Debated in Parliament on 7 Nov 2022.
Debate resumed.
Deputy Prime Minister.
Sir, the common opposition to the GST rate increase is that this is a regressive move that disproportionately affects lower-income households.
I can fully understand the concerns such a move will have on lower-income households. But, again, this is not how we have implemented GST in Singapore. Not at all. I have already explained how after putting together the permanent GST Voucher scheme and GST absorption, we have an overall GST system that taxes consumption in a fair and effective manner.
Although we are raising the rate in 2023 and 2024, the majority of Singaporean households will only start to pay more GST nearer the end of this decade or even later. This is because of the Assurance Package. The Government, effectively, pays the additional GST on their behalf during this period.
A consumption tax, yes, it is regressive if implemented as a standalone measure. But this is not how we have done it in Singapore. We have worked hard to design a system where GST is implemented together with permanent offsets through the GST Vouchers to negate that disproportionate impact on lower-income households. We have also taken great pains to make sure that the middle-income households are looked after so that they only pay slightly more GST, but the full impact of the GST, the full burden, is borne largely by high-income households as well as foreigners based here and tourists.
This is how we get the benefits of the GST system, which is a broad-based consumption tax without its drawbacks. What we have is a much, much better alternative than taking more from future generations or significantly raising property or personal income taxes on the broad middle class. It is, certainly, a more responsible approach than planning on the basis of revenues or surpluses that may not materialise.
The unique way we have implemented GST in Singapore reflects the ethos of this Government and the way we have always worked. We do not just go for politically expedient measures that may very well end up being unviable or unsustainable. Instead, we focus our efforts on designing effective policies to benefit all Singaporeans. This may mean that the policies are a little bit more complicated. It may mean that we have to work harder to explain our schemes, but it is well worth the extra effort to get it right and do the right thing for Singapore and Singaporeans. Sir, in Mandarin.
(In Mandarin): [Please refer to Vernacular Speech.] Singapore is a rapidly ageing society and for our future healthcare and other needs, we need to raise the Goods and Services Tax (GST) rate.
The Government will raise GST in a fair manner and help all Singaporeans. With the help of the Assurance Package, the majority of Singaporean households will be able to offset at least five years of additional GST expenditure.
This means that while the GST rate will be raised next year and the year after, most households will only start paying more GST from around 2030.
Besides the Assurance Package, lower- and middle-income households can also receive permanent benefits from the GSTV scheme. At the same time, the Government will continue to absorb GST for publicly-subsidised healthcare and education.
Through these ways, lower-income households pay a much lower effective GST rate than higher-income households. In fact, on average, after Government support, the bottom 10% of households do not have to pay any GST at all. This includes many retiree households with no income.
Even with an increase in the GST rate, lower-income families will not be affected. In fact, GST will be borne mainly by higher-income households, tourists and foreigners in Singapore.
Singapore has implemented the GST in a unique way, taking care of lower- and middle-income households. This is the correct and fair approach.
I am deeply grateful for the strong trust between the Government and people. Over the years, this has enabled us to implement many policies to improve the lives of Singaporeans.
I assure everyone that the Government will uphold our principles and values and continue to do the right thing for Singaporeans. Let us uphold this trust in one another and chart our way forward together.
(In English): Sir, the interests of Singaporeans are at the centre of everything we do.
No government, no finance minister likes to talk about raising taxes, certainly not a tax like GST.
But if we have to raise taxes, we will always be honest, transparent and we will do so in a fair manner and we will always be accountable to Singaporeans that the resources will be put to good use for their benefit.
I am deeply grateful for the strong compact and trust between the Government and the people. Over the years, this has allowed us to develop and implement policies to improve the lives for all Singaporeans.
Singaporeans have benefited from inclusive growth, particularly through our moves to uplift lower-wage workers' incomes. Income inequality in Singapore has been on a steady downtrend.
We have strengthened social security through schemes like Silver Support. We have strengthened healthcare assurance for all by building five new polyclinics and doubling the number of community hospital beds in the last decade.
In times of need, such as during the pandemic and during the period of high inflation this year, we have stepped in decisively with measures to support Singaporeans. Now, as part of Forward Singapore, we are now working in partnership with Singaporeans to refresh and update our social compact for the next bound.
These are but some examples of how we have progressed together as one people and as a nation.
