SINGAPORE: While he recognises the concerns surrounding the planned increase in the Goods and Services Tax (GST), Finance Minister Heng Swee Keat said that Singaporeans need to understand that the tax hike is necessary and being done for a “very important purpose” - to finance the country’s growing expenditure needs.
He was speaking to reporters on Wednesday (Feb 21) after a post-Budget forum held at Mediacorp.
Mr Heng on Monday delivered the Budget for 2018, which he described as a “strategic and integrated financial plan to position Singapore for the future”. With a focus on longer-term challenges, the all-encompassing Budget included measures targeted at the economy, society, environment and maintaining the country’s fiscal sustainability.
The GST hike from 7 to 9 per cent, slated to take hold sometime from 2021 to 2025, was the hot topic among Singaporeans who got a chance to ask the finance minister questions about the Budget on Wednesday.
Most raised concerns about the potential rise in living costs, such as in the area of childcare, and whether there will be adequate wage growth to help Singaporeans cope with that.
When asked how he would alleviate these worries felt by the man on the street, Mr Heng said: “I appreciate their concerns but it is important to understand why we need to do this.”
“I’ve tried to explain as much as possible what are the rising expenditure patterns,” he added, referring to his Budget statement which outlined the need to continue spending on areas like healthcare, security and infrastructure.
“We’ll have to find new sources of revenue so that is what we started with,” he said. “It is important to bear in mind that we are doing this for a very important purpose.”
One of the forum's participants asked whether Singapore has alternative revenue sources apart from raising taxes. To this, Mr Heng pointed out that the net investment returns contribution (NIRC) is now the biggest contributor to the Government’s coffers – larger than any single tax, including the GST, as well as the corporate and personal income taxes.
Over the past 10 years, that has more than doubled from S$7 billion in FY2009 to an estimated S$15.9 billion in FY2018.
Singapore introduced the NIR framework back in 2008. It started out with the reserves managed by GIC and the Monetary Authority of Singapore (MAS) before the inclusion of Temasek Holdings in 2015. Under the NIR framework, the Government can spend up to half of the expected long-term investment returns generated.
“I must say that as the finance minister, I feel very grateful that our forefathers have left this with us," Mr Heng said. "It is very important when we think about how we use that money, (we need) to make sure we look after our children as well.
“As our economy grows, I hope that our reserves will also grow together with the economy and in that way, our younger people can have the same assurance that we inherited from our forefathers.”
In response to Channel NewsAsia’s question on whether the larger-than-expected Budget surplus for financial year 2017 made the GST hike a tougher sell, Mr Heng replied: “It certainly has made the job of explaining it more difficult, but it is very important for all of us to bear in mind that the surplus we had last year is not likely to be repeated again and again.”
Singapore is expecting a bumper surplus of S$9.6 billion for the year ending March 31, thanks to “exceptional” statutory board contributions, primarily from the MAS, and higher stamp duty collections due to the recent boom in property transactions.
Mr Heng emphasised that this large contribution from the MAS, due to higher investment returns and gains from currency fluctuations, is not a “structural feature”.
Hence, long-term planning for the country will need to done on "more structural factors", such as the rise in spending needs.
But Mr Heng stressed that when the GST hike is implemented, there will be efforts to make sure it remains “progressive” with the roll-out of a “good offset package”, particularly for the lower- and middle-income households.
The timing of the GST increase will also be chosen carefully, with various factors to assess including the state of the economy, changes in the country's expenditure patterns and the global environment.
Mr Heng said he hopes that the economy continues to grow. "If we are in a deep recession or if there’s a global financial crisis again, then we have to redo our sums to see what else we need to do,” he added.
Nonetheless, current projections show that the 2 percentage point hike is the “appropriate rate for us to go”, he said, given that it would translate into revenues amounting to 0.7 per cent of gross domestic product (GDP) every year.
“I’m not saying that that itself will be sufficient (because) how our healthcare cost would grow, we cannot predict with certainty,” he said.
“But as far as the GST is concerned, looking at our current projections and trends, 2 percentage point is likely to be the right one.”
Even for businesses, the “very advance notice” given by the Government, which Mr Heng admitted to be “quite exceptional”, will help them to adjust to the planned increase in GST.
IMPORTANT TO DO THE RIGHT THING: HENG SWEE KEAT
Some observers have also raised the political risk that the ruling People’s Action Party is taking with the GST hike.
In 2015, then Finance Minister Tharman Shanmugaratnam stated that the revenue measures the Government had undertaken would provide sufficiently for increased spending planned until the end of the decade.
Prime Minister Lee Hsien Loong reiterated at the PAP convention on Nov 19 that “for this current term of government, we have enough revenue”.
That remains correct based on the Government’s projections, Mr Heng said.
“If it was a wrong assessment, we would be prepared to say so but it is not. It is the correct assessment that we are in good position right until at least 2020 but beyond that, we know that there are so many new areas of expenditure that we will need.
"Therefore, it will be irresponsible if I do not state this clearly and plainly," he added.
On whether he was worried that the opposition could campaign on this issue at the next General Election, he said:“Those of us in positions of responsibility must act responsibly and therefore the way to act responsibly is when we know that this is the right thing to do, we must have the courage to do it and not make narrow personal calculations.”