Leader of the Opposition Pritam Singh said in Parliament on Monday (Feb 28) that the Workers’ Party disagrees with the upcoming GST hike, adding that it will object to Budget 2022.
Alternatives to increasing the Goods and Services Tax, which Finance Minister Lawrence Wong announced will begin to take effect on Jan 1, 2023, were proposed by several WP MPs, including Sengkang GRC’s He Ting Ru, Louis Chua, and Jamus Lim, who is an associate professor in economics at ESSEC Business School.
Prof Lim has spoken out against the GST hike in the past, warning in January that it could ‘shock’ the economy.
Even during the campaign period for the 2020 General Election, he wrote that “a GST increase amounts to contractionary fiscal policy.”
Prof Lim said in Parliament on Monday that raising the GST would threaten Singapore’s post-Covid-19 recovery, which is just beginning.
He added that the country would risk shooting itself in the foot and “scoring an own goal” if the hike pushes through, presenting a number of alternative revenue streams that would bring added revenue to Singapore instead of the GST.
Using Japan as a cautionary tale, he said that that country’s GDP “collapsed” after consumption taxes were raised in 1997 and 2014, leading to a recession. Japan’s inflation rate also went up in those times.
In Singapore, when a GST hike was implemented in 2007, a recession did not ensue. However, Prof Lim pointed out that in the following year, the economy only grew by 1.1 per cent, as opposed to 7.8 per cent the year before.
And the global economy is in an even more precarious state today than it was then, he added.
“A GST hike is also particularly ill-timed because it holds the potential to stoke already-elevated inflation. While the direction of inflation in the future is anybody’s guess, it would not be surprising if inflation remains elevated through to year-end.”
He then asked the Government to reconsider its timetable of implementing the increase, especially if economic conditions will remain unstable in the near future.
Alternative sources of revenue
The Sengkang GRC MP then proceeded to propose the following alternatives to raising the GST, which Mr Wong had said is needful as healthcare costs are expected to rise in order to cope with the demands of an ageing society.
He suggested an increase in corporate taxes in line with the Base Erosion and Profit Shifting initiative or BEPS 2.0, which is an endeavour all around the world to impose a minimum effective corporate tax rate of 15 per cent.
This would already bring in $3.45 billion, given that the effective rate of 3 per cent for small and medium-sized enterprises (SMEs) is allowed to stay as is.
Prof Lim added that additional wealth taxes would bring in another $3.7 billion.
Higher taxes on gambling, alcohol, tobacco and carbon emissions would bring in $3.65 billion.
The expected revenue from the GST hike is around $3.66 billion.
Prof Lim said that Singapore can “choose not to raise GST by adjusting some of the other levers available to us. One could even mix and match among the proposals to craft a revenue mix we can accept.”
His full speech may be viewed here.
/TISG
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