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The Straits Times (8 Nov 2022) : Package to help offset GST hike to get $1.4 billion boost

08 Nov 2022

Goh Yan Han

There will be a $1.4 billion boost to the support package for households to offset the impact of the upcoming goods and services tax (GST) hike, given higher inflation, Deputy Prime Minister Lawrence Wong told Parliament on Monday.

This means that the Assurance Package will now be worth $8 billion, up from $6.6 billion. The package was first announced in 2020, with a top-up of $640 million announced in Budget 2022. More details will be announced in Budget 2023, said Mr Wong.

Mr Wong, who is also Finance Minister, was speaking at the debate on the GST (Amendment) Bill. He said that with higher inflation, household expenditure and additional GST expenses are expected to increase. The size of the support package would need to be increased to meet the Government's committed level of offsets.

The GST will increase by one percentage point from 7 per cent to 8 per cent on Jan 1, 2023, and another percentage point to 9 per cent on Jan 1, 2024.

The Government had committed to ensuring that the package would offset the impact of the GST increase for the majority of Singaporean households for at least five years, and for lower-income households for about 10 years.

Mr Wong said: "The Government will help all Singaporeans adjust to the GST increase, especially the less well-off."

He said that the GST rate hike will provide Singapore with additional resources to meet its growing healthcare expenditures and to take better care of the growing number of seniors, he said.

Mr Wong noted the Government has been expanding support, including in healthcare, social and ageing needs. It also wants to improve social mobility, invest in skills upgrading and green the economy and city. "To achieve all this, we will need more government spending -- on a structural and recurring basis."

That is why, apart from increasing the GST, he had also announced increases in personal income tax and property tax, among other measures, noted Mr Wong. "This is how, as a responsible government, we plan ahead and meet our future needs in a sustainable way."

Mr Wong said that for those who ask the Government to delay the GST increase, the Assurance Package "in effect does precisely that, for the majority of households".

He also highlighted the GST Voucher (GSTV) scheme -- "another important design feature of the GST system in Singapore" -- which helps lower- to middle-income households defray a significant part of GST expenses permanently. The Government also continues to absorb GST for publicly subsidised healthcare and education.

"After putting together the permanent GSTV and the GST absorption -- what we have is an overall GST system that taxes consumption in a fair and effective manner," said Mr Wong. "In effect, we have a multi-tiered GST system, one that is tiered by income levels, with lower-income households paying a much lower effective GST rate than higher-income households."

He noted that on average, the bottom 10 per cent of households -- which include many retirees without income -- do not pay any GST after the permanent offsets.

Even after the GST increase, the effective GST rate for households in the first three income deciles remains unchanged at below 3 per cent, he added.

The GST's full impact will be borne largely by high-income households, and tourists and foreigners here, said Mr Wong. "The GST is therefore a key part of our fair and progressive system of taxes and transfers -- that takes care of the less well-off, and ensures that those who are better off contribute their fair share in revenues."

He also said alternatives -- such as raising the personal income tax or property tax -- were not feasible as they would make Singapore less attractive to businesses and investors. Meanwhile, using more from past reserves would mean leaving less for the next generation.

"We will not just go for politically expedient measures that may very well end up being unviable or unsustainable," said Mr Wong. "Instead, we focus our efforts on designing effective policies to benefit all Singaporeans."

The Bill was passed on Monday, with nine Workers' Party MPs and two Progress Singapore Party Non-Constituency MPs dissenting.