Singapore — Workers’ Party MP Jamus Lim recently tackled inflation, cost-of-living issues, and the upcoming GST (Goods and Services Tax) hike.
The Sengkang GRC MP, an Associate Professor of Economics at ESSEC Business School, suggested that the hike should be reconsidered, given the state of Singapore’s economy.
“We also need to think very seriously about the wisdom of a GST increase,” he wrote in a Facebook post on Wednesday (Jan 26). “For us, a GST hike would not just add fuel to the fire, it could also shock an economy that is only just on a rebound.”
He expressed concern over the impact of the hike on certain industries, saying: “Sectors that will feel GST most directly (like F&B) remain weak.”
Prime Minister Lee Hsien Loong had said in his New Year message that that the Government would have to “start moving” on the GST hike.
The Government’s iintention to increase the GST by two percentage points was announced in 2018 by the then-Finance Minister Heng Swee Keat when he delivered the Budget in Parliament. At the time, he projected that the GST would be raised by at some point between 2021 and 2025.
But the increase was not implemented last year because of the pandemic’s impact on the economy.
The current GST rate of 7 per cent has applied since July 2007. It was 5 per cent from 2004 to 2007; and 4 per cent throughout 2003, inching up from the original 3 per cent imposed on April 1, 1994.
Referring to the brief debate in Parliament recently on the increase in Cost of Living and inflation, he said that as an economist, he considers the “underlying drivers” of inflation. “We get a little more worried when prices rise because workers are insisting on wage hikes, because they are facing steadily rising costs of living. Or when households factor higher prices into their budgets in anticipation of what they need to spend.”
While he acknowledged that inflation is high — “4% in the latest December report” — it decreases when the costs of food and energy “which are usually more volatile” are removed.
“This so-called ‘core inflation’ is running at 2.1 per cent in December. This is hot, but only a little more than the 2 per cent target most central banks are comfortable with,” he said.
But “the picture isn’t all peaches and roses’, he warns. “As anyone who drives a car or pays for utilities would have observed, energy prices are up sharply (by more than 10%). And while food costs have not risen as quickly compared to a year ago, they have jumped by close to 4% (on an annualized basis) over the past few months.”
The Government has accepted that there has been inflation, although it has emphasised that “price increases would eventually come under control”. Prof Lim said he agrees with this, but believes it will not “happen as quickly as economists (and central bankers) would like”.
Higher costs, he emphasised., are already making an impact.
“Perhaps most importantly, people are also feeling the pain now. The #workersparty believes that it is possible to make the numbers work without further increasing a regressive tax like GST, and to instead focus on other progressive sources.
“These include a wealth tax, additional tiers to property taxation, and adjusting the formula for the interest contribution from our reserves. We should also think more carefully about existing taxes on capital. Ultimately, while we agree that changing demographics mean that our expenditures (especially in healthcare) will increase, we think that a different mix to our revenue sources is both possible and desirable.”
/TISG
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