Singapore — In a Feb 14 article, Mr Barnabas Gan, an economist with the United Overseas Bank (UOB) predicted that the increase in Goods and Services Tax may be implemented as soon as July 1.
Finance Minister Lawrence Wong is expected to speak at length concerning the timeline for the GST increase from 7 to 9 per cent, which was first announced in 2018 by Heng See Keat, Mr Wong’s predecessor.
Mr Heng originally said that the GST hike would take place between 2021 and 2025, but announced last year that it would be delayed due to the economic fallout of the Covid-19 pandemic.
However, in his New Year message as 2022 rolled in, Prime Minister Lee Hsien Loong said that the Government needs to “start moving” on the planned hike amid Singapore’s economic recovery.
Three days before Mr Wong’s maiden Budget speech, UOB economist Gan made the case for why he believes the hike will be implemented by mid-year in a Yahoo!News Singapore piece.
He pointed out that the 7.2 per cent rebound in Singapore’s Gross Domestic Product (GDP) growth indicates the country’s strong position for financial recovery from the pandemic.
The country’s per cent vaccination rate—among the highest in the world at 92 per cent of the total population having received a sat least one dose—“is a crucial indicator as Singapore reopens the economy,” wrote Mr Gan, despite 2020’s 5.4 per cent contraction.
“However, Singapore urgently needs to build up a resilient tax revenue base to finance its social and economic programmes,” he added.
Why?
First, because of 2020’s record budget deficit of S$54.4 billion.
Next, he pointed out that in five out of the last six fiscal years, tax receipts have been insufficient for covering the country’s total expenditures.
“Singapore has reportedly drawn on past reserves equivalent to about 20 years of financial surpluses in just two years to combat COVID-19,” he added.
Because of higher spending needs due to several factors, including an ageing population, as well as the need to build up reserves, hence, the possibility of the implementation of the increase by July of this year.
Mr Gan wrote that this would mean an additional S$1.8 billion in revenue for this year alone or S$3.6 billion yearly.
This amount is close to 0.7 per cent of the country’s GDP.
But, he added that this year may well be the first time since 2019 that Singapore ends up with a positive balance, a possible overall budget surplus of S$0.2 billion.
A bigger national kitty is needed for social support as Singapore’s population ages, especially for healthcare costs for the elderly.
Mr Gan predicted that for this year, “a sizeable expenditure will likely be dedicated to healthcare (18.3 per cent), defence (16.5 per cent), education (13.9 per cent) and trade and industry (8.8 per cent).
Help for COVID-19 battered sectors such as retail, hospitality, and transport could still be on the cards as they remain vulnerable to an unanticipated surge in COVID-19-related risks. Additional revenue will be needed to meet these essential demands.”
And while on the whole, Singapore’s economic outlook is a positive one, global uncertainties because of the pandemic, worldwide inflation and the economic slowdown calls for “stay(ing) prudent and sav(ing) for a rainy day,” he added.
The economist, however, ended his piece by writing about possible schemes the government will also implement in order to soften the blow of the GST hike.
“As announced in the 2020 Budget, the Government will introduce a S$6 billion Assurance Package to delay the effects of the GST rate increase by between five and ten years.”
In addition to this, he expects cash payouts for adults, an enhanced GST Voucher (GSTV), and possible top-ups for Community Development Council (CDC) vouchers. /TISG
Related: Netizens tell Lawrence Wong now not right time for GST hike, ‘settle COVID then care about GST’
Netizens tell Lawrence Wong now not right time for GST hike, ‘settle COVID then care about GST’