The upcoming Goods & Services Tax (GST) hike cannot be deferred despite inflationary concerns and higher amounts of revenue collected from taxes in the last financial year.
Speaking in Parliament on Monday (Sep 12), Deputy Prime Minister and Minister for Finance Lawrence Wong said that the government shares the concerns of Singaporeans with regard to inflation.
“…we know that inflation has gone up in this year, and that is why the government will continue to provide support for Singaporeans to mitigate the impact of higher prices,” he said.
But while these target concerns regarding higher costs in the short term, the government is also helping Singaporean workers achieve real wage growth in the long term to beat inflation.
In fact, DPM Wong noted that in the past decade, Singaporean workers have experienced real wage growth.
Recently, the Progressive Wage Model was expanded to cover the retail, food services, and waste management sectors, ensuring that wages in these sectors will see sustained growth.
The government is also co-paying the wage increases for lower-wage workers over the next five years. Recently, this co-payment amount was enhanced to a maximum of 75 per cent of the pay increase.
Sentiment-driven collections not sustainable or stable; higher tax revenue in 2021 used for new spending
Moving on to the increased tax revenue from the financial year 2021, DPM Wong said that there was an increase of 22 per cent in tax revenue that year.
“…this sharp increase is partly due to a lower base in FY 2020 arising from the impact of the pandemic that year. But more importantly, the increase was also driven by higher-than-expected collections of sentiment-based revenue.”
DPM Wong added that Singapore’s property market recovered at a rate that was faster than expected. Hence, a large portion of the increase in tax revenue came from stamp duty collection.
However, he also cautioned that Singapore “cannot rely on such sentiment-driven collections which can fluctuate from year to year”.
“…just as a bullish property market can provide upsides, there can also be downsides in a muted market, as past experience has shown.”
Sentiment-driven collections are neither stable nor sustainable sources of revenue for Singapore’s rising, recurrent expenditure needs, such as healthcare expenditures for an ageing population, spending on economic and green transformations, and the costs of building up our food and energy resilience.
In any case, he said that the higher tax revenue from the last financial year was used to support new spending such as the enhancements to the Progressive Wage Credit Scheme, as well as short term relief for businesses and families.
“These include our Covid-19 Support Packages during periods of heightened restrictions last year, and measures to help Singaporeans with cost of living support this year,” he explained.
S’pore needs resources to meet longer-term priorities in a responsible manner
Adding that government expenditure is expected to rise from 18 per cent to 20 per cent or more of our GDP by 2030, DPM Wong said that the slew of revenue measures announced during the Budget 2022 will “provide us with the resources we need to meet our longer term priorities in a responsible manner”.
He said that the GST increase will go ahead as planned, but assured members that the majority of Singapore households will not feel the impact of the increase for at least five years, while lower-income households will not feel the impact for about 10 years.
“That was the assurance we gave in the budget. We will uphold this commitment even with the higher inflationary outlook, and will further enhance the Assurance Package.”
Government monitoring situation carefully
Responding to Member of Parliament Foo Mee Har’s question on whether Singapore will still register expected deficits in financial years 2021 and 2022 in light of strong revenue growth, he said that it’s still too early to tell.
However, he added that the government’s aim is not to accumulate a surplus.
“Let’s be very clear about this. Our aim is to run a balanced budget over the medium term. That’s our consistent fiscal policy. And should there be revenue upsides? I think that’s a plus for us because if the economy does better than we had projected, I think we should take comfort that we are in such a situation rather than the reverse situation.”
At the same time, the government is monitoring the situation carefully, DPM Wong said.
“If there are still groups in Singapore facing pressures, then we will certainly consider doing more to help them cope with this difficult period.”