Here’s a common refrain when the topic of raising Goods and Services Tax (GST) is discussed:
Why raise the GST when the government can just tax the rich? This is a populist approach, an easy sell for any politician.
But there are two important points we should make:
First, is imposing more taxes on the rich enough to fund our growing needs?
Second, the government is already taxing the rich. Those in the higher-income groups already contribute to the bulk of our net tax collection.
The ways the rich are being taxed
A rich person owning and living in a more expensive property? Pay higher property tax.
A rich person leasing out a property? Fork out even more property tax please.
A rich person buying multiple properties? Welcome to the world of Additional Buyer’s Stamp Duty, where Singaporean buyers pay 17 per cent for a second property and 25 per cent for a third and subsequent property. Non-Singaporean buyers pay even higher duties. In case you missed it, the government just increased the rates last December.
A rich person buying a fancy, luxurious car? There’s the Additional Registration Fee.
The rich also pay higher income taxes while most workers don’t pay income taxes. The lower-income enjoy a negative income tax, i.e. they receive income supplements through Workfare.
According to the Ministry of Finance, the top 10 per cent of individuals who pay individual income tax contribute about 80 per cent of individual income tax.
It’s undeniable that the government has been taxing the rich more using a fair, progressive system.
Is it enough?
Will higher tax rates on the rich be enough to make up for the GST increase?
GST was the third highest revenue item (behind Corporate and Personal Income Tax) and accounted for S$10.3 billion in tax revenues for financial year 2020/2021.
An increase of two percentage points for GST would add around S$3.5 billion in revenue every year.
Why not increase the personal income tax to make up for this revenue?
In fact, the government is already raising the personal income tax rates for the top earners. But that will still not generate enough revenues.
To raise the equivalent of S$3.5 billion, personal income tax would have to increase by a much larger percentage and for a wider pool of workers. That means middle-income Singaporeans will be impacted.
How about drawing from the reserves?
It’s always a tempting option but it’s morally questionable to draw more from the reserves.
Are we simply going to reap the fruits of our forefathers’ labour and leave the future generation with less resources? Doing so will mean a heavier tax burden for our children and the next generation of Singaporeans.
Our Party believes this will not be the responsible thing to do.
We must ensure a fair and equitable balance between taking care of our needs today and keeping faith with future generations – so they will always have access to sufficient resources to meet any emergencies, as well as a steady stream of income for their future needs.
The fact that the government was able to issue the response it did via the Covid Budgets during the first 12 months of the pandemic was a direct result of this fiscal discipline and prudence that is part of our Party’s DNA.
It will be foolhardy to think that Covid-19 will be the last pandemic or that Singapore will not face any more challenges or crises. In fact, the future generations will face more existential challenges such as global warming and rising sea levels.
What is the Government using the additional GST tax revenues for?
Singapore is a rapidly ageing population.
By 2030, one in four people will be aged 65 and above. This means higher healthcare costs.
A Straits Times report noted that from the last GST hike in 2007 to 2019, government spending rose from around S$33 billion to S$75 billion a year, and healthcare expenditure grew from around S$2.2 billion to S$11.3 billion.
We must expect continued increases in the government’s healthcare expenditures to take care of the growing number of seniors in our society.
In fact, the MOF has explained that even the additional revenue from the GST hike will not be enough to cover the increase in healthcare spending.
Making the difficult case for GST
No government wants to raise taxes if they can help it. It hurts political capital and is unpopular. Like what Deputy Prime Minister Lawrence Wong wrote in his op-ed for Petir.sg: “No Government, and certainly no Finance Minister, in the world likes to raise taxes.’
The GST hike may seem that it is penalising the lower income folks. This cannot be further away from the truth.
The fact is this: The GST hike does not hurt the poor as there are benefits designed specially to help the more vulnerable. It is part of a progressive system of taxes and transfers to ensure a fair, equitable and inclusive outcome for every Singaporean.
These benefits come in the form of the permanent GST voucher, a scheme that helps lower- and middle-income Singaporeans with cash support and utility rebates, while the elderly also receive MediSave top-ups.
More importantly, for every dollar of tax a lower-income person pays, he will receive S$4 in benefits. The middle-income receives $2 in benefits for every dollar of tax paid, while the rich will only receive $0.30 for every dollar.
DPM Wong said on Feb 9 that there will be permanent enhancements to the GST voucher scheme and transitional measures like the S$6.6 billion Assurance Package to help manage the GST hike and the cost of living.
A couple earning S$5,000 a month with two children will receive S$6,500 in benefits, which works out to about 10 times the extra GST that they will have to pay each year, he said.
It is therefore untrue to say that lower-income people will be penalised more with the increase of GST.
The PAP government will not leave anyone behind
The PAP government believes in society-wide upliftment; It is the real Singapore Story and no one shall be left behind.
With the Assurance Package, permanent enhancements to the GST Voucher scheme amongst other measures, be rest assured that the PAP government will do right by all Singaporeans, especially lower-income Singaporeans and remain committed to helping Singaporeans manage the cost of living.
Moreover, the fresh S$1.5 billion support package announced on Jun 21 will help lower-income and more vulnerable groups fight inflation. The $1.5 billion is separate from the $6.6 billion Assurance Package to cushion the impact of the GST increase, and is on top of the support measures announced in Budget 2022 and April 2022.
Budget 2022 will bring all Singaporeans forward in a fair and inclusive way as it addresses immediate issues such cost of living, while building a brighter, more secure future for all Singaporeans.
Cover photo credit: Markus Winkler on Unsplash