caution'. Subscribe