SINGAPORE — Stressing that the decision to raise goods and services tax (GST) was not “taken lightly”, Finance Minister Heng Swee Keat said on Thursday (Mar 1) the Government must not shy away from raising taxes when it sees areas of collective need “that can be better met by (its) provision”.

While many Members of Parliament (MPs) have asked for the Government to do more in a range of areas — including healthcare, preschools and security — one should also “consider the costs and how to fund them”, said Mr Heng as he wrapped up more than two days of parliamentary debate on Budget 2018.

Reiterating that Singapore will face recurring needs year in year out, raising taxes is “the responsible way” to fund spending for these, he added.

In his Budget statement delivered last month, Mr Heng announced that the GST will be raised to 9 per cent — from the current 7 per cent — some time between 2021 and 2025. “This is not an option that we have taken lightly,” he stressed. “Not just because raising taxes is unpopular, but because the Government should as far as possible avoid taking people’s hard-earned money and deciding on their behalf how the money should be spent, unless it has to do so for critical social, economic or national needs.”

Raising a broad-based tax such as the GST is appropriate for Singaporeans to understand that they should pay more for increased demands for public services. It will also help Singaporeans understand their shared challenges in the coming years. he said.

Expenditure in healthcare is projected to go up by about S$3.6 billion in the next decade to provide for an ageing population and the rising prevalence of chronic conditions. Preschool spending is expected to double in the next five years to S$1.7 billion anually, by 2022. With the heightened terrorism threat, the Republic will also invest more in security, said Mr Heng.

“Each generation should strive to pay for its own spending through sustainable means, instead of drawing down more than is prudent from the reserves or by borrowing and passing on the cost of current spending to future generations,” he said.

Quoting Nee Soon GRC MP Lee Bee Wah, Mr Heng said: “As (Dr Lee) pithily reminded us, you don’t fund recurrent spending needs by hoping to strike 4D. Or by borrowing with your credit card.”

Mr Heng also spelt out how government spending to date has achieved good outcomes.

Presenting charts to show how the Republic compares with other countries in various areas of spending, Mr Heng cited as an instance how Singapore spent about 3 per cent of its Gross Domestic Product (GDP) on education — less than the OECD (Organisation for Economic Co-operation and Development) average of 4 per cent to 6 per cent, and the Nordic average of 7 to 8 per cent. However, the Republic’s 15-year-olds have performed better than their counterparts from the other countries in a Programme for International Student Assessment test for science.

Singaporeans also live longer (83.1 years) than many other nationalities, despite lower healthcare spending. In terms of law and order, the Republic topped the rankings in the Gallup Global Law and Order Index last year, even though its spending in this area is “at the lower end” when compared with various jurisdictions, said Mr Heng.

He reiterated that these outcomes have been achieved with the ethos of “partnership” which encourages everyone to take responsibility. “(This philosophy) explains how a tiny country like Singapore with no natural resources can have world-leading outcomes with moderate levels of taxation and spending,” he said.

Still, he noted that the “major structural expenditure drivers” that Singapore is expecting in coming years will “entail billions of dollars of additional spending a year”. “While we must instill prudence as a value in managing our resources, we must also appreciate… (that Singapore’s impending needs) cannot be met just by squeezing more out of every dollar,” he said.

While some MPs and commentators have suggested funding increased spending using the “windfall surplus” which the Republic had reaped in the current financial year, Mr Heng reiterated that the S$9.6 billion record overall surplus was “largely due to one-off, exceptional factors” that are not likely to recur.

“We cannot fund our plans to secure Singapore’s future on the basis of episodic windfalls. If we are fortunate to have these occasional windfalls, we should do the responsible thing and save most of it for future needs,” he said.

The main increase of S$4.6 billion in contributions from the Monetary Authrotiy of Singapore was due to unexpected currency translation gains and investment gains from a global rally in equity and bond markets, Mr Heng reiterated.

“We should not plan for our future in the hope that markets will always continue to move in Singapore’s favour. This is why we are reserrving the bulk of the FY2017 surplus for future needs,” he said.

Mr Heng had earlier announced that S$5 billion will be put into a new rail infrastructure fund, while another S$2 billion will be set aside for ElderShield premium subsidies and other forms of support for Singaporeans.