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Govt Plans Far Ahead for Singapore's Needs

28 Feb 2018
ST: Govt plans far ahead for Singapore's needs (28 Feb, Forum, Pg A19)

We refer to Mr Matthew Chang's letter (Announcement of GST poorly timed; Feb 24).

First, he says that the Government floated the idea of an immediate tax hike last year to test ground reactions. "Taken aback by the backlash", it postponed the goods and services tax (GST) increase.

Second, he says there is no need to raise the GST in view of earlier budget surpluses, and faults the Government for not taking forward planning seriously.

Both assertions are misleading.

Prime Minister Lee Hsien Loong first mentioned the need to increase taxes at the 2013 National Day Rally.

Finance Minister Heng Swee Keat reiterated it in his Budget 2017 speech. Singapore has always planned for its fiscal needs. The Government has given notice for serious matters, including raising the GST.

The GST was mooted in 1986 and only implemented in 1994.

When GST was raised from 3 per cent to 5 per cent in 2003/2004, and to 7 per cent in 2007, the Government prepared citizens well in advance.

These plans were carefully implemented in anticipation of increased spending on citizens.

Acting early allowed the Government to provide measures to help lower-income households.

As for not needing to raise GST due to previous surpluses, this is unrealistic. The fact is that the basic budget balance has been in deficit for some years, as reported at each year's Budget.

We have had overall budget surpluses only because of the net investment return contributions (NIRC) from our reserves, now the single largest contributor to the Budget.

We will still be able to manage till 2020 but will need additional revenue beyond that.

Looking ahead, spending will exceed revenues (including NIRC), primarily due to an ageing population and rising healthcare expenditure.

We would have to have sustainable revenue for these.

In 2016, the top 10 per cent of earners paid about 80 per cent of personal income taxes.

Furthermore, households at the 20th income percentile get about $4 in benefits for every $1 paid in GST. A middle-income household receives $2 for every $1 paid in GST.

Singapore's tax system is thus redistributive, progressive and one that shares fruits of the nation's progress with citizens.

The Government has informed citizens of the need to raise the GST sometime between 2021 and 2025 because it believes in being upfront and honest with Singaporeans.

Lim Yuin Chien
Director (Corporate Communications)

Ministry of Finance