Singapore's GST hike to go through after Bill passed in Parliament, with opposition MPs recording dissent
GST will increase from 7 per cent to 8 per cent from Jan 1, 2023 and from 8 per cent to 9 per cent from Jan 1, 2024.
SINGAPORE: Singapore's impending GST hike will kick in from next year after Parliament on Monday (Nov 7) passed a Goods and Services Tax (Amendment) Bill, although opposition MPs who were present recorded their dissent.
This means GST will increase from 7 per cent to 8 per cent from Jan 1, 2023 and from 8 per cent to 9 per cent from Jan 1, 2024.
Earlier on Monday, Deputy Prime Minister Lawrence Wong announced in Parliament that the Government will spend S$1.4 billion more to offset additional GST expenses for most Singaporean households for at least five years.
Members of Parliament from the Workers' Party (WP) who were present in the House - as well as Non-Constituency MPs Leong Mun Wai and Hazel Poa from the Progress Singapore Party - recorded their dissent against the Bill, following a five-hour debate.
Mr Wong, who is also Finance Minister, had strong words for the WP MPs.
In his closing speech, he told the House they had painted a “false and simplistic narrative” and said he was disappointed that the opposition party “took a different path” after Parliament debated the issue during Budget 2022.
WP MPs who spoke during Monday's debate reiterated their stance opposing the GST hike and stressed that there were alternative revenue options available.
“Having explained my position and gone through all these different alternative ideas, I should say one thing, which is I also take issue with the way that opposition members, and especially members of the Workers’ Party have characterised the Government’s position,” said Mr Wong.
“Essentially, they have painted a very simplistic narrative that the Government has not considered these alternatives. That we are on autopilot, we are not open to ideas. We are just stubbornly pushing away, and something we decided to do anyway. But that’s completely false.”
Mr Wong urged WP members to be "honest and responsible" - and to acknowledge that their alternative proposals would either require the middle-income group to pay more, or for Singapore to use more of its past reserves.
“At least have the decency to acknowledge that the Government had considered all of these alternatives carefully. We debated them in the Budget thoroughly and rigorously before we decided on this move. I would have thought that’s what a responsible political party would have done,” said the Deputy Prime Minister.
OPPOSITION QUESTIONS NEED FOR HIKE
During the five-hour long debate on Monday, opposition MPs questioned the timing of the GST rate increase, highlighting inflationary pressures faced by Singapore in recent months.
Mr Louis Chua (WP-Sengkang) said that when the decision to raise the GST to 9 per cent was mooted in 2019, “circumstances couldn’t be more different”.
“There was no COVID. Commodity prices are half of what they are today. Inflation rates are 1/10th of what they are today,” he said.
The timing of the proposed GST hike “could not be any worse”, said Mr Chua, adding that it was irresponsible to proceed with the increase.
“This is especially so considering the fiscally viable alternatives which have not been given due consideration, soaring inflation driving up the cost of living significantly and the fact that the assistance packages provided are only temporal, versus the GST hike which is forever,” he added.
Noting that the Monetary Authority of Singapore had noted upside risks to its inflation forecast, Mr Chua said: “Do we really want to fan the flames of inflation and contribute an additional unnecessary one percentage point increase in the cost of living, and contributing to inflationary pressures?
“I am not much of a football person, but when your team is five-nil down, does it make sense to respond by scoring an own goal?”
Associate Professor Jamus Lim (WP-Sengkang) suggested a temporary postponement of GST on essential items, and allowing for additional exemptions to the hike.
“This is, in our view, unambiguously inferior to some of the alternative revenue generation strategies that Workers’ Party has previously advocated. It may offer an important stopgap measure that affords precious relief to our people at this time,” he added.
While the Government’s decision to implement the GST increase in an incremental fashion has been welcomed by businesses and other MPs, some consumers are still skeptical, said Assoc Prof Lim.
“Due to stubbornly persistent inflation, there’s a strong likelihood that an increase in GST will further feed this inflation monster.”
