GST hike should not be pushed back any further, Government prepared to do more if situation ‘worsens significantly’: DPM Wong
SINGAPORE: Deputy Prime Minister Lawrence Wong has again stressed the need to go ahead with a planned goods and service tax (GST) hike, but said the Government is “prepared to do more” if the economic situation worsens significantly.
Responding to parliamentary questions on Monday (Jul 4) about whether the Government will consider further delaying the impending 2023 GST hike, Mr Wong said: “Crucially, we must always ensure that we have sufficient resources to tackle our longer-term challenges, and do so in a fiscally responsible and sustainable manner.
“And this is why the Government will need to go ahead with the GST increase, as announced at Budget 2022.”
The Government had already anticipated the higher inflation outlook this year, which is why the GST increase will be staggered in two steps.
The GST is set to rise from 7 per cent to 8 per cent in 2023, and to further increase to 9 per cent in 2024.
“We should not push back the GST increase any further, as we will need the funds urgently to take better care of our growing number of seniors and to meet our rising healthcare expenditures,” said Mr Wong, who is also the Minister for Finance.
The S$6.6 billion Assurance Package, announced at Budget 2022, has been set aside to “cushion all Singaporean households” from the impact of the GST increase, he added.
Most Singaporean households will not feel the impact of the GST increase for at least five years, and the impact is delayed for lower-income households by about 10 years, he said.
“Let me be clear. Taking into account the latest inflation, the latest higher prices, this assurance still holds today. This is because we had designed the package with a buffer precisely in case of higher inflation,” said Mr Wong.
“We will continue to assess the adequacy of the Assurance Package as the inflationary outlook evolves. If need be, we will further enhance the Assurance Package to uphold our commitment.”
The Government also announced in June a S$1.5 billion support package to counter rising inflation, targeted at providing immediate relief for lower-income and more vulnerable groups.
This latest support package was formulated considering the latest economic and inflation outlook, said Mr Wong.
“For now ... we expect prices to pick up further in the coming months, before it stabilises towards the end of the year, in line with the likely trajectory of global prices,” he added.
“At the same time, we continue to expect healthy growth across many sectors of the economy this year. The labour market is very tight, and our overall unemployment rate is lower than pre-COVID levels.
“On the whole, the economy is operating at slightly above potential.”
Under these circumstances, the size of any additional support measures has to be "carefully" considered, said the Deputy Prime Minister.
"Because excessive fiscal injections at this juncture can exacerbate inflationary pressures and easily become counterproductive," he added.
"And that's why we have designed the package to provide more targeted relief for the lower-income and vulnerable groups who are disproportionately impacted by the effects of higher prices."
The Assurance Package and S$1.5 billion support package are two examples of how the Government is monitoring the global and domestic developments “carefully”, and ensuring support measures are enough, said Mr Wong.
“You have my word that if the situation worsens significantly, we will be prepared to do more, especially to provide targeted help for the lower-income groups,” he added.
“And we will continue to do so while living within our means, and upholding prudence and responsibility in fiscal management.”
In a supplementary question, Workers’ Party chief Pritam Singh noted that the Government’s tax collections for the fiscal year of 2021 saw a 10.5 per cent increase compared to pre-COVID numbers.
Stamp duty collection was also 61 per cent higher over the same period, for the 2021 fiscal year, he added.
“In light of this information, can I understand what is the minister’s assessment of the Government’s current fiscal position, and how much fiscal room it has to introduce more cost of living support measures for the lower- and middle- income end of Singapore, particularly families and small businesses?”
Singapore has enjoyed “some fiscal upsides” in its projections, said the Finance Minister.
“On the revenue side, these are largely once-off upsides due to higher than expected collections with regard to property and vehicle transactions,” said Mr Wong.
The Government “can in no way” count on these transactions to happen “year after year”, he added.
“And certainly we cannot rely on them to fund our longer-term recurrent and structural spending increases. But we did enjoy this upside this year.”
The Omicron wave was milder than expected, resulting in “some savings” on Government expenditure, said Mr Wong.
“And that was exactly why, because of both the revenue and the expenditure savings, that was exactly why we were able to mount this recent S$1.5 billion package within our current budget, within our current means,” he added.
“We are fortunate in that regard, but let’s not count on these once-off instances to fund our longer-term structural spending increases.”
Member of Parliament Yip Hon Weng asked, in another supplementary question, the areas of health and social care spending that would be affected if the GST hike does not go ahead, and what approach the Government will take to reconsider the increase if there is a global recession in the coming months.
“The short answer to the question ‘what will happen if we do not have this GST increase?’ is simple. We will be at risk of persistent structural funding gap, which will continue to widen year by year,” said Mr Wong in his response.
“And I don’t think anyone wants this to happen in Singapore. It will be highly irresponsible for us to embark on this path,” he added.
There will be cost increases, higher prices as well as “concerns and anxieties” in the near term, said the Finance Minister.
“But we cannot neglect the medium- and longer-term challenges either.”
Although the global economic situation is “fluid for now”, the Government does not expect a recession or stagflation next year, said Mr Wong.
“But things are unpredictable, volatile, there can be new shocks. So we will continue to monitor the global and domestic environment very closely, and if the need arises, the Government will adjust its approach and measures accordingly.”