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Forum Replies

GST hike vital to fund key govt programmes

03 Mar 2008

PROFESSOR Basant Kapur's commentary ('Better to borrow than raise GST', Feb 29) opposed the increase in the goods and services tax (GST) last year, arguing the Government could have borrowed to fund infrastructural expenditures and repaid the loans later. However, this is not why GST was raised.

Investments in public infrastructure are funded through a combination of government grants, loans and user fees. The Government does borrow to fund major development projects. This spreads the costs on the government Budget, and helps to foster financial discipline. For example, the Land Transport Authority, Housing Board, JTC Corporation and PUB have raised over $11 billion in bonds to finance development projects over the past eight years.

The Government also uses Public Private Partnerships (PPPs), for example in the Newater treatment plant in Ulu Pandan, incineration plants and the recently announced Sports Hub. PPPs enable us to spread development costs through annual unitary payments, and also reap synergies and operational efficiencies from private sector participation.

However, it is not prudent for the Government to rely excessively on loan financing. Many governments have over-borrowed and ended up with heavy debt-servicing costs, leaving a large bill for successor governments and future generations. We should avoid this.

The key issue is not whether infrastructural investments should be paid for now or later. It is how to strengthen revenues overall, to fund heavier government expenditures because of the ageing population, and our efforts to upgrade the economy and city. We introduced the Workfare Income Supplement (WIS) scheme last year. We are spending more on health care, education and training.

We also have to build more MRT lines and rejuvenate our housing estates.

The GST increase was an essential part of our strategy to fund these major social and infrastructure programmes. The alternative is to rely on higher direct taxes. Prof Kapur prefers this, but countries all over the world are lowering direct taxes and relying more on indirect taxes like GST. We too have lowered corporate and personal income tax rates to encourage enterprise, stay competitive and grow the economy.

Besides increasing GST, we intend to amend constitutional rules on spending income from investing reserves. This will ensure the right balance between present and future generations, and enable us to fund programmes while balancing the Budget.