So, to all Singaporeans, I say you have my assurance that this Government will never compromise on our principles and our values, and we will always do what is right for Singapore and Singaporeans. Let us keep this trust in each other going as we chart our way forward together. Thank you, Sir. [Applause.]
Clarifications? Mr Louis Chua.
Thank you, Mr Speaker. If I can have three very short supplementary questions, please.
The first is with regard to this year's fiscal outturn. I think the Deputy Prime Minister shared that we do not have any surplus this year but, at the same time, it is too early to determine. But also, at the same time, whatever surplus we have is imaginary.
I recognise that I have limited information. But as I shared in my speech, just based on the first six months of the operating revenues that have been disclosed so far, we have a $5.8 billion increase in revenue, compared to the year before. So, even if we less off the $1.5 billion package in October and $1.4 billion announced today, would it be wrong to say that there is still some slack, at least based on what is disclosed so far?
Second, in terms of the NIRC contribution, is it wrong to say that increasing the NIRC contribution rate will not result in a decline in revenue? I think an example would be, as I shared in my Budget speech this year, where even if we put into context the drawdown of $43 billion in our reserves for the COVID-19 packages, our reserves today are still higher than they were five years ago.
Lastly, on GST exemption and all that, at this point in time, based on my understanding, there are already provisions of zero-rated GST for exports of goods and international services. At the same time, there are certain classes of goods and services that are exempted from GST, such as the sale of residential properties and the provision of financial services as well.
Sir, on the three questions, on the fiscal outturn, Mr Louis Chua only looked at the revenue side of the house. He has not looked at the spending side, which I mentioned just now.
Yes, revenues have gone up in the first half of fiscal year 2022 but spending has gone up as well. As I said just now, overall, the surplus in FY2021 and the better-than-expected outturn – revenue, net of expenditure – in the first half of 2022 have already been fully utilised for the packages this year.
What happens in the second half of FY2022 is still to be seen. Yes, there may well be some buoyant revenue sources. We will see. But our spending is also going to be higher in the second half and, net-net overall, as I mentioned just now, we do not expect a surplus in FY2022 at the end of the financial year. But we will, at the end, in the Budget next year, give a firmer estimate, as we always do.
On NIRC, I have also explained our position on NIRC. I have said that, going forward, we anticipate that NIRC, which contributes about 3.5% of GDP to our revenue today, we think that is likely, over the longer term, to keep pace with economic growth. NIRC will keep pace with economic growth, we think, but this has not taken into consideration the potential for our expected long-term real rate of return to be reduced because of all these structural challenges that we have just been talking about – climate change, ageing population, geopolitical tensions.
So, it remains to be seen. But we will continue to monitor and update where necessary.
On GST exemption, yes, there are certain classes of items which are exempt or zero-rated today but they are done for very good reasons, including difficulties in collection and we have kept it to a very, very, very tiny group of items. Very small. Look around at all the GST systems in the world, I think ours, we have kept it very, very limited.
By and large, most items are taxed on a single-rate GST and if we were to expand the exemption of zero rate to many more items, for that matter, to essential items, food, then we are talking about a large expansion of exmempting of zero-rating in our GST system. All the complications, all the downsides, all the problems, all the ineffectiveness that we have seen in other countries will be experienced in Singapore, too.
Assoc Prof Jamus Lim.
Thank you, Mr Speaker, Sir.
The Deputy Prime Minister reiterated that he and his MOF colleagues do not believe that it is possible to delay the hike. If I could just confirm my first question that the estimates of impending healthcare needs over the next two years are, in fact, so urgent that they cannot be delayed even for the short run such that, in the absence of the hike, the Government will inevitably find itself in a deficit.
My second point is to clarify that I was not, in fact, being alarmist in my speech about potential inflationary consequences of the hike. In fact, I clearly explained that the Japanese environment was different but since the Deputy Prime Minister is so confident in his claim that there will not be an increase in inflation as a result, I wonder if the Government will, in fact, commit to a pause in GST increases to 9% if inflation does turn out to be higher than expected as a result of the hike.
Finally, the point about the multi-tiered system. I think the whole point was that we should use the current circumstances as a way to pilot the idea. I think we have never shied away from talking about how policies need to work for us. I wonder if he would agree that the postponement of GST on essential items actually affords us this opportunity to testbed this idea.
