SINGAPORE: Deputy Prime Minister Heng Swee Keat on Friday (Feb 28) reiterated the need for Singapore to raise its goods and services tax (GST), saying it is the "responsible way".
"The GST remains the responsible way for everyone to meet society's future needs," said Mr Heng, who is also Finance Minister, as he wrapped up the Budget debate in Parliament.
While the GST will not be raised in 2021, there are plans to raise it in the future.
In his speech, Mr Heng explained the "rationale, and the hard choices and trade-offs that we have to make".
“Nobody likes taxes, not even ministers for finance. As a Government, our approach is to tax lightly so that people can keep most of what they earn, and so that they can decide how best to spend it for themselves and for their families,” he said.
However, there are many critical national needs that are better met by Government provision, through taxes, he said, adding that these include building up healthcare facilities and services, and providing subsidies to ensure that our healthcare needs are well taken care of.
These also include “important priorities” like mental health, as well as developing good and affordable pre-school services and education to give all children a good start in life and the best chance for success, regardless of background.
They also include building up the Singapore Armed Forces and Home Team to protect Singapore against emerging external, digital and terrorist threats.
“These are all issues that many of us in this House care deeply about and made eloquent pitches for the Government to spend more on,” he said.
WHO SHOULD PAY?
Mr Heng said that even among those who agree in principle on the need to raise taxes, some have asked: “Why GST?"
A broad-based tax like the GST is an “appropriate and responsible way” to pay for major societal needs like healthcare spending, Mr Heng said, against the backdrop of increasing healthcare expenditure.
“Such spending benefits all Singaporeans and so it is fair for everyone to bear some part of the costs. This is about all of us taking shared responsibility to pay for our needs and our society’s needs, and sharing in the effort to provide for them,” he said.
The “Singapore-style GST” comes with offsets to ensure that those with lower incomes pay “much less” than those who are well off, Mr Heng noted.
“This is ultimately about us collectively chipping in to look after the healthcare needs of our families. Each generation must pay for its own spending,” he said.
The last time the GST was raised was in 2007.
HEALTHCARE SPENDING TO GROW SIGNIFICANTLY
The big shift in public expenditure in the next decade will be in healthcare spending, Mr Heng said.
“We expect public healthcare spending to grow by around one percentage point of GDP over 15 years from 2015 to 2030,” Mr Heng said.
This is less than the average increase projected in the Organisation for Economic Co-operation and Development (OECD) countries, partly because of Singapore’s efforts to keep healthcare costs sustainable and because Singaporeans have increasingly adopted healthier lifestyles, Mr Heng said.
“But our healthcare spending may rise by more than this one percentage point if medical costs rise throughout the world, and we do not bring problems like obesity and diabetes under control,” Mr Heng cautioned.
Over the past two decades, Singapore’s healthcare expenditure has grown rapidly, he said, pointing to an increase in public health expenditure as the share of seniors increases.
In 2000, government spending on healthcare was about 0.7 per cent of the country’s gross domestic product (GDP). By 2015, it had tripled to about 2.1 per cent of the GDP.
Additional spending has gone towards significant improvements in healthcare accessibility and affordability, Mr Heng said, citing new schemes such as MediShield Life, the expansion of hospitals and the building and redevelopment of hospitals.
Some have wondered if we can spend less or spend more efficiently, Mr Heng said, adding that Singapore today achieves good outcomes at a lower cost than many other countries.
“We are always looking for ways to improve outcomes in a cost-effective manner,” Mr Heng said, but noted that efficiency savings will never be enough to fully offset the growth in healthcare spending as the population ages.
“Efficiency savings can only mitigate it. To believe otherwise is wishful thinking,” he said.
Responding to MP for West Coast GRC Ms Foo Mee Har, who shared that some Singaporeans have questioned the need to raise revenue to meet expenditure while pointing at surpluses seen in this term of Government, Mr Heng said that healthcare spending needs are not one-off needs.
“They are recurrent needs, meaning that these needs will be there year after year. In fact, growing year after year. We need to fund them using recurrent revenue, not one-off surpluses seen in this term of Government, which arose from an unexpected rally in global financial markets and the unexpected buoyancy in the property market,” he said.
“We cannot hope to keep on being so pleasantly surprised. Things can very quickly swing in the opposite direction, as we have seen from the COVID-19 outbreak.”
The outbreak reminds everyone of the need to plan ahead to raise revenue, he said.
“We must ensure that we have enough resources to meet our people’s needs, driven by structural factors. Otherwise, we will find ourselves short and have to raise taxes or cut spending in difficult times, precisely when businesses and people need a boost.
"Planning ahead entails being honest with ourselves and with citizens, and having the discipline to raise revenues in a timely manner,” he said.
Ms Foo and others asked if Singapore should raise income and wealth taxes, instead of GST. In response, Mr Heng said that this has been happening in recent years.
In 2010, the Government made the property tax regime progressive by introducing higher tax rates on owner-occupied residential properties with higher annual values and three years later, enhanced the progressivity of the system. The Government also made the personal income tax system more progressive and raised the buyer's stamp duty rate for residential properties in excess of S$1 million in value.
“In all this time, when we were raising income and wealth taxes to support the country’s growing expenditure, the GST rate remained at 7 per cent,” he said.
He cautioned that there is a limit to raising income taxes.
“If we keep raising income taxes, it will eventually hurt middle-class Singaporeans, who presently pay very light income taxes. It will also risk losing our ability to attract talent and keep our own talents,” he said.
GST ONLY ONE WAY OF MEETING NEEDS
While raising GST is important, it is “only one way” to meet Singapore’s revenue needs, he said. While an increase in GST to 9 per cent will provide the country with additional revenue of almost 0.7 per cent of GDP per year, the increase in annual government healthcare spending alone exceeds this amount of additional revenue.
“We will continue to adjust our income and wealth taxes to raise revenue in a progressive and fair manner,” he said.
Noting ongoing international discussions to revise tax rules under the Base Erosion and Profit Shifting project, Mr Heng said that hub economies with small markets like Singapore stand to lose corporate income tax revenue if the new rules are adopted.
“This is because the new rules allocate taxes to where the customers are, rather than where the underlying economic activity is conducted,” he said.
In today’s global economy where businesses have the flexibility to relocate their businesses out of Singapore, Singaporeans may lose their jobs, he added.
“We therefore need to strike a fine balance between our corporate income tax rate and economic competitiveness,” he said.
“Even as we seek to keep the GST rate low, we have to make trade-offs as we increase our spending for our healthcare and other needs.”