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Parliament passes GST hike but DPM Wong keeps open possibility of review if S'pore economy suffers ‘severe impact’ in 2023

SINGAPORE — The Government will continue with its plans to increase the Goods and Services Tax (GST) to 9 per cent in 2024, but will carefully review and consider whether to go ahead with that if "downside risk were to materialise and our economy is severely impacted" next year, Finance Minister Lawrence Wong said.

Parliament passes GST hike but DPM Wong keeps open possibility of review if S'pore economy suffers ‘severe impact’ in 2023
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  • Parliament passed the GST (Amendment) Bill after a five hour debate
  • From Jan 1, 2023, GST will be 8 per cent and then 9 per cent from Jan 1, 2024
  • Finance Minister Lawrence Wong said the Government will take a "careful review" and reconsider the second increase in 2024 under extreme circumstances
  • He chided the opposition Workers’ Party for painting a simplistic narrative that the Government is "stubbornly” wanting to raise GST

SINGAPORE — The Government will continue with its plans to increase the Goods and Services Tax (GST) to 9 per cent in 2024, but will carefully review and consider whether to go ahead with that if "downside risk were to materialise and our economy is severely impacted" next year, Finance Minister Lawrence Wong said.

“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.” 

Mr Wong, who is also Deputy Prime Minister, was responding to a question by Mr Saktiandi Supaat, Member of Parliament (MP) for Bishan-Toa Payoh Group Representation Constituency (GRC), on whether the Government would go ahead with raising the GST if there is a “sharp deterioration” in economic conditions.

Mr Saktiandi was one of 16 MPs and Non-Constituency MPs who spoke in Parliament on Monday (Nov 7) on the tax increase, during a debate that lasted about five hours.

After the debate, Parliament passed the GST (Amendment) Bill, which means that it will increase from 7 per cent to 8 per cent come Jan 1, 2023, and to 9 per cent from Jan 1, 2024.

Opposition party members present and as well as Non-Constituency MPs Leong Mun Wai and Hazel Poa from the Progress Singapore Party recorded their dissent against the Bill and voted against it. No MP abstained from voting.

In his wrap-up speech, Mr Wong criticised how opposition party members, in particular the Workers’ Party (WP), had framed the debate on the GST increase.

“They have painted a very simplistic narrative that the Government has not considered these alternatives (to the GST increase), that we are on autopilot, we are not open to ideas,” he said, adding that they failed to acknowledge that the Government had considered these alternatives, which were raised during the annual Budget debates.

“I wonder if this is because they feel that this approach is the best way to advance their political agenda, as they have been over the years, to paint the PAP (People’s Action Party) Government as uncaring and out of touch.”

In response to a supplementary question by WP MP Jamus Lim from Sengkang GRC, Mr Wong said that the circumstances where the Government would reconsider its second step of increasing GST in 2024 is “in the event of a very significant change in the external environment globally” that will then affect Singapore.

Such a significant change is not just inflation, but also the economy and labour markets — for example, if Singapore were to go into a “deep recession” next year, Mr Wong said.

“It's not in our baseline expectations at all, but who can tell in this uncertain world what can unfold? If something like that were to happen, then as I said just now, we will certainly take a pause to review, to take stock of economic circumstances and consider our position.”

HELPING PEOPLE, BUSINESS OWNERS WHO NEED SUPPORT

During the debate, MPs talked about how to better help Singaporeans defray the impact of the tax increase beyond expanding the GST support package.

One of them was Pasir Ris-Punggol GRC MP Yeo Wan Ling, who said that small businesses, which are not GST-registered, will be severely affected because they are unable to charge GST and claim GST costs.

Ms Yeo, who is also a part of the National Trades Union Congress, said: “As their suppliers pass the increasing costs of goods down… these small-business owners can, at best, apologetically raise their prices or, at worst, absorb these costs out of their pockets to their personal detriment.

“This dilemma is one unique to small-business owners in Singapore and it need not be one we put them through if we pull the right policy levers.”

Similarly, self-employed persons such as taxi drivers and private-hire drivers are not GST-registered and the increase will affect their daily takings. This group of workers are generally unable to set their own prices, she said.

Ms Yeo thus suggested introducing a yearly allowance for non-GST-registered small- and medium-size enterprises and for self-employed persons to buy goods necessary for businesses. This can be extended to a basket of low-value goods below S$400 that is considered and reset yearly.

Apart from this, East Coast GRC MP Jessica Tan said that the conditions to qualify for support schemes could be refined, such as the annual value of housing. For instance,  some retirees living in homes that belong to their extended family members may not be eligible for GST vouchers.

This should also be refined for people in the “sandwich generation” who will face the rising cost of care as they have to support young children and older parents, she added.

Several MPs, such as West Coast GRC MP Foo Mee Har, also asked to make support packages easier for the public to understand.

COMMITTEE AGAINST PROFITEERING HAS ‘IMPOSSIBLE' TASK

With businesses likely to raise prices due to inflation and the GST increase, several MPs were concerned about the tasks of the Committee Against Profiteering.

