By Lawrence Wong, Minister for Finance
No Government, and certainly no Finance Minister, in the world likes to raise taxes.
It’s one of the reasons why politicians everywhere prefer to focus on spending initiatives, and avoid talking about tax increases.
As a result, governments in many countries spend beyond their means, run up unfunded obligations, and kick the fiscal can down the road. These countries eventually end up with growing deficits and debts that are passed down to the next generation.
We are not immune from these pressures in Singapore.
In the Budget, I explained our pressing revenue needs and the considerable funding gap we face over the coming years. The Government wants to do more to strengthen our social compact, and especially to take better care of our seniors as our population ages. But to do more, we will need more revenues.
During the Budget Debate, opposition parties – both the Workers’ Party (WP) and Progress Singapore Party (PSP) – cheered the additional spending moves, but opposed the GST increase, arguing that this will hurt the low-income. They offered alternatives to raise revenues. But the sums in these alternative proposals just do not add up.
Let me explain.
First, we may be able to generate more corporate tax revenue due to the move to establish a minimum global corporate tax rate. But under the new rules, we will also lose corporate tax revenue in some other areas. The rules are still being finalised and it’s too early to determine what the final fiscal impact will be.
Furthermore, even if we are able to generate additional revenue from the revised corporate tax system, we will have to reinvest the revenues in new areas to strengthen our competitiveness, and to ensure we attract our fair share of investments. So we won’t be able to make up for the GST increase through higher corporate taxes.
Second, we all agree that wealthier individuals should contribute more in taxes. But the issue is in determining how much more they should contribute, and doing so in an effective manner.
Take the idea of a net wealth tax, which taxes all forms of wealth, not just properties. This may sound attractive in theory. But in practice, it is very challenging to implement. Many forms of wealth are mobile. If we were to raise taxes sharply for a small group of people at the top, the wealth can and will move to other jurisdictions with more attractive tax treatments. This is why many jurisdictions have abolished net wealth taxes.
Therefore, we have to ensure that any tax increases on the well-to-do are implemented in a way that is fair and effective. Otherwise, the tax burden can end up being borne disproportionately by the upper-middle-income or even the middle-income groups, compared to the wealthy, who can find ways to move their wealth and minimise their tax bill.
The third option is to tax our children and the next generation. Of course, no one wants to say this explicitly, and therefore the proposals come in different guises.
For example, the WP suggests drawing more from our investment income, or spending more of the proceeds from land sales.
But all this effectively means that we are using more from the reserves today, and leaving less behind for the next generation to cope with future needs. That will translate to a heavier tax burden for our children and the generations after them.
As I explained in the Budget, if our forefathers had taken this approach decades ago, we could have easily ended up with significantly less income from our reserves today.
For example, if we were to have just 20% less investment income today, the GST would have to increase to 11% instead of 9%, to make up the difference.
We’re thankful that our forefathers didn’t take the easy way out. Instead, they were disciplined, and built up the reserves we have today, for our benefit. So let us uphold this same mindset, and continue to keep faith with future generations, so that they too will be able to benefit from the reserves, rather than be forced to pay higher taxes in the future.
Importantly, the discussions around alternatives to the GST miss out on the larger point – the GST increase itself is not enough to close the funding gap. To put it in perspective, the funding gap we face works out to about S$10 billion per year, while the GST increase will generate revenue of around S$3.5 billion per year.
That’s why, besides the GST increase, we’ve raised income and property taxes in this Budget. And going forward, we will have to continue finding ways to raise additional revenues and to moderate expenditure growth, so as to ensure sound and sustainable public finances for the future.
What’s especially puzzling is the WP’s opposition to the GST increase on the basis that it disproportionately hurts the poor. This is misguided and is not grounded on facts.
I explained all this with detailed data in Parliament. I was hoping the WP would change its position, and support the Budget after being presented with the facts.
I can understand why it may be tempting for political parties to adopt a politically expedient position, and to offer what appear to be easy and painless remedies. But if these are not serious or credible options, it will be irresponsible for us to pursue them.
The PAP Government will press on with our efforts to work with all stakeholders, and to chart our new way forward together – towards a fairer, greener and more inclusive Singapore.