Cash surpluses are not a valid reason to defer GST increase: Indranee

THE government's cash surpluses do not reduce the need for the planned increase in goods and services tax (GST), said Second Minister for Finance Indranee Rajah in Parliament on Monday.

Ms Indranee took issue with a recent social media post by the Workers' Party (WP), which questioned the need to increase GST while citing Singapore's annual average of S$29 billion in cash surpluses from 2011 to 2019. She called this "inaccurate and misleading".

On March 13, WP released a statement on Facebook that said it was against raising the GST given the context of "excess untapped revenues, especially in this uncertain climate". In a series of uploaded pictures, it added that the party was calling for a review of the proposed GST hike to 9 per cent.

The WP cited "significant cash surpluses" generated by the Singapore government as one of its justifications. It also pointed to the GST as a regressive tax, and suggested alternatives such as a wealth tax to raise revenue or using the sale proceeds from land sales.

Subsequently on March 19, WP uploaded another series of pictures opposing the hikes in petrol duty and GST. This included an assertion that the government's reported deficit figures "do not account for our significant cash surpluses".

On Monday, Ms Indranee took the floor to address a parliamentary question filed by Member of Parliament Liang Eng Hwa (Bukit Panjang) on the matter. She stressed that not all cash receipts, which generate cash surpluses or deficits every year, constitute revenues available for government spending.

"The largest difference between our cash receipts and revenue comes from the sale of state land," said Ms Indranee. "Such proceeds from land sales do not generate fresh revenue. They are simply a transformation of one asset to another. When land is sold, the asset is converted to cash.

"State land, that are not due for immediate development, are typically leased out for interim use. This yields revenue for the government too, in the form of rental income. So selling land does not increase the government's revenue. And if we were to spend all the proceeds from land, it would deplete our store of wealth."

Ms Indranee went on to cite the analogy of a family which rents out empty rooms in a house to generate income. Should the family sell the house and use the proceeds for daily spending needs, it would "soon have nothing left", she said.

But if the family invested the proceeds of the sale wisely, it would have the sale proceeds as well as a constant stream of income from these proceeds. This income could then be used partially for expenditure, and partially reinvested to sustain present and future members of the family.

"Likewise, for government budgeting, land sales proceeds are not considered part of our revenue, and cannot be directly used for expenditure," said Ms Indranee. "Instead they are invested, and part of the investment income is used to support the spending needs of Singaporeans via the Net Investment Returns Contribution (NIRC)."

WP Member of Parliament Louis Chua (Sengkang GRC) then rose to press the question of whether a GST hike, as a regressive tax, was the best option for raising revenues. He also asked if the NIRC framework could be reviewed.

Ms Indranee reiterated that Singapore's fiscal position was badly constrained due to Covid-19, which had already necessitated a dip into reserves. She added that the government's S$6 billion Assurance Package would effectively buffer the majority of Singaporeans for five years against the increase, and lower-income Singaporeans for 10 years.

On the NIRC framework, she said: "Our formula for (the) spending of the returns is a fair one: 50 per cent of returns. There is no magic to this formula, but it's a fair formula: 50 per cent for today's generation, and another 50 per cent for tomorrow's generation."

She did not rule out the possibility of the NIRC framework being reviewed in the longer term, but urged against taking such changes lightly, as the framework had been "very carefully considered and thought through".

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