TL;DR – In Budget 2018, the Government announced that GST would be raised from 7% to 9%, sometime from 2021 to 2025.
Nobody likes taxes.
Once upon a time in Singapore – on 1st April 1994, to be precise – the Goods and Services Tax (GST) was introduced.
Back then, it was implemented at 3%, with the government’s assurance that it would not be raised for at least 5 years. GST was only raised by 1% after 9 years, and then to 5% in 2004. To cushion the impact on Singaporean households, a GST offset package was also introduced. The last time GST was raised was more than 13 years ago in 2007.
In his Budget round-up speech on 28th February, Deputy Prime Minister Heng Swee Keat explained why the GST hike must go ahead as planned.
Hear, hear politicians on the opposing side rejoice…
Just drop GST altogether!
First thing first, recurrent spending requires need a recurrent source of revenue. There also remains the need to redistribute resources with the goal of mitigating inequality e.g. Silver Support. Did you know that efforts on our social transfer system have really borne fruit? Income inequality in Singapore has dropped to its narrowest in almost two decades.
Money doesn’t fall from the sky…
Investments in our top-notch education system, building up our Army and Home Team agencies in an era of threats and political uncertainties in the region. Recurrent expenditure to meet major societal needs require funds. And yes, as my mama used to say, money doesn’t fall from the sky…
With an ageing population, the big shift in public expenditure will be on healthcare spending. Ask the most cynical person around you, and they won’t be able to deny that the government has demonstrated strong efforts to take care of our seniors in the past few years. Over the past decades, our healthcare spending has increased rapidly.
It’s all fine and dandy if you or your family members have been fortunate enough to avoid tapping on our heavily-subsidised healthcare facilities. But check around and you will find that our healthcare system is indeed highly subsidised for most. This, despite the top-notch quality!
Didn’t you see the new community hospital at Outram that was unveiled recently? This is Singapore’s 9th community hospital developed under the Healthcare 2020 Masterplan. Facilities within the hospital’s rooftop garden include an outdoor space allowing patients to practise navigating stairs and slopes. Additional spending as such has significantly improved accessibility and affordability of our healthcare system. Spending is not limited to infrastructure, mind you. Operating expenditure has hit rocket-high numbers as well. A scheme such as the expanded CHAS (Community Health Assist Scheme) also requires extra funding.
All these definitely don’t come for free.
Fine, so we need revenue… Why GST then? (Read: Tax ‘THEM’ not ‘ME’.)
The fact remains that we, as a society, reap the fruits of the investments in education, healthcare, too! Kinda unjustified for the government to pay and pay, while we merely take and take, right?
GST, as a broad-based tax makes sense in that it’s sustainable. It’s also fair that we all take responsibility for our society’s needs. Such spending to fund societal needs benefits every group, and so it’s reasonable for everyone to shoulder some of the costs. The good news is that GST comes with offsets to ensure that the impact is manageable for the lower-income groups.
How about taxing the corporations?
While it’s surely an option to tax the big guys, one thing to bear in mind, businesses are extremely mobile these days. They can easily relocate to better dodge heavy corporate taxes, you know. To protect Singaporean jobs, we need to aim for the fine balance between our competitiveness and our corporate tax rate.
Tax the rich then? They wouldn’t even feel it…
You know what, Singapore does ‘tax the rich’. In 2015, the top marginal personal income tax rate increased from 20% to 22%. Just 2 years ago, the Buyer’s Stamp Duty rate for residential properties in excess of $1 million in value increased as well.
GST for everyone else remained at 7% for the last 13 years, when we were ‘taxing the rich’ to fund our expenditure. We also need to be mindful that there’s going to be a tipping point at which the wealthy begin to withhold their money. This ultimately means shrinking the pie for everyone. The balance needs to be well-calibrated.
Take more from our reserves lah!
We have billions and billions of surpluses, right? Why can’t we use those to finance our spending? Well, the truth remains that, depending on our surpluses will not be enough. Singapore’s strong reserves allow much-needed measures to be rolled out quickly to deal with national emergencies if need be. Funds need to already be there when we need, geddit?
Do most of us really get to siam the GST for a while more?
Well, while announcements on the increase came in 2018, it has been 2 years now and we are still at 7%. When the revised GST rate kicks in by 2025, there will be a $6 billion Assurance Package to help Singaporeans adjust to the GST increase when it happens. Lower- and middle-income households will receive more support via a permanent GST voucher scheme. P-E-R-M-A-N-E-N-T scheme.
The package effectively mitigates the impact of the GST increase for the majority of Singaporean households for at least five years. For lower-income Singaporeans, the offset will be even higher – therefore there is effectively no increase for them for 10 years. This form of taxation is an effective way of social transfer.
Come to think of it, GST paid is really up to YOU to manage
How much we spend on GST is well within our control. Since it’s a tax on consumption, and not income, GST naturally encourages savings. So there you have it, unavoidable, but very much within your control. This is unlike an increase on personal income tax. Who will budoh-ly try to earn less? Public Service Announcement: Find out how to minimise your GST paid with 7 Life Hacks to siam the GST.
C’mon, it’s up to you whether you choose to spend $3.20 or $32 for Chatterbox’s chicken rice on your Tinder date, right?
So, keep calm, and carry on!