The Ministry of Finance has countered a student’s view that the impending Goods and Services Tax (GST) hike will increase the cost of consumer goods and further disadvantage those who earn lower incomes.
During his Budget speech last year, Finance Minister Heng Swee Keat announced that the GST will increase by two per cent. This tax hike will raise the GST from the current seven per cent to nine per cent and will be implemented sometime between 2021 and 2025, in a progressive way.
21-year-old Marcus Aw Chen Feng, an undergraduate student, has asserted that the impending GST hike can “negatively affect economic growth” and further disadvantage the needy.
In a forum letter published by the Straits Times last Monday (8 July), Marcus said that the GST hike would result in higher prices for consumer goods and necessities and impact the spending power of lower-income Singaporeans, leaving them with less disposable income to meet other expenses.
Marcus also highlighted that higher taxes can deter foreign firms from investing in Singapore, causing them to cut back on jobs.
The first-year student, instead, suggested that the Government could implement progressive taxes – where the rich are taxed instead of the poor – to better combat inequality.
In response to Marcus’ letter, MOF’s director of Corporate Communications Lim Yuin Chien asserted that the GST that is collected will “support public spending that benefits Singaporeans.”
In his own forum letter published by the Straits Times, Lim reiterated Minister Heng’s reasons for the GST hike – that it is necessary to support rising expenditure in caring for an ageing population, keeping Singapore safe from security threats, and investing in early childhood education.
The MOF representative added that the Government will “fully absorb GST on subsidised education and subsidised healthcare” for lower-income households and will continue implementing the GST Voucher Scheme “to defray costs for lower-income households and seniors.”
Asserting that the Government has implemented some forms of progressive taxing like the increase in personal income tax rate for high-income and the increase in stamp duties for those who buy high-value residences, he added: “Lower-income households receive more transfers from the Government than all the taxes they pay, while the better-off pay more taxes than the transfers they receive.”
Lim further said that the MOF does not expect that the GST hike will deter foreign firms from investing in Singapore since GST only applies to “domestic comsumption.” Businesses will be allowed to claim back the GST they have incurred. He concluded:
“Our system of taxes and transfers strikes a balance to help Singapore maintain its competitiveness globally, and we will continue to review and refine it.”
It is of interest that the GST hike will only be implemented from 2021, as it means that the tax hike will most likely only go into effect after the next General Election which must be held by 15 Jan 2021.
Last year, Singaporeans were given a one-off bonus due to the exceptional budget surplus of FY2017. This – combined with the Bicentennial Bonus Singaporeans will receive this year – could signal that the next election will be held earlier, given past election trends.
Singapore was celebrating its 50th year of independence in 2015 when the last General Election was called. Citizens received a “SG50” cash bonus in the run-up to the election, which the PAP won with an overwhelming majority.
In Budget 2015, middle-income earners who paid personal income tax received a 50 per cent rebate of up to S$1,000. Besides this, eligible Singaporeans aged 55 and above received a one-off Seniors’ Bonus of S$150 to S$600 in cash, as well.
2015 was also the same year that the nation’s founding prime minister Lee Kuan Yew passed on. Political observers speculated at the time that the Government called a General Election earlier than expected during the last cycle, to capitalise on the wave of goodwill that poured forth after the political leader’s passing.
The General Election before that, was preceded by Budget 2011, in which the Government distributed S$1.5 billion worth of “growth dividends” to Singaporeans. 80 per cent of citizens received S$500 to S$700 each that year.
With the trend of one-off cash bonuses preceding General Elections in recent years, it may come as no surprise to some if the next election is called as soon as 2019 or early 2020. If this happens, the people will be hit with the tax hike two years into the new government’s term. -/TISG