Singapore to ‘start moving’ on planned GST hike as economy recovers from COVID-19, says PM Lee

SINGAPORE: The Government will have to start moving on the planned hike in Goods and Services Tax (GST) in Budget 2022, given that the economy is emerging from COVID-19, said Prime Minister Lee Hsien Loong in his New Year message on Friday (Dec 31). 

The Government must have reliable and adequate revenues to carry out its social programmes, said Mr Lee, adding that additional revenues are needed to fund the expansion of the healthcare system and support schemes for older Singaporeans.  

“Those who are better off should contribute a larger share, but everyone needs to shoulder at least a small part of the burden,” he said.

“This is the rationale for raising a broad-based tax like the GST, coupled with a comprehensive scheme of offsets to cushion the impact on lower-income households. 

“The GST forms one important component of our system of taxes and transfers that also includes income and wealth taxes. Overall, our system will remain progressive and fair,” he added.

“We have seen this need coming for some years. Now that our economy is emerging from COVID-19, we have to start moving on this. Budget 2022 will therefore lay the basis for sound and sustainable government finances for the next stage of Singapore’s development.”

The plan to raise the GST by two percentage points, from 7 per cent to 9 per cent, was first announced in 2018 during then-Finance Minister Heng Swee Keat’s Budget speech. He said the increase would be necessary to strengthen Singapore’s revenues, given recurrent increases in healthcare, security and other social spending.

“The responsible way to pay for them is through taxation so that every generation pays its share. We should not borrow for recurrent spending, because that will put the burden of recurrent spending on future generations,” Mr Heng said in 2018.

“This GST increase is necessary because even after exploring various options to manage our future expenditures through prudent spending, saving and borrowing for infrastructure, there is still a gap,” he added.

“Increasing GST by two percentage points will provide us with revenue of almost 0.7 per cent of GDP per year.”

Mr Heng said then that the hike would take place sometime from 2021 to 2025 – earlier rather than later in the period - with the exact timing to be decided based on factors such as the state of the economy.

Given the impact of COVID-19 on the economy, Mr Heng said last year that the increase would not take place in 2021.

He reiterated, however, that the hike would be implemented “sooner rather than later”, between 2022 and 2025.

“Without the GST rate increase, we will not be able to meet our rising recurrent needs, in particular healthcare spending,” Mr Heng said in his 2021 Budget speech. 

Mr Heng, who is also Deputy Prime Minister, previously announced that GST on publicly subsidised education and healthcare will continue to be fully absorbed.

Lower- and middle-income households can also get support from the permanent GST Voucher scheme, which will be enhanced when the new GST rate takes effect. 

Singapore’s Budget 2022 will be unveiled by Finance Minister Lawrence Wong on Feb 18.

The GST was last raised more than a decade ago, in 2007, to 7 per cent from 5 per cent. It was first introduced in 1994 at 3 per cent, then raised to 4 per cent in 2003 and 5 per cent in 2004.

TIME TO "BITE THE BULLET"

Nanyang Technological University's Assistant Professor Walid Jumblatt Abdullah told CNA that if the GST is to be raised, then this is the "least bad time" in the political cycle for the ruling party to do it.

"There is no good time of course. Especially considering the pandemic and how many people are not doing too great financially," he said.

Political observer Associate Professor Eugene Tan said that the Prime Minister has indicated that the economy is improving and it is necessary to "bite the bullet".

"The pandemic has also increased the demands on the government coffers and the post-pandemic recovery will also stretch the public purse even more. I think 'TINA' (there is no alternative) to a GST hike in the new fiscal year," said the law professor from Singapore Management University. 

He pointed out that 2022 will be the second full year of the current term of government. With a general election due by November 2025 and the presidential election in September or October 2024, the political preference is to have the tax increase "sooner rather than later".

"An early implementation can enable people to see how the 'comprehensive scheme of offsets' make the GST hike manageable, especially for lower-income households," he said.

"It can also help reduce the political sensitivity of a GST hike when the hustings come round in about two to three years time."

With inflationary pressures within the economy, the Government will have to put in place a robust system of counter-inflationary measures to ensure that the GST increase does not add to the inflation or, worse, lead to runaway inflation, he added.

It will be a delicate balancing act and the "economic nous" of the government will be put to the test, said Assoc Prof Tan.

Both political analysts said that this will renew the debate for higher and new wealth taxes, as well as corporate and personal income taxes, and have "Singaporeans and experts delving into the merits and drawbacks of drawing down the past reserves as well as the net investment returns".

Said Asst Prof Walid: "Such debates are healthy, and should be had, if we are to move forward as a mature, democratic society."

Additional reporting by Chew Hui Min