The decision to raise the goods and services tax (GST) was a difficult one, but it is the most appropriate option to help Singapore raise revenues at this stage, said Finance Minister Heng Swee Keat.
Over the past year, the Government thoroughly scrutinised all possible alternatives, he said.
“We looked at all the different taxes that we could change, even non-tax measures that we could take. Each of these has its pluses and minuses and when we looked at the overall scheme of things, we decided that at this stage the GST is still the most appropriate.”
For instance, other countries are reducing corporate taxes, he noted. So a corporate tax hike could have “unpredictable consequences” – including the possibility of businesses shifting out of Singapore.
Mr Heng was speaking to The Straits Times one day after he delivered a wide-ranging Budgeton Singapore’s long-term challenges and how they would be addressed – one that he terms a “multi-year agenda” for the country.
The most widely expected announcement – a GST hike from 7 per cent to 9 per cent – materialised. It will kick in between 2021 and 2025.
It is difficult news for Singaporeans, Mr Heng acknowledged yesterday, but he added that he hoped they can see the bigger picture.
“We are in a very tight fiscal situation, not this year, not next year, but over the longer run,” he said.
While there was a budget surplus of $9.6 billion last year, this was due to “unexpected factors” – a buoyant property market brought in higher stamp duties and financial market fluctuations led to a big jump in investment returns for the Monetary Authority of Singapore (MAS) – which means “it can turn the other way round”. Meanwhile, long-term trends such as an ageing population necessitate healthcare spending.
“Revenue will not be enough,” he said. As it is, money from the GST hike will not cover healthcare spending; the latter is estimated to rise to 3 per cent of gross domestic product a year over the next decade, while the GST hike is forecast to bring in revenues amounting to 0.7 per cent of GDP every year.
As for when exactly the hike will take effect, Mr Heng said it depends on the economy and financial markets. Even new medical technology, which can drive healthcare costs up, will play a role.
On whether a confluence of factors later on could render the hike unnecessary, he responded: “I’ll be very happy if that happens, but I will caution it is unlikely because the existing taxes will have to be extremely buoyant and the growth will have to be very, very high in order for us to be able to come up with that extra revenue to meet the expected rise in expenditure.”
Mr Heng said the Government has been very careful in managing its expenditure, and the money raised is channelled to long-term needs.
“It is not as if tomorrow we’re going to spend on something that is totally superfluous. If people feel that this is profligate spending, then I will be very sad,” he said, addressing criticism from some quarters.
On whether he considered tapping more of the reserves – tweaking the net investment returns formula so the Government can spend over half the long-term returns from assets managed by GIC, Temasek and MAS, Mr Heng said the numbers might be debated but what is more crucial is the principle that every generation pays its fair share.
For example, investments in infrastructure are upfront and very lumpy, but the benefits come many years down the road, so it is only right that future generations should pay for them.
Looking ahead, Mr Heng did not rule out the possibility of more measures to raise revenues in future. “Will there be other possible revenue measures that we have to take later on? We will have to look at how our expenditure growth pans out in the coming years.”