Rise in employer's CPF contribution helps to offset GST hike: Lim Swee Say
By Wong Siew Ying, Channel NewsAsia | Posted: 23 February 2007 1920 hrs

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SINGAPORE: The impact of the Goods and Services Tax (GST) hike in July will be cushioned for most households with two working adults.

This is because these families will benefit from the 1.5 percentage point restoration in the employer's CPF contribution.

This was an observation by labour chief Lim Swee Say, in response to concerns raised during a TV forum on the Budget.

The Budget, which was announced on 15 February, is a bold and decisive one, but it is not a solution to everything, said Mr Lim.

And companies and individuals must continue to innovate and grow the economic pie.

Speaking to a panel of businessmen, academics and labour representatives, Mr Lim explained that the S$4 billion GST Offset Package will help older and needy Singaporeans.

Indeed, the GST increase to 7 percent, from the current 5 percent, had some wondering if people would cut back on their spending.

Mr Lim said: "We believe that the offset package will actually stimulate some spending, additional demand. For example, the low-income households, the low-wage workers will be spending every dollar that they take from the Offset Package, every dollar that they get from the Workfare and incentive schemes on necessities."

The increase in the employer's CPF contribution will also go towards defraying expenses, especially for the middle class.

But some forum participants felt that the move would increase operating costs for small businesses, especially those which would not benefit from the 2 percentage point cut in corporate tax to 18 percent.

In response, Mr Lim said there are programmes to help the SMEs (small- and medium-sized enterprises), and the local enterprise development is currently on the right track.

But in order for small companies to do well, they have to keep pace with growth and seek opportunities beyond Singapore.

The labour chief said: "Today, we have 130,000 local enterprises, with SMEs comprising a big majority. Of these, about 25 percent – a quarter of them – earn half of their revenue from the overseas market.

"Among the new start-ups, two-thirds of them have headed towards the overseas market from Day One. So I would say, on the part of government, they will continue to come up with new programmes, new initiatives. At the same time, the business community must continue to pursue new market, new technology and new services."

Another question raised during the forum was – 'Why wasn't there a cut in the personal income tax?'

Mr Lim explained that the tax structure in Singapore is still competitive and whether it will be tweaked is to be decided in the future.

What is more pressing is to help low-wage earners and the unemployed level up through Workfare.

He said: "Obviously, the Workfare is important. But it's insufficient. At the end of the day, we still have to do our work in terms of retraining them, redesigning their jobs. We hope that more and more workers will go beyond the Workfare ceiling of S$1,500. That is the way to go. But for them to go beyond the Workfare ceiling of S$1,500, they must enter the workforce first."

Mr Lim emphasised that this Budget would help Singapore tackle the challenges arising from globalisation.

The Chinese Budget Forum will be aired on MediaCorp Channel 8 at 10.30pm on Friday, 23 February.