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Room to review wealth taxes but Singapore must still remain attractive to those who work hard: DPM Heng

SINGAPORE — Deputy Prime Minister Heng Swee Keat said that there is scope to review Singapore’s wealth taxes, but this does not mean that the planned increase to the Goods and Services Tax (GST) rate can be shelved.

Room to review wealth taxes but Singapore must still remain attractive to those who work hard: DPM Heng

A view of Singapore's financial district in the background from Marina Bay. Finance Minister Heng Swee Keat said that Singapore must remain attractive to those who work hard and those who invest to create good jobs.

  • Finance Minister Heng Swee Keat said there is scope to review wealth-related taxes
  • It was one of the suggestions an MP had given to counter the impending GST hike
  • Mr Heng said such taxes will not replace the need to increase GST though
  • He rebutted one opposition MP on a point about the Government spending land sales proceeds

 

SINGAPORE — Deputy Prime Minister Heng Swee Keat said that there is scope to review Singapore’s wealth taxes, but this does not mean that the planned increase to the Goods and Services Tax (GST) rate can be shelved.

Speaking at the end of a three-day debate on the country’s Budget for the upcoming financial year, Mr Heng, who is also Finance Minister, said on Friday (Feb 26) that having wealth taxes will not replace the need for the GST rate to increase from the current 7 per cent to 9 per cent eventually. 

“Already, the GST rate increase alone will not yield sufficient revenue to meet our growing healthcare and social spending needs.”

Mr Heng was addressing the impact of the impending GST hike — a move that is expected to happen “sooner rather than later” between 2022 and 2025, he had said during his Budget statement on Feb 16.

He acknowledged on Friday the concerns that various MPs had raised about how the higher GST rate would affect the lower-income households and was responding to the various alternatives they had suggested to mitigate it.

In laying out the rationale, he added that the Government has been raising wealth-related taxes over the years. “The practical question has always been how to design wealth tax moves to ensure that they are effective,” he said.

Ms Foo Mee Har, MP for West Coast Group Representation Constituency (GRC), had asked whether the Government is considering imposing a wealth tax. 

She had said that a one-off wealth tax seems economically efficient.

In reply, Mr Heng said that any tax directed towards the rich has to be designed in a way that cannot be easily avoided. 

The Government also has to balance between progressivity and staying competitive to grow its economy. 

Furthermore, any move to tax the rich should serve to bolster the Government’s revenue resilience and adequacy. 

“Singapore must remain attractive to those who work hard and those who invest to create good jobs, because growing the economy is the most sustainable way to generate revenue and raise our standards of living,” he said. 

PROPERTY-RELATED TAXES

Aljunied GRC MP Leon Perera had suggested raising the Buyer’s Stamp Duty and Additional Buyer’s Stamp Duty (ABSD) for more expensive properties. 

To this, Mr Heng said that the ABSD is meant to maintain a stable and sustainable property market and is not used to raise revenues. 

However, he agreed that there is a place for property-related taxes. 

The Government had also considered other options such as an estate duty.

However, an estate duty was abolished in 2008 because the middle- and upper-middle income groups were disproportionately affected and the wealthy were able to avoid it through tax planning, he added.

To cushion the impact of the GST increase, Mr Heng reiterated that the Government has set aside S$6 billion that will delay the impact of the GST increase by five years for most households. 

Lower-income Singaporeans will receive higher offsets of about 10 years. 

He also said again that Singapore’s tax and transfers system remains fair and progressive because the top 20 per cent of households by income paid 56 per cent of taxes and received 11 per cent of the benefits. 

The bottom 20 per cent paid 9 per cent of taxes and received 27 per cent of benefits. 

REVENUE FROM LAND SALES

In response to Sengkang GRC MP Louis Chua’s comment that Singapore has an average of S$29 billion cash surplus every year between 2011 and 2019 based on data from the Department of Statistics, Mr Heng said that the capital receipts also include proceeds from the Government’s land sales. 

Mr Chua was making a wider point that the Government’s rationale in raising the GST rate to meet high social spending needs to be seen in the context that it has accrued cash surplus every year up to 2019.

To this, Mr Heng said that Mr Chua is effectively saying that the Government should spend its land sales proceeds directly. 

He added that selling land does not make the Government wealthier and proceeds from its land should not be used to directly support its expenditure. Besides, land should be treated as a scarce and finite asset. 

The proceeds are, instead, invested to generate a sustainable stream of income over the long term, Mr Heng explained. 

“If we had decided in the past to spend the proceeds from these land sales, we would not have built up our reserves today and would surely be worse off by now.” 

Volatile land prices and a vested interest in the government to keep land prices high are some risks that a country may face if its leaders rely directly on land sales for revenue, he added.

After Mr Heng’s speech, Mr Chua said that the proceeds from land sales would amount to about S$15 billion on average every year and he asked for the source of the extra cash surplus of S$14 billion.

Mr Chua also said that he is not calling for the use of land sales revenue in its entirety and that he understands the need to be prudent. 

However, he said that there are incentives in place today to use land sales as a means to increase revenue, though done indirectly, and it is something that is a recurring source of revenue for the Government. 

To his technical question, Mr Heng said that a large chunk of the S$14 billion would be the investment returns of Singapore reserves and those returns have been used. 

He also said that he “totally rejects” Mr Chua’s allegations that the Government has incentives to sell more land to generate more revenue and that his remarks would “demoralise” the civil servants working on land use planning. 

“I would like you to take back your allegations that in the Government, there is an incentive to sell land for that purpose,” he said. 

Mr Chua then clarified that he did not make those allegations and said that investment returns from the reserves should not be accounted as part of the cash surplus since they have already been used. 

Mr Heng said that Mr Chua was making those allegations indirectly but still thanked him for his clarification.

Related topics

Budget 2021 Heng Swee Keat wealth tax GST

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