SINGAPORE: Consumption taxes including the Goods and Services Tax (GST) are necessary to reduce the tax burden on younger workers in Singapore's ageing population, Second Minister for Finance Indranee Rajah said in Parliament on Wednesday (Oct 14).
"If we continue to rely principally on personal income taxes, the tax burden will weigh increasingly heavily on younger Singaporeans who are still working," she said.
"So you have to try and spread it out and make sure that you have some reliance on personal income taxes, but it's also necessary to have consumption taxes such as the GST.
"And GST lessens the problem by balancing the taxation more broadly among the population."
Ms Indranee was responding to a question by Member of Parliament (MP) for Bukit Panjang SMC Liang Eng Hwa on how an ageing population would impact the tax burden on the working population.
Ms Indranee pointed out that Singapore's most recent total fertility rate of 1.14 is "below replacement", adding that about 15 per cent of the country's population in 2019 were aged 65 and above. This will increase to about 25 per cent by 2030.
"What this means is that we have a smaller proportion of the working population contributing for a population that is growing older," she said.
"So the ones who are not working, the numbers are going to expand. And if we don't have replacement, the numbers who can actually come into the economy and contribute is going to shrink."
As the population ages, annual healthcare spending will rise "exponentially", said Ms Indranee, noting that it is expected to rise from 2.1 per cent of GDP today to almost 3 percent of GDP over the next decade.
"What this means is that aside from savings, you need fresh revenue and you have to keep your revenue sources diversified," she said.
Ms Indranee said personal income tax makes up 18 per cent of Singapore's tax revenue, with the remaining from corporate income taxes, asset related taxes and GST.
"And actually, when you have recurrent spending, you also need recurrent revenue," she said.
"So that was a key reason why we introduced GST in 1994, because we recognised then that an ageing population structure would require us to reduce our reliance on personal income taxes."
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Deputy Prime Minister Heng Swee Keat first flagged the need for GST to be raised from 7 to 9 per cent in Budget 2018, and had said then that the increase would take place sometime between 2021 and 2025.
During his first Budget in February this year, he announced that the GST hike would not take place in 2021 after taking into account the current state of the economy.
Ms Indranee stated on Wednesday that tax revenue is dependent on growing the economy, stressing the importance of transforming the economy, raising productivity and ensuring that the resident labour force can support economic development.
"That is why we supplement the local workforce with foreign skilled workers, especially in areas where we don't yet have the needed number of local skilled workers, although obviously, we want to grow the local skilled workers to be able to do those jobs," she added.
"And in the long run, raising birth rates. That remains the most sustainable solution to our demographic challenges."
To moderate the impact of ageing and low birth rates, Ms Indranee said Singapore takes in a "stable and measured" number of new citizens and permanent residents each year.
Data released by the National Population and Talent Division last month showed that Singapore’s population declined by 0.3 per cent in the past year to 5.69 million as of June 2020, with a fall in the number of foreigners.
Sembawang GRC MP Poh Li San had asked if the Government will review long-term population targets given the increasing trend of outsourcing work overseas and a reduction in the employment of foreign workers in Singapore.
In response, Ms Indranee, who is also Minister in the Prime Minister's Office, said the population outlook of significantly below 6.9 million by 2030 "remains valid today".
Singapore's long-term population outlook was a hot topic during the recent General Election, amid allegations that the Government was planning to increase the population to 10 million.
"The Government has clarified via a media statement and Factually articles in March and July 2020 that it does not have a population target, or seek to achieve any particular population size," Ms Indranee said.