WP’s alternatives to GST hike do not add up: DPM Wong

The suggestion that the goods and services tax (GST) increase should be postponed due to current inflationary pressures does not hold water, Deputy Prime Minister Lawrence Wong told Parliament on Monday.

The Government’s support measures delay the effect of the hike by at least five years for the majority of Singaporean households, he said.

That the support is targeted at lower- to middle-income households, rather than broad-based, will also minimise any additional inflationary pressures, he added.

“We have designed the overall package to ensure we neither stoke inflation inadvertently nor choke aggregate demand, and this is an appropriate macroeconomic stance to adopt at this juncture,” he said.

Rounding up the debate on the GST (Amendment) Bill, which saw 15 MPs speak, Mr Wong rebutted alternatives raised by Workers’ Party MPs Louis Chua and Jamus Lim (both Sengkang GRC) saying these entailed spending more from past reserves and leaving less for the future.

The Government has also explored other sources of revenue, and still needs to raise the GST, he said.

Why increase GST now?

The Government had considered the GST hike carefully and decided that it was necessary to do so, given how Singapore’s economic challenges are not just near-term or cyclical in nature, Mr Wong said.

The ongoing war in Ukraine, disruptions to energy and food supplies, rising geopolitical tensions and more fragmented supply chains are realities Singapore has to deal with possibly for a more prolonged period, he added.

“International economic conditions have fundamentally changed,” he said.

While inflationary pressures here are expected to ease in the second half of next year, inflation rates are unlikely to go back to what they were over the past decade, he added.

It is for this reason that the Government has extended comprehensive support to Singaporeans, especially lower and middle income families.

Mr Wong had at the start of the debate announced a $1.4 billion boost to the support package for households to offset the GST hike’s impact, amid higher inflation. This means the Assurance Package, first announced in 2020, will now be worth $8 billion, up from $6.6 billion before.

Responding to a point Mr Chua made on how households’ annual expenditure will increase due to inflation, Mr Wong said that the support they get will increase.

Mr Chua had cited the example of a middle-income couple with two young children, and estimated that with inflation, their annual expenditure would go up by $2,500.

Mr Wong acknowledged the rise in spending, but pointed out that the support they get this year would be around $1,500.

This support will keep to the Government’s commitment to offset more than half of the inflation-driven increase in cost of living this year for middle-income households, he said, adding this does not take into account wage rises for individuals which many will likely enjoy.

Associate Professor Lim had also cited how Japan saw an increase in inflation after it increased its version of the GST three times in the past 25 years.

Mr Wong pointed out that Japan was in a deflationary environment, and had raised the GST and had its inflation double from a “chronically low” 1 per cent to 2 per cent - and temporarily.

“Let’s avoid raising these alarmist examples that may not be so relevant to our context,” he said, adding that Singapore must continue to learn the right lessons from others.

He noted that while there are considerable uncertainties in the economic outlook, there is nothing uncertain about government expenditures, especially in healthcare.

Noting that MPs like Mr Liang Eng Hwa (Bukit Panjang), Mr Sharael Taha (Pasir Ris-Punggol GRC) and Ms Joan Pereira (Tanjong Pagar GRC) had made this point, Mr Wong said even as Singapore deals with healthcare spending, it has to resource many other spending needs.

These include planned investments on early childhood education, efforts to uplift lower wage workers as well as helping to ease concerns of SMEs, self-employed persons and those keen to purchase HDB flats.

“It’s a few billion here, a few billion there, they all add up. None of these needs has become less urgent because of the global economic situation. On the contrary, we must do more, especially in an uncertain and volatile environment,” said Mr Wong.

“That is why having considered this so carefully before the Budget, after the Budget, even in the last few months when the global economic environment had deteriorated, we felt that there was no possibility for us to delay the GST increase any further.”

Why not try alternatives to the GST hike?

Mr Wong also addressed four alternatives to the GST hike that WP MPs had raised.

One, the suggestion that Singapore has enough fiscal surplus to delay the hike of 1 percentage point set for January 2023.

Mr Wong said: “I wish that were so.”

He noted Prof Lim had suggested the Government is shielded from inflation because when inflation goes up, so does its revenues as prices also increase.

“But he didn’t mention this: Government spending must also go up correspondingly,” said Mr Wong, citing public servants’ salaries and support schemes for residents.

He added that while the Government collected more revenue than expected in the last financial year and had a surplus of $1.9 billion, it had already used this surplus as well as the return from the first half of this year to fund two support packages.

In June and October 2022, the Government announced two $1.5 billion support packages targeting lower-and-middle income Singaporeans.

Mr Wong said: “The bottom line is that any surpluses are imaginary - they are not there and will not allow us to delay the GST.”

Two, there have been suggestions to use more of Singapore’s reserves, including increasing the proportion used from returns on investments and changing the definition of land sales revenues.

Mr Wong said WP’s position, which it said was not raiding but slowing down the rate of accumulating reserves, sounds attractive but will leave future generations with less resources.

Such a move would be irresponsible, he added. “Let’s not succumb to the temptation of taking this easy way out, making things worse for our children and grandchildren.”

Mr Wong noted that global uncertainties are also likely to slow the growth of Singapore’s investments anyway, making tapping on these to delay a GST hike even more untenable.

Three, Prof Lim had suggested exempting essential items from GST, a point that had been raised by Ms He Ting Ru (Sengkang GRC) at the Budget Debate in February.

Mr Wong said this does not work in practice.

Such tiered GSTs are cumbersome, he said, citing a recent BBC article about India’s system.

In August, an Indian firm making pizza toppings went to court claiming their mozzarella topping should be classified as cheese - which had a GST of 12 per cent.

The court disagreed, arguing that because the topping had other ingredients such as vegetable oil it should be taxed at 18 per cent in a class known as ‘edible preparations’.

Mr Wong said there is no end to these challenges, and such tiered systems are not effective.

“When you exempt a basket of goods or essential items in the end you benefit the well-to-do, because the well-to-do will spend more on everything, not just luxury items but basic necessities as well,” he said.

This was a conclusion also reached by studies from numerous governments and the Organisation for Economic Co-operation and Development (OECD), he added.

Mr Wong said Singapore’s GST system - with its series of offsets and rebates - is deliberately designed to be fair and effective, contrary to Prof Lim’s view that these were a patchwork of offsets.

Four, suggestions continue to be made that Singapore should explore other streams of revenue such as property, income, corporate and sin taxes.

Mr Wong said while these have been carefully considered, the sums do not add up.

Increasing corporate and income taxes could result in investors leaving Singapore, especially amid tight global competition for talent and investments, he said.

He added that GST revenue alone is in fact not enough to fund policies the Government wants to push through, from healthcare spending to improving conditions for low-wage workers.

“Really, that question is not GST or these other alternatives - we need GST, and these other alternatives,” he said.

Mr Wong added: “The WP is entitled to your own position. By all means, oppose the GST, adopt a different position, fine.”

“But at least be honest and responsible, acknowledge that your alternatives would either end up requiring the middle income to pay more or would use more of the past reserves.”