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Budget 2020: GST hike ‘fair’ as S’poreans need to share paying for needs of all such as healthcare, says DPM Heng

SINGAPORE — As healthcare spending benefits all Singaporeans, and with expectations that it will only rise as the population ages, Deputy Prime Minister Heng Swee Keat said on Friday (Feb 28) that it is only “fair” for everyone to bear some part of the increased costs.

Deputy Prime Minister Heng Swee Keat said on Feb 28, 2020 that increasing the GST was a fair way to cover Government spending in areas such as healthcare, which would continue to rise.

Deputy Prime Minister Heng Swee Keat said on Feb 28, 2020 that increasing the GST was a fair way to cover Government spending in areas such as healthcare, which would continue to rise.

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SINGAPORE — As healthcare spending benefits all Singaporeans, and with expectations that it will only rise as the population ages, Deputy Prime Minister Heng Swee Keat said on Friday (Feb 28) that it is only “fair” for everyone to bear some part of the increased costs.

Hence, the planned increase in the Goods and Services Tax (GST), which is set to go up from 7 to 9 per cent by 2025, is about people here “taking shared responsibility” to pay for their own, as well as other Singaporeans’ needs, said Mr Heng, who is also Finance Minister.

“Raising the GST, a broad-based tax, to meet a broad-based need is a sustainable approach… This is ultimately about us collectively chipping in to look after the healthcare needs of our families. Each generation must pay for its own spending,” said Mr Heng.

Giving his round-up of this year’s Budget debate in Parliament, he also said that the tax hike is being done “Singapore-style”, as it will be accompanied with a S$6 billion offset package to ensure that Singaporeans with lower incomes bear a lower burden of the tax than those who are well off.

“This package effectively delays the impact of the GST increase for the majority of Singaporean households for at least five years. For lower-income Singaporeans, the offset will be even higher – and hence, there is effectively no increase for them for 10 years.”

During his Feb 18 Budget Speech, Mr Heng announced that the planned GST hike would not take place in 2021, in view of the weak economic conditions Singapore is facing on the back of the Covid-19 outbreak, as well as trade tensions between the United States and China, but that it would still have to happen by 2025, as previously stated.

He also unveiled the S$6 billion Assurance Package, where every adult Singaporean will receive a cash payout of between S$700 and S$1,600 over five years, depending on factors such as the type of public housing flat they live in.

Several Members of Parliament (MP) over the past two days of debate have raised the question of whether there is still a need to raise GST given the surpluses the Government has accrued in this term of Government.

Workers’ Party chief Pritam Singh, who is also MP for Aljunied Group Representation Constituency (GRC), said on Friday that the opposition party cannot support the GST hike, reiterating its position in 2018 when the intended hike was first announced.

IMPACT OF GST HIKE

In an attempt to assuage concerns over how the GST hike would affect lower-income Singaporeans, Mr Heng said that GST is just one part of Singapore’s fiscal system.

The system of taxes and benefits in Singapore as a whole is progressive, said Mr Heng.

Unveiling some statistics in Parliament, he said that the top 10 per cent of taxpayers pay about 80 per cent of Singapore’s personal income tax revenue.

The top 20 per cent of taxpayers pay 55 per cent of taxes and receive 12 per cent of benefits, while the bottom 20 per cent of taxpayers pay 9 per cent of taxes and receive 28 per cent of the benefits, Mr Heng noted.

As for the GST hike, Mr Heng said the GST Voucher system allows some revenue collected from the tax to flow back to lower-income households.

The bottom 40 per cent of resident households are estimated to account for less than 10 per cent of the net GST borne by all households and individuals, said Mr Heng.

On the other hand, foreigners, tourists and the top 20 per cent of resident households account for over 60 per cent to the net GST borne by all households and individuals.

“This is partly because foreigners do not benefit from the GST Voucher and offsets, which are available to Singaporean households. When we eventually increase the GST rate to 9 per cent, foreigners pay the higher rate immediately,” he said.

INCREASED HEALTHCARE SPENDING

Mr Heng reiterated the need to raise GST due to huge increases in healthcare spending in the future as Singapore’s population ages.

In 2000, the Government spent 0.7 per cent of Singapore’s gross domestic product (GDP) on healthcare. That tripled to 2.1 per cent of GDP in 2015, he noted.

The Government expects public healthcare spending to grow by around 1 percentage point of GDP from 2015 to 2030.

