SINGAPORE: While he recognises the concerns surrounding the planned increase in the Goods and Services Tax (GST), Finance Minister Heng Swee Keat said it is important for Singaporeans to understand that the tax hike is necessary and being done for a “very important purpose” - to finance the country’s growing expenditure needs.
He was speaking to reporters on Wednesday (Feb 21) after a post-Budget forum held at Mediacorp.
Mr Heng on Monday (Feb 19) delivered the Budget statement, which he described as a “strategic and integrated financial plan to position Singapore for the future”. With a focus on longer-term challenges, the all-encompassing Budget included measures targeted at the economy, society, environment and maintaining the country’s fiscal sustainability.
The 7 to 9 per cent GST hike, slated to take hold sometime from 2021 to 2025, was the hot topic among Singaporeans who got a chance to ask Mr Heng questions about the Budget on Wednesday.
When asked how he would alleviate the concerns felt among average Singaporeans, Mr Heng said: “I appreciate their concerns but it is important to understand why we need to do this.”
“I’ve tried to explain as much as possible what are the rising expenditure patterns,” he said, referring to his Budget statement delivered on Monday, which gave significant attention to the growing spending needs in areas like healthcare, homeland security and infrastructure.
AdvertisementAdvertisement“We’ll have to find new sources of revenue so that is what we started with,” he said. “It is important to bear in mind that we are doing this for a very important purpose.”
In response to Channel NewsAsia’s question on whether the larger-than-expected Budget surplus for financial year 2017 made the tax hike a tougher sell, Mr Heng said: “It certainly has made the job of explaining it more difficult, but it is very important for all of us to bear in mind that the surplus we had last year is not likely to be repeated again and again.”
Singapore is expecting a bumper surplus of S$9.6 billion for the year ending March 31, thanks to “exceptional” statutory board contributions, primarily from the Monetary Authority of Singapore (MAS), and larger-than-expected stamp duty collections.
Mr Heng emphasised that this large contribution from the MAS, due to higher investment returns and positive currency translation gains for FY2017, is not a “structural feature”.
Hence, long-term planning for the country will need to done on "more structural factors", such as the rise in spending needs.
But Mr Heng stressed that when the GST hike is implemented, there will be efforts to make sure it remains “progressive” with the roll-out of a “good offset package”, particularly for the lower- and middle-income households.
The timing of the GST increase will also be chosen carefully, with various factors to assess including the state of the economy, changes in the country's expenditure patterns and the global environment.
Mr Heng said he hopes that the economy continues to grow. "If we are in a deep recession or if there’s a global financial crisis again, then we have to redo our sums to see what else we need to do,” he added.
Nonetheless, current projections show that the 2 percentage point hike is the “appropriate rate for us to go”, he said, given that it would translate into revenues amounting to 0.7 per cent of gross domestic product (GDP) every year.
“I’m not saying that that itself will be sufficient (because) how our healthcare cost would grow, we cannot predict with certainty,” he said.
“But as far as the GST is concerned, looking at our current projections and trends, 2 percentage point is likely to be the right one.”
Even for businesses, the “very advance notice” given by the Government, which Mr Heng admitted to be “quite exceptional”, will help them to adjust to the planned increase in GST.
IMPORTANT TO DO THE RIGHT THING: MR HENG
Some observers have also raised the political risk that the ruling People’s Action Party is taking with the GST hike.
In particular, whether the announcement contradicts with a statement made by then Finance Minister Tharman Shanmugaratnam in Budget 2015. Then, Mr Tharman had stated that the revenue measures the Government had undertaken would provide sufficiently for increased spending planned until the end of the decade.
That remains a “correct statement” based on the Government’s projections, Mr Heng said.
“If it was a wrong assessment, we would be prepared to say so but it is not. It is the correct assessment that we are in good position right until at least 2020 but beyond that, we know that there are so many new areas of expenditure that we will need.
"Therefore, it will be irresponsible if I do not state this clearly and plainly."
He added: “Those of us in positions of responsibility must act responsibly and therefore the way to act responsibly is when we know that this is the right thing to do, we must have the courage to do it and not make narrow personal calculations.”
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