Extra S$1.4b for GST Assurance Package; 2024 hike to be reviewed if economy ‘sharply deterioriates’: DPM Wong

ANOTHER S$1.4 billion will be added to the Goods and Services Tax (GST) Assurance Package in Budget 2023 – bringing the total to around S$8 billion – to help households cope with rising inflation, Deputy Prime Minister Lawrence Wong announced in Parliament on Monday (Nov 7).

In the debate on the GST (Amendment) Bill, Wong addressed the concerns of Members of Parliament (MPs) over the upcoming hike, while reiterating the government’s reasons for making the hike now and opting for it over alternatives.

The decision to top-up the Assurance Package was made “after reviewing the elevated inflation situation”, said Wong, who is also the finance minister. With higher inflation in the coming years, household expenditure – and therefore additional GST expenses – is expected to rise, he said.

The Assurance Package must thus be increased so that it can continue to offset additional GST expenses for the majority of Singaporean households for at least five years, and around 10 years for lower income households.

First introduced with S$6 billion set aside in Budget 2020, the Assurance Package received a S$640 million top-up in Budget 2022. Details of the latest enhancement will be provided in Budget 2023.

The GST is set to rise from 7 per cent to 8 per cent on Jan 1, 2023, with a further hike to 9 per cent on Jan 1, 2024. On why the government is going ahead with the hike despite economic headwinds, Wong said that Singapore’s economy and labour market are “holding steady” for now. He added that international economic conditions have “fundamentally changed” and the country may face high inflation and geopolitical tensions for a prolonged period.

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But should the economic situation deteriorate sharply next year, such as through a major global downturn, the government will take a “careful review” of whether to proceed with the second hike in 2024, said Wong.

Asked by Bishan-Toa Payoh MP Saktiandi Supaat if the GST hike is the right move in a slowing economy, Wong said that for the 2023 calendar year, additional support going to households is expected to be comparable to the additional GST revenue generated. As such, the combined impact of the GST hike and the offset schemes is “broadly fiscally neutral”.

Furthermore, the support measures are designed to “neither stoke inflation inadvertently nor choke aggregate demand”, as they largely target lower to middle income households. “This is an appropriate macroeconomic stance to adopt at this juncture,” said Wong.

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During the debate, several Workers’ Party (WP) MPs reiterated calls to consider alternative sources of revenue in lieu of raising the GST. Sengkang GRC MP Jamus Lim suggested temporarily exempting essential goods from the hike – an idea raised by fellow WP MP He Ting Ru in this year’s Budget debate.

To this, Wong stressed that the government had considered all alternatives before arriving at this one: “I can assure you this: that in terms of the process, in terms of thinking about the alternatives, thinking about how best to meet our funding needs, we have left no stones unturned.”

Other MPs raised concerns about the GST hike’s impact on small and medium enterprises (SMEs) and self-employed persons who are not GST registered. Wong replied that the government is considering what can be done to help them, and will continue to engage SMEs who wish to register for GST, assisting them with the process.