But he cautioned that the increase could be even more if medical costs rise around the world and the problems of diabetes and obesity here are not brought under control.

While there have been suggestions to ensure that Government spending on healthcare could be used in a more cost-effective manner, Mr Heng said Singapore is already achieving good healthcare outcomes at a lower cost than other countries.

For example, Singapore’s life expectancy at 85 years is the highest in the world, despite spending a lower proportion of its GDP on healthcare than other countries.

While the Government would find ways to spend more efficiently, Mr Heng warned that efficiency savings will “never be enough” to fully offset the increase in healthcare spending.

“Efficiency savings can only mitigate it. To believe otherwise is wishful thinking,” he said.

As for calls to use Budget surpluses to fund these needs instead of raising Government revenue through higher taxes, Mr Heng said healthcare spending is not done to address one-off needs that can be funded through one-off surpluses.

“They are recurrent needs – meaning that these needs will be there year after year. In fact, growing year after year. We need to fund them using recurrent revenues,” he said.

The Covid-19 outbreak also serves as a reminder of the need to plan ahead to raise revenue, Mr Heng pointed out.

He said that the authorities cannot bank on the chance of always having a surplus, such as in this term of Government, which came about from an unexpected rally in global financial markets, and the unexpected buoyancy in the property market.

“Otherwise, we will find ourselves short and have to raise taxes or cut spending in difficult times, precisely when businesses and people need a boost,” he said.

HOW ABOUT OTHER TAXES?

In response to calls that other forms of taxes could be raised instead of the GST, Mr Heng said the GST was last raised more than 10 years ago, in 2007.

In the meantime, the tax regime for other forms of taxes were made more progressive. For example, the tax rates for residential properties which had higher annual values were increased in 2010.

In 2015, the top marginal personal income tax rate was lifted from 20 to 22 per cent.

In 2018, the Buyer’s Stamp Duty for residential properties that are over S$1 million was raised.

“We should bear in mind that there is a limit to raising income taxes. If we keep raising income taxes, it will eventually hurt middle-class Singaporeans, who presently pay very light income taxes. It will also risk losing our ability to attract talent and keep our own talents,” he said.

However, Mr Heng recognised that raising GST alone is not enough to meet Singapore’s revenue needs and that the Government will continue to adjust income and wealth taxes.

He added that Singapore’s future GST rate of 9 per cent is already lower than the average rate in Asia, and less than half of the average rate among advanced economies in the Organisation for Economic Co-operation and Development.

“Many countries in the region and elsewhere have standard GST rates that exceed 9 per cent. Even Saudi Arabia, a country with huge oil reserves, is carefully planning ahead, and introduced a 5 per cent Value Added Tax from 2018. Do we have oil? No,” said Mr Heng.

USE OF RESERVES

Responding to suggestions by MPs that Singapore’s past reserves could be tapped to fund future expenditure, Mr Heng said that doing so would be taking the easy way out.

“We can decide not to raise GST to pay for our own spending, but to tap on our reserves and its investment returns instead. But by doing so, we will soon deprive future generations of the benefits that we enjoy today,” he said.

Mr Heng also cited a quote from Singapore’s first prime minister, Mr Lee Kuan Yew, from 2001 when he was Senior Minister, who said: “What is the deepest obligation of any government? It is not to the present, and certainly not the past, but to the future.”

Mr Heng added that the Government has a duty to future Singaporeans who are not yet born and are unable to make their voices heard today.

He noted that the Government did not need to draw on past reserves this year, adding that it was the “same spirit of prudence” it had demonstrated in the past that allowed the Government to have enough surplus to provide fiscal support for Singapore’s economy and its people.

Referring to other advanced economies’ fiscal systems, Mr Heng said that these countries pay about 2 per cent of their GDP to service accumulated debt, that is, taxes collected are used to pay off the debts of previous generations.

“In Singapore, it is the reverse. Citizens today enjoy the benefits of the savings from the past.

“Tell me — in which other country are citizens able to reap the benefits of past savings in this way? So let us never forget that what we have inherited is very unusual, and very precious. Let us be responsible, and steward this properly for our future generations,” said Mr Heng.

“But if the situation deteriorates significantly and calls for us to tap on our past reserves, I will make a case to the President to seek her approval to do so,” he said.

 

Related topics

Budget 2020 Heng Swee Keat GST

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