While Singaporeans accept that inflation is a global phenomenon, “the reality is that inflation has inadvertently become a tax on our people”, he added.
Assoc Prof Lim also hit back at Mr Wong’s comments in October on the Government believing it was “more responsible” to proceed with the GST increase, even amid the current inflation outlook.
“Given what I just shared, one could just as easily make the case that it is just as irresponsible to do so, at least at this point in time,” Assoc Prof Lim added.
The WP MP suggested that the Government exempt categories of essential goods and services from the GST hike all together.
“Since these categories have been subject to the greatest price volatility in recent months, and given the enormous pocket share that such items command in the average household, it is reasonable to offer temporary, targeted relief for these essentially non-discretionary aspects of their spending.”
The Government is “relatively shielded” from the rise in inflation, said Assoc Prof Lim.
“That’s because many taxes are collected as a percentage of a taxable base. For example, if a business raises prices in response to higher costs of raw materials, it’ll earn more revenue in dollar terms. And hence, its greater nominal profits will now be subject to corporate taxes, even if the tax rate remains completely unchanged,” he added.
“Similarly, GST revenue will automatically be higher in dollar terms next year, even if it does not increase from the current rate of 7 per cent, because GST will be levied on the higher sticker prices already being charged for goods and services.”
This is why the Government has a responsibility to rebate fiscal surpluses that have resulted from inflation, said Assoc Prof Lim.
His fellow Sengkang MP Mr Chua questioned: “Is it not fair for us to ask - is there really a need to push through the GST hike so urgently? Especially when the effects of inflation have also partially contributed to the almost S$1 billion year-on-year increase in GST collections in the first half of the year alone?”
PURPOSE OF SUPPORT PACKAGES
Several backbenchers, most prominently Sitoh Yih Pin (PAP-Potong Pasir), hit back at the opposition MPs’ speeches.
Mr Sitoh briefly sparred with Assoc Prof Lim and Mr Chua, and took issue with the latter's football analogy.
Harking back to last year’s football Suzuki Cup match where Singapore lost 4-2 to Indonesia and had three players sent off, Mr Sitoh said: “Our back was against the wall. But the Young Lions battled … They defended starkly and they were throwing bodies all around. That was how Team Singapore played, not the way Mr Chua has spoken about."
He also dismissed Assoc Prof Lim's point on how "it is just as possible to oversave as it is to undersave" when it comes to Singapore's reserves.
According to WP’s calculations, when the Government adjusted its Net Investment Returns Contribution (NIRC) in 2008, the contribution increased from 10 per cent to the current 50 per cent.
Assoc Prof Lim said: “Now, was that undersaving then? Would our proposal of going from 50 per cent to 60 per cent necessarily mean that we are still undersaving, or are we oversaving?”
Mr Sitoh told the House that there was no such thing as oversaving for a small country like Singapore. “We are not just saving, we are re-investing.”
He offered another analogy - that of analgesia, or a loss of sensation of pain, versus relief of pain.
“It is not possible to have a long period of time whereby the patient feels no pain. This is because pain is a sensation, and not to have any sensation is dangerous," said Mr Sitoh.
“While we do not like pain at all, a little pain is necessary because it is what makes us alert. It is what keeps us alive … It is therefore neither possible nor advisable that the government shields Singaporeans from difficult economic conditions worldwide, so that they feel no pain at all."
He added that the Government wants to provide effective and substantial pain relief, but “cannot provide analgesia so that we do not feel at all the adverse conditions around us”.
Mr Leon Perera (WP-Aljunied) then asked Mr Sitoh: “Would the honourable member agree that the support package is also an anaesthetic and it’s better to have pain? No pain, no gain?”
He asked Mr Sitoh if he saw measures to reduce the negative impact of the GST hike as a way of “kicking the can down the road”, or if the Government was being “somehow dishonest because actually the population should feel the pain”.
Mr Sitoh replied: “I think Mr Perera is putting very serious words into my mouth. What I’m saying is that we are all going through difficult times.
