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GST hike 'not an option that we have taken lightly': Heng Swee Keat

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The upcoming hike in the Goods and Services Tax (GST) is essential to keep Singapore in good long-term fiscal health and was "not an option that we have taken lightly", said Finance Minister Heng Swee Keat in Parliament on Thursday.

THE upcoming hike in the Goods and Services Tax (GST) is essential to keep Singapore in good long-term fiscal health and was "not an option that we have taken lightly", said Finance Minister Heng Swee Keat in Parliament on Thursday.

He was responding to Members of Parliament who raised concerns over the course of the three-day Budget debate about the necessity of the GST hike and the potential impact on households and business competitiveness.

Mr Heng had announced in his Feb 19 Budget speech that the GST will go up by two percentage points - from 7 per cent to 9 per cent - "sometime in the period from 2021 to 2025".

"The government should avoid taking people's money and deciding on their behalf how the money should be spent - unless it has to do so for critical (national) needs," the minister noted on Thursday in his speech wrapping up the Budget debate.

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The GST increase is necessary because healthcare, security and social spending are expected to continue climbing, said Mr Heng.

These are needs that occur year after year and will keep rising especially as Singapore's population ages.

The increase in GST is projected to raise revenue by 0.7 per cent of GDP or roughly S$3 billion a year, before accounting for the amount needed to fund GST vouchers.

Mr Heng said Singapore's key expenditure drivers already exceed this amount and there are risks that overall spending could rise even more than predicted.

"The responsible way to fund this is to raise taxes...Each generation should try to pay for its own spending through sustainable means, rather than drawing on the reserves or borrowing and passing on costs to future generations," he noted, adding that whenever demands for public services increase, taxpayers should also pay more.

"The two percentage point increase in the GST will not fully cover our expenditure needs but will only make the fiscal gap more manageable," he added.

Mr Heng also responded to questions from MPs about the timing of the GST increase.

"By announcing the GST increase early we are being honest and upfront about national needs and giving ample notice to citizens and businesses," said the minister.

"(We want to) help everyone to understand our shared challenges in the coming years and have discussions about our future well in advance."

Mr Heng said the government will exercise care in deciding when the GST should go up, by assessing prevailing economic conditions as well as Singapore's needs at that point.

The government is also mindful of the impact of the GST hike on the cost of living, especially on lower-income households, Mr Heng noted, adding that the GST should be seen as part of a wider system of taxes and transfers including GST vouchers.

Lower- and middle-income households continue to receive more benefits from transfers than they pay in taxes, he added.