4.38 Since the ERC Sub-Committee recommended the GST increase some three weeks ago, the public has been reassured by the Government's promise that, if we raised GST rate, there would be offsetting measures. The Government will introduce a comprehensive package of measures to offset the increase in the GST. These offsets will be enough to cover the increase in tax for most households, and for all lower-income households, for at least 5 years.

Offsets for Healthcare, Education and Service & Conservancy Charges

4.39 Many Singaporeans worry that a higher GST will increase their medical bills, because hospital bills are subject to GST. In fact, they do not need to worry because the Government provides the hospitals and polyclinics direct grants to offset completely the GST they have to pay on all subsidised healthcare services. With the increase in GST, the Government will increase these grants to restructured hospitals and polyclinics. Charges for subsidised medical care will therefore not be affected at all.

4.40 The Government will similarly absorb the GST payable on education, by increasing its subsidy to the state education system. And it will increase the subvention to the Town Councils to offset the GST payable on Service & Conservancy Charges (S&CC).

4.41 The total annual cost of the increased subsidies is estimated at $29 million.

Public Transport Fares

4.42 The Public Transport Council (PTC) is currently evaluating proposals from the transport operators to revise fares. PTC is only considering revisions to catch up with operating and maintenance cost increases over the past year.

4.43 The public transport operators have raised with the PTC the issue of the GST increase next year. After considering their views, the likely increase in GST to 5%, and the proposed cut in the corporate income tax, the PTC has decided that there is no need to raise fares next year as a result of the GST increase. The transport operators have accepted this decision.

Public Assistance and Singapore Allowance

4.44 Despite the offset measures, very low-income Singaporeans may need more help to cope with the GST increase. The Government will help these Singaporeans by increasing the Public Assistance rates, and the Singapore Allowance paid to government pensioners.

4.45 MCDS and PSD are currently working out the proposals, and will implement the revisions in time for the increase of the GST rate next year.

Committee to Combat Profiteering

4.46 When the GST was introduced at 3% in 1994, it had minimal impact on prices. The inflation rate rose marginally from 2% to 3%, but it fell below 2% after 1994, and stayed there. This year, inflation is projected to be zero or even negative. In this benign price environment, I am confident that the 2 percentage point increase in GST will not significantly raise prices.

4.47 Nonetheless, I appreciate the public concern over the possibility of undue price increases. To address this concern, the Government will set up a Committee to Combat Profiteering. The Committee will be chaired by Mr Chan Soo Sen, Minister of State in the Prime Minister's Office. It will deal with any complaints of profiteering or unjustified price increases. It will work with the grassroots organisations and their advisors in all the constituencies, and especially with the market committees and shopkeepers' associations, to monitor the situation on the ground, and encourage hawkers and shopkeepers to act responsibly.

Rebates for Service & Conservancy Charges and Rent

4.48 The current package of S&CC and rental rebates for HDB households was implemented last November to help lower-income Singaporeans cope with the recession. It will expire in March 2003. As part of the GST offsets, we will grant S&CC and rental rebates for 5 more years, from 1 Apr 2003 to 31 Mar 2008. The rebates will be maintained at their current levels in the first year, and will thereafter taper off gradually. The government will spend $340 million on this 5-year package. Further details of the package are at Annex 9.

Economic Restructuring Shares

4.49 When GST was introduced, the Government introduced tax cuts and a range of rebates, including income tax rebates, to offset its impact. However, the tax cuts over the last decade have resulted in the majority of Singaporeans paying no income tax at all. Therefore, the Government has decided to give out Economic Restructuring Shares (ERS) to all Singaporeans as the major part of the GST offset package.

4.50 The ERS are meant to help Singaporeans adapt to the structural changes in the economy, especially the increase in the GST rate. They will be similar to the New Singapore Shares (NSS) distributed last November. The shares are worth $1 each. They will earn annual dividends over 5 years, from 2004 to 2008. The dividends will be paid each year on 1 March. The dividend rate will be a guaranteed minimum of 3% per annum. In addition, bonus dividends equal to the real GDP growth rate of the preceding year, provided it is above zero, will be declared annually. The dividends will be in the form of bonus shares.

4.51 However, unlike the NSS, the ERS will be more evenly distributed among all Singaporeans, since economic restructuring affects everyone. Those who live in properties with Annual Values (AV) not exceeding $10,000 will get a basic allocation of 1,200 shares. This includes 90% of households. It covers all HDB flats², as well as smaller private homes such as walk-up flats and flats in shop-houses. The remaining 10% of Singaporeans staying in larger private properties, with AVs above $10,000, will receive a smaller basic allocation of 600 shares. They are likely to be earning higher incomes, paying higher personal income tax rates, and enjoying significant savings from the personal income tax cuts.

4.52 The ERS are meant to tide Singaporeans over the next 5 years. But the Government will be giving ERS out in three annual allocations starting from 1 Jan 2003. Adult Singaporeans who have contributed at least $50 to their own CPF accounts between 1 Jan and 30 Nov this year will get their first allocation of shares on 1 Jan 2003. Those who do so in December will receive their shares on 1 Feb 2003. For each subsequent share allocation, Singaporeans will similarly have to make a $50 contribution. This is not a co-payment for the shares, but a way to ensure that the shares are not given to inactive accounts.

4.53 NSmen will receive bonus shares for their contribution to the security of Singapore. Active NSmen will get 200 bonus shares, while Inactive NSmen will get 100. NSmen will receive all their bonus shares in the year they qualify.

4.54 Citizens can cash in the shares with the Government for $1 per share. They may cash in all the shares at any time, even as soon as they are issued. There will be no requirement to hold part of the shares for a minimum period, unlike the New Singapore Shares. But I encourage Singaporeans to keep their ERS until maturity, in order to earn the maximum amount of dividends.

4.55 The total cost of the ERS scheme over is $3.6 billion, or $1.2 billion per year over the next 3 years³.

Overall Impact of Economic Restructuring on Households

4.56 I refer members to Handout 2. The GST offset package, comprising the S&CC rebates, rental rebates, and the ERS shares, should be sufficient to offset the net increase in taxes a household will pay over the next 5 years, at least. It fulfils the Government's promise that most households will not be worse off during the 5 year transition period. The table at Annex 10 shows examples of the overall impact of economic restructuring on representative households.

4.57 As you can see, the offset package will cover at least 5 years' worth of additional tax payable for all flat sizes. In fact, those living in one- or two-room HDB flats will be covered for the next 10 years.

4.58 Knowing how anxious Singaporeans are to find out how this budget benefits them, my ministry has created an online benefits calculator at the following address: http://www.mof.gov.sg/budget_2002/offset.

Lower-income Households Guaranteed No Worse Off

4.59 Comprehensive as the offset package is, it may not cover everyone. Each household has slightly different circumstances. A few households may find that the package of offsets, rebates and ERS is insufficient to cover their increase in the GST. To help such households, we will have a Citizens' Consultative Committee (CCC) Assistance Scheme.

4.60 Under this scheme, any household with an income below the median household income of $3,600 can apply to their CCC for assistance, if their package of S&CC rebates, rental rebates, and ERS shares does not fully offset their extra tax for at least 5 years. If the CCC confirms that the offsets indeed fall short of the extra tax burden on that household, it will top up the difference.

4.61 The Government will set aside $3 million per year for 5 years for this scheme. It will be overseen by a Committee, to be chaired also by Minister of State Chan Soo Sen.

4.62 With this CCC Assistance Scheme, we can promise that all lower-income households will not be worse off during the transition period.

²Except for a few exceptionally large units.

³Assuming that all eligible citizens take up their shares, and all then hold their shares until maturity.