SINGAPORE — A hike in the Goods and Services Tax (GST) cannot be deferred indefinitely because it is necessary to support future needs, such as preschool education and healthcare. However, the Government will continue studying the timing of the increase in GST carefully.

In doing so, it will take into account the pace of Singapore’s economic recovery, its revenue outlook and how much spending can be deferred without jeopardising the country’s long-term needs.

Deputy Prime Minister Heng Swee Keat said these on Thursday (Oct 15) as he wrapped up the parliamentary debate on the latest supplementary budget rolled out this year.

He was responding to questions posed by several Members of Parliament during the debate about the timing of the GST rate increase, given the protracted impact of the Covid-19 crisis on Singaporeans’ livelihoods.

Mr Heng, who is also Finance Minister, announced in February that GST rates will remain at 7 per cent in 2021.

He said earlier that the planned hike from 7 per cent to 9 per cent will not take effect in 2021, given the state of the economy. 

Mr Heng announced the GST hike in Budget 2018 and had said then that it would take place sometime between 2021 and 2025.

GST collections this year, he said, are projected to drop by 14 per cent from its original estimate before the start of the year.

This is mainly due to travel disruptions and the impact of the circuit breaker in April and May that halted non-essential activities.

“We expect collections to continue to be lower than usual until international travel recovers fully, which we expect to be at least a couple of years away.”

He gave the assurance that the Government remains committed to helping consumers manage the impact of the GST increase.

For example, S$6 billion was set aside in the Assurance Package announced in February to cushion the increase when the GST rate is eventually raised.

Non-Constituency Member of Parliament Leong Mun Wai suggested that the Government do away with the tax hike, but Mr Heng pointed out that more than 60 per cent of the net GST borne by all individuals and households is from foreigners residing in Singapore, tourists and the top 20 per cent of households here.

“Mr Leong’s suggestion to shelf the GST increase indefinitely means that we will lose the additional revenues from these groups that we can use to improve the lives of Singaporeans,” he said.

Turning to the issue of securing Singapore’s financial security, Mr Heng said that the Government will adopt a “principled and prudent” approach to borrowing for major long-term infrastructure.

“We will borrow only for infrastructure that benefits multiple generations, and ensure that our debt level and future repayments are sustainable.” 

He added that doing so will help to spread out the hefty upfront costs across current and future generations equitably.

“We will not borrow just to make up for revenue shortfalls or be opportunistic in timing the market.”

For recurrent spending that benefits the present generation, such as healthcare and education, Mr Heng said that the “responsible way” is to pay for them through recurrent revenues such as taxes.

“This discipline ensures that every generation earns and pays its share.”