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Your article "Inflation in ?08: Mild cold or high fever?" (Straits Times, 5 Jan 2008) highlighted the difficulties that households face with increases in the cost of living but omitted two significant points.

2. First, one of the primary reasons why CPI inflation has increased has been the revision of annual values of HDB homes. Rising property values have meant higher rental values. However, as 95% of Singaporeans own their homes and do not pay rental, they are actually not affected by this component of the CPI increase.

3. Second, CPI inflation has also increased because of the increase in the GST rate to 7% in July 2007. This has led to a one-off increase in prices and higher year-on-year CPI inflation, not a continuous rise month-on-month. More importantly, the GST increase was more than matched by the Government?s assistance package of $4bn to help households offset the impact of the rise. With this package, typical lower-income households living in a 3-room flat will receive around $4000 in total between 2007 and 2011, and this amount is up to 10 times larger than the extra GST they pay each year. Even middle-income households will receive offsets that well exceed the increase in expenditure due to the higher GST.

4. Zero-rating the GST for essential items is not a good way to help the poor. Lower income households account for a small portion of the total GST that is paid on essential items. Further, most of the spending of lower-income households is in fact not on essentials like basic non-cooked foods. Thus zero-rating the GST for such items will only have a limited impact in helping these households.

5. This is why the Government's approach has been to help the lower-income directly, through the GST offset package and schemes such as Workfare and ComCare. This way, the lower-income receive substantial benefits, which they can spend according to their needs.

6. Inflation and the cost of living are key concerns, particularly with higher global prices of fuel and food. The Government will continue to assist families, especially those in the lower-income group, through targeted and efficient schemes.

LEE KOK FATT
DIRECTOR (FISCAL POLICY)
MINISTRY OF FINANCE