Government efforts to curb business costs and costs of living for the average Singaporean

Date: 14 May 2012

To ask the Deputy Prime Minister and Minister for Finance: 

Whether the Government will consider reviewing and reducing all taxes and charges levied by Government departments and agencies so as to curb rising business costs and increased costs of living for the average Singaporean.

Reply by DPM and Finance Minister Tharman Shanmugaratnam:

1. We share Mr Teo’s concerns over rising business costs, and what it could imply for the cost of living. As far as fiscal charges are concerned, we intend to keep the overall burden of taxes and fees low for both households and businesses. Taxes and fees are already low and we intend to keep them low.

2. Government fees and charges, including service and conservancy charges (S&CC), university fees, hospital and polyclinic fees, make up about 6.4% of the Consumer Price Index (CPI) basket. Over the past one year, CPI has increased by 5.2%. As the Minister for T&I has stated in response to Members’ earlier questions, a large part of the increase in ‘headline’ CPI is a result of imputed rather than actual housing rentals, and the sharp spike we have seen in Certificates of Entitlement for private cars (COEs). COEs contributed 1.2 percentage points to the increase.

3. To put things in perspective, other Government fees and charges accounted for 0.1 percentage point of March 2012 CPI inflation.

4. The Government has taken a few initiatives to help households with their costs of living.

5. To ease COE price increases, MOT has announced that LTA is reviewing its plans on the slowdown of the vehicle growth rate and whether the claw back the past over-supply of COEs should be implemented in a more flexible way.

6. We are also helping to cushion the impact of rising costs on lower- and middle-income households. These include the GST Voucher Scheme introduced in Budget 2012, which will make its first payout in July 2012^[1]. For retiree households who are not well-off, the GST Vouchers should in most cases fully offset the total GST payments they make each year.

7. The reduction of marginal income tax rates for the first $120,000 of chargeable income from YA2012 will also ease the tax burden of middle-income earners.

8. Further, as was also mentioned by Minister (T&I), our efforts to cool the property market will also help prevent current asset price inflation from translating into future CPI inflation. If property prices keep going up, they will tend to put pressure on prices of goods and services.

9. For businesses, the main driver of cost increases due to Government fees and charges has been the recent increases in the foreign worker levy (FWL). As explained previously in this House, increases in FWL are necessary to manage our dependence on foreign workers, promote our needed economic restructuring, so as to achieve productivity-driven economic growth. In the short term, this may translate into domestic cost pressures, while the effects of productivity improvements will be realised over the medium to longer term. This is one of the reasons why we are increasing the FWL gradually, and in steps.

10. To support businesses, we have provided various measures to help them upgrade productivity sooner rather than later, and to help them reduce costs. In Budget 2012, we enhanced the Productivity and Innovation Credit (PIC) Scheme, provided more help to support SME upgrading and productivity, and gave businesses strong support via the Special Employment Credit for hiring of older Singaporean workers. The SME Cash Grant will also help companies offset higher business costs.

11.  We will continue to monitor the situation. All government agencies will also do their best to keep costs and hence, fees as low as possible, and continue to seek new ways to provide the best value to the public.

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^[1] This refers to the GST Voucher—U-Save which will be paid out in July 2012. The GST Voucher—Cash and GST Voucher—Medisave will be paid out in August 2012.