‘A decision not taken lightly’: Heng Swee Keat explains reasons for GST hike

‘A decision not taken lightly’: Heng Swee Keat explains reasons for GST hike

Rounding off the Budget debate in Parliament, Mr Heng outlined that the increase in GST is required to support needs like healthcare, pre-school education and security.

Heng Swee Keat Parliament
Finance Minister Heng Swee Keat speaking in Parliament on Thursday (Feb 28). 

SINGAPORE: The Goods and Services Tax (GST) hike, which was announced in 2018, is needed to support structural increases in healthcare spending, as well as other needs like pre-school education and security, Finance Minister Heng Swee Keat said in Parliament on Thursday (Feb 28). 

Mr Heng was responding to MP Foo Mee Har who urged the Government to postpone the GST hike for as long as possible, suggesting that the funds that Singapore has set aside this term for various future expenditures like the Merdeka Generation Package and the use of borrowing for future infrastructure expenditures could provide sufficient fiscal space to postpone the GST increase.  

However, Mr Heng emphasised that the healthcare spending needed “is of a completely different scale and nature” from the cohort-based package set aside for the Merdeka Generation.

“I appreciate Ms Foo’s suggestion to delay this. Let me assure her and Members of this House that the decision to raise GST was not made lightly. As the Government, it is our responsibility to anticipate, and plan ahead for future needs. When doing so, we need to distinguish between one-off factors, and underlying structural increases,” said Mr Heng.

Mr Heng outlined that the Health Ministry expects to spend S$6.1 billion in 2019 alone to subsidise patient bills through existing permanent schemes that all Singaporeans enjoy.

He stressed that this expenditure does not even include spending to enhance healthcare facilities, and to research more effective treatments.

“As our population ages, spending on permanent healthcare schemes and other parts of the healthcare system will continue to increase structurally,” he said.

READ: GST hike: Early lead time ‘unprecedented’ but helpful, experts say

“Funding this requires a structural increase in our operating revenues. In other words, the base of our healthcare spending is rising. Over and above this rising base, we have special packages set aside for our Pioneers and MGs,” Mr Heng added.

Every ageing society faces similar structural spending pressures, he said pointing to a recent OECD paper on rising public health expenditure.

It indicated that the median OECD government is estimated to require additional revenues of 6.5 percentage points of GDP by 2060.

“What does 6.5 percentage points of GDP mean? To put it in perspective, we expect to raise about 0.7 percentage points of GDP with the planned 2 percentage point GST increase,” he said.

Mr Heng also emphasised that the Government has yet to decide on the exact timing of the GST increase but maintained that it “will exercise care when doing so”.

“We will continue to monitor the prevailing economic conditions, trends in expenditure, and buoyancy of our revenues carefully,” said Mr Heng.


In response to MP Saktiandi Supaat’s suggestion that the Government could tier GST for different goods, to lower the tax burden on the lower income, Mr Heng said that it is difficult to define if a good is a “necessity”.

“Take bread, for example. There are the white, and wholemeal loaves that you can find at supermarkets, but there are also loaves sold at artisan bakeries. On top of that, there are so many other types of bread – floss buns, baguettes, kaya toast at your coffeeshop. Where do we draw the line?” said Mr Heng.

He highlighted that the Government’s approach is to have a “flat GST rate, while providing structural offsets through the GST Voucher scheme”.

“This is a permanent scheme to provide more help to lower-income households and seniors. It is also more targeted, as those who need help most get it directly. This is in addition to other schemes and programmes to help the less well-off,” said Mr Heng.

He also responded to MP Cheryl Chan, who argued for an introduction of a net-wealth tax to address growing wealth inequality.

Mr Heng said that Singapore approach has been to tax fixed assets, which “are fixed and less mobile”.

“Indeed, a large portion of Singapore household wealth is held in the form of housing assets,” said Mr Heng.

He outlined that the Government has two types of taxes on property – the Stamp Duty and Property Tax – and they have been made more progressive over the years. But Mr Heng maintained that the Government will continue to monitor developments in this space.


Mr Heng also touched on Singapore’s reserves in his speech, highlighting how the Net Investment Returns Contribution (NIRC) is “already the largest single contributor of our revenues”, and larger than any of the taxes the Government collects.

“If we did not have the NIRC framework, we would have had to double our personal income tax collection or our GST collection to raise the same amount of revenues,” he said.

READ: ‘Severe implications’ if Singapore does not have sufficient reserves as buffer: Chan Chun Sing

The reserves, Mr Heng said allows Singapore to tide over a crisis, without being reliant on others stressing that the need for a rainy-day fund should not be underestimated.

“Singapore faces particular vulnerabilities, given our lack of natural resources. With an economy worth nearly S$500 billion a year, we should set aside enough to protect it and our people’s livelihoods and future,” he said.

In response to Workers’ Party chief Pritam Singh’s request for more data on Singapore’s reserves for people to better understand budget policy trade-offs, Mr Heng said he was “misinformed”.

“Our reserves comprise assets invested by MAS, GIC and Temasek. The size of MAS’ and Temasek’s assets is public information. Only the GIC portion is not disclosed, and that is because with the GIC figure, you get the complete picture of our reserves,” said Mr Heng.

He said the reserves also serve as a strategic defence, to deter parties who wish to undermine the interests of Singapore and Singaporeans.

Such moves can go beyond currency speculation attacks, to other types of threats.

“Our reserves, like our investments in defence and security, give us the confidence to plan long term, knowing that we will have the ability to take care of our people”, in a volatile, uncertain, complex and ambiguous world, Mr Heng said.  

Source: CNA/am