“I did not say the assistance packages are not helpful. In fact, I think they are very helpful and the Government is targeting it at the people who need it most. I did not say we deserve to go through this pain.”
CONCERNS ABOUT SANDWICHED CLASS
Several MPs, including Ms Jessica Tan (PAP-East Coast), then raised concerns about the impact of a GST hike on the “sandwiched” class of workers who have to provide for both their young children and their elderly parents or relatives.
Ms Tan asked if the annual value threshold of one’s residence can be raised, so that those who live with relatives in properties above the eligibility ceiling of S$21,000 can qualify for support schemes.
She added: “These persons could be elderly parents or siblings who live with relatives as they need care or cannot afford housing.
“In several of these cases, they do not have means but because of their residential address, they do not qualify for the various support schemes.”
Alternatively, Ms Tan suggested a higher annual value threshold with a lower cash bonus for retirees that own the property but require support.
Mr Desmond Choo (PAP-Tampines) told the House that the lasting solution was to keep wages growing ahead of inflation and “not lose sight in driving productivity”, with businesses needing to capitalise on technology to do so.
“We are not merely idle observers of rising costs. We can determine our own fate,” the labour MP said.
Ms Yeo Wan Ling (PAP-Pasir Ris-Punggol), who is also from the labour movement, asked if it was worthwhile to look at the impact of providing non-GST registered small and medium enterprises, as well as the self-employed, an annual allowance for buying goods necessary to their business.
These include taxi drivers and private-hire drivers who are generally unable to set their own prices, Ms Yeo said.
She added that some drivers have told her about their worries over the GST hike and how it will affect their daily takings and livelihoods, with the cost of business going up from large-dollar items to fuel, car rental and insurance.
Ms Yeo then suggested that this allowance could be extended “to a basket of low-value goods below S$400”, then considered and reset on an annual basis.
In a similar vein, Mr Derrick Goh (PAP-Nee Soon) suggested that the Government do more to help small businesses register for GST on their own volition.
WHY RAISE GST NOW?
After the MPs' speeches, Mr Wong noted their concerns about raising the GST rates amid a challenging economic environment.
“Why raise the GST now? … We have considered this very carefully leading up to the Budget and in our Budget debate, and subsequently even after the Budget, when we saw conditions deteriorating.
“But eventually we decided that it was still necessary to move,” he said, adding that it was a very difficult decision.
For now, Singapore’s economy and labour markets are still holding steady, and the projected GDP growth for this year is 3 to 4 per cent, said Mr Wong.
The resident unemployment rate has also recovered to pre-pandemic levels, and sectors like aviation and tourism are recovering, he added.
“More importantly, the economic challenges we face are not just near-term or cyclical in nature … These are the realities we have to deal with, not just in the near term but very possibly for a more prolonged period.”
While inflationary pressures in Singapore are expected to ease in the second half of next year, inflation rates are unlikely to go back to what they were over the past decade, he added.
“The new normal may well be a higher rate of inflation than what we were used to,” said the Deputy Prime Minister, noting the three support packages that were rolled out this year.
“Next year, we will continue to monitor closely the inflation situation and we will assess what additional support measures might be needed. At the same time, we will press ahead with our economic structuring and transformation plans,” he added.
“Because when we make ourselves more productive and competitive our workers will be able to earn more and this can more than make up for the higher prices and ensure that we are better off in real terms.”
Mr Wong also responded to Mr Saktiandi Supaat (PAP-Bishan-Toa Payoh) about whether the Government would proceed with the second step of the GST rate increase if there was a sharp deterioration in economic conditions next year.
“If indeed a downside risk were to materialise and our economy is severely impacted, we will need to take a careful review and we will consider whether to proceed with the second step of the increase in 2024,” he added.
“For now, this is not our baseline expectations. Barring a severe downturn in global economic circumstances, we will proceed with the second step of the increase to put our public finances on a much stronger footing, and we will ensure that households are well-supported through the transition.”