The committee, which include MPs and representatives from business associations and grassroots organisations, investigates feedback on merchants who use the GST increase as a front to raise prices unfairly.

Mr Saktiandi (Bishan-Toa Payoh GRC) said that hawker food prices usually jump 50 cents to one dollar, which is a “substantial percentage increase”.

“Any unjustified increases might not be high enough to pass the threshold to be reported to the Committee Against Profiteering, and even if they do, the average consumer is hardly going to report an economy rice or nasi padang stall for charging a higher price than they expected,” he said.

He then called for the committee to devise a systemic way to analyse cost increases.

Associate Professor Lim also said that the committee faces the “impossible” task of spotting cases of profiteering with the ongoing global inflation.

“After all, how can we reasonably expect the committee to successfully disentangle the share of a price increase that is attributable to profiteering from a (1 percentage point) GST hike, when inflation is itself running at more than seven times that rate,” he added.

In response, Mr Wong said that the committee actively monitors and reviews all feedback.

The committee has received 140 feedback submissions between April and October this year, of which seven involved allegations of GST misrepresentation. These seven were later found to have legitimate reasons for the price increases, he said.

“So far, there have not been any repeat complaints. The Committee Against Profiteering will continue to monitor this closely, and it will be prepared to publicly name egregious businesses and to take enforcement actions promptly.”

OPPOSITION REPEATS CALL TO DELAY GST INCREASE

Opposition MPs and Non-Constituency MPs repeated their position that the GST increase should be delayed, saying that inflation is driving up the cost of living.

Sengkang GRC MP Louis Chua from WP said that the timing of the GST increase "could not be any worse". 

“Even if inflation eases eventually, prices are not going to come down and will continue to increase, exacerbating cost of living pressures for Singaporean households,” Mr Chua said.

“This is especially so considering the fiscally viable alternatives that have not been given due consideration, soaring inflation driving up the cost of living significantly, and the assistance packages provided are only temporal (whereas) the GST hike is forever.”

Assoc Prof Lim from WP suggested adopting a multi-rate GST system and temporarily exempting essential goods and services from the GST increase altogether, noting that such items have been subjected to the highest price volatility in recent months.

NEEDS OF SINGAPOREANS NOT ‘LESS URGENT’

In his concluding speech, Mr Wong noted that MPs had asked questions and provided suggestions that fell into two broad categories: Technical and operational issues, as well as questions on the GST increase itself.

On the technical and operational issues, he sought to address concerns on ensuring that businesses and individuals are made ware of the tax increase and the support packages for them. 

He acknowledged recommendations to help various segments, such as small businesses, noting that the Government will continue taking steps to engage them.

He also noted that MPs had mentioned that Singapore's structural needs are rising and that there is a need to increase revenues.

Mr Wong said that increasing the GST in the midst of a "challenging economic environment" was a "difficult decision" but it is not necessary to move it to a later date.

This is because Singapore's economy and labour market are holding steady, and that the economic challenges — such as the war in Ukraine disrupting energy and food supplies, rising geopolitical tensions and more fragmented supply chains — will have to be dealt with for a longer period.

Singapore also needs more revenue as it spends more for various needs such as healthcare for the ageing population and for housing in ramping up Build-To-Order flat supply, as well as engagement activities to strengthen “social compact".

"None of these needs have become less urgent because of the global economic situation," Mr Wong added.

"On the contrary, we must do more, especially in an uncertain and volatile environment. If we do not deal with this huge spending gap now and decisively, the problem will only snowball and very soon, we will find ourselves being unable to fund programmes that Singaporeans need."

That is why Singapore cannot delay the GST increase any longer, but the aid package will help most Singaporean households defray its impacts for "at least five years", he added.

On WP’s suggestions to slow down the accumulation in reserves instead of raising GST, he said that this will make it challenging for the next generation as they have fewer resources, despite greater uncertainties and an ageing population.

Mr Wong chided the WP's characterisation of the Government's position as one where it is "stubbornly pushing" at the GST hike.

"By all means oppose the GST, adopt a different position, fine. But at least be honest and responsible, acknowledge that their (own) alternatives will either end up requiring the middle-income to pay more, or will use more of the past reserves, therefore denying less for the next generation.

“And at least have the decency to acknowledge that the Government had considered all of these alternatives carefully."

In response to a supplementary question by WP MP Leon Perera about acknowledging inflation and whether reserves should be slowed, Mr Wong repeated his points above.

"You're fundamentally opposed to GST increase for whatever reasons I cannot quite fathom, because the way we have designed the GST in Singapore is very different," he said.

"It's a unique system and yet the WP continues to oppose the GST and the GST increase and that's why I surmise the only reason why it might do so is because of a political reason, because (WP knows the increase) is unpopular and therefore, it serves (the party's) political interest to oppose the GST."

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Parliament Lawrence Wong GST WP

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