Sir, on delaying GST, say, for one or two years, we are doing much better than that. We are delaying for more than five years with the Assurance Package. So, I am not sure why I would want to delay only for one to two years because I can delay for much longer.
And with the design of the scheme that we have done, as I have mentioned just now, delaying for the vast majority of Singaporeans but getting those who can pay to pay first. Is that not better? [Applause.]
Second, on pausing the second step of GST increase, should there be much higher than expected inflation. I mentioned just now the circumstances under which we might reconsider the second step. And that is really in the event of a very significant change in the external environment, globally and then impacting Singapore. This has to do not just with inflation, but with the economy, with labour markets, for example, if we were to go into a deep recession next year. It is not in our baseline expectations at all, but who can tell in this uncertain world what can unfold?
If something like that were to happen, then as I said just now, we will certainly take a pause to review, to take stock of the economic circumstances and consider our position for the second step.
Third, on the multi-tier and the pilots. Do not get me wrong. It is not as though we are reluctant to take in new ideas and to consider pilot schemes. We always do and we are always open to experimentation and policy reviews, but on this particular case, it is not for lack of studies. There has been considerable amount of work done to look at the effectiveness of multi-tiered systems all over the world by governments, by independent organisations. We have looked at all of these studies. And when the studies are overwhelmingly negative, it ought to give us pause to consider, is it even necessary to pursue a pilot for Singapore's circumstances, or should we think of alternative solutions? And that is exactly what we have done. We have developed a different system in Singapore. Also, a multi-tiered system, but I dare say, a more effective multi-tiered system, because the GST is tiered by income and we ensure that we can tax consumption in a way that is fair and effective.
Mr Leong Mun Wai.
Thank you, Speaker. First of all, allow me to thank the Minister for a very engaging and useful debate today. Maybe this is the second time we are debating on GST in this Chamber.
Allow me a little bit of preamble, just one minute. I think, however —
It is clarifications, if you can.
Yes, two clarifications. But before that, let me say one thing, is that the basic differences between the position, at least for PSP and the Government, is that we think that the Government still did not appreciate enough the financial position that the Singaporeans are in. They are not just paying taxes, there are many kinds of indirect taxes. As a result, let me quote one thing —
Mr Leong, Mr Leong, please proceed to your clarifications. It is not an opportunity to repeat your speech again.
Yes, I am coming to that. Let me quote one thing. Even when we talk about the NIRC, we are trying to fanthom up this whole money scheme, the fiscal system that the Government has on the people. So, let me just talk about the NIRC. Two questions to Deputy Prime Minister Lawrence Wong, please.
Two, there are operating expenditures in the Budget and recently we have discovered, you have HDB grants which cost the Budget money, deficit to the Budget, and this in turn, will eat into the NIRC that you contributed, right? So, I ask you the second question: did the NIRC contributed by the past land sales cover the deficit of the HDB grant?
Two questions, thank you.
Sir, there is no unspent NIRC because the Government does not run a surplus anymore. Maybe in the past but nowadays, what surplus are we talking about? We literally are running balanced Budgets, if not deficit Budgets, so there is no unspent revenue. Every revenue we collect, including through the NIRC, is spent.
Second, on the HDB grant and Mr Leong Mun Wai says, "We have just discovered". I am not sure how he just discovered this. This has been going on for years since I was a young officer in MOF. We have always financed HDB on its deficit, it is called deficit financing, which means when HDB has a deficit because it has a shortfall, it has to sell the flats at a subsidised price, the selling price is less than the development cost, deficit. And therefore, there is a Government funding to HDB. This has always been the basis of our system, because we want to assure Singaporeans that they will always be able to afford HDB flats in Singapore.
Mr Leong.
Mr Speaker, thank you. I have expected the Deputy Prime Minister to answer like that. First, on the NIRC. There is a large share of the NIRC being apportioned to funds, right? Just like a few years back, you took $6 billion out of the NIRC and put it in the GST Voucher. So, that means, for that particular year, I think it was 2018, we do not have $6 billion benefit from NIRC. So, one would think that we have been discussing a lot today – would the Deputy Prime Minister commit that in the future, all NIRC will be spent in the current year?
Secondly, on the HDB grant, you did not answer my question. I asked, the HDB grant, like this year, the grant may be close to $4.5 billion, $4.8 billion to cover the deficit of the HDB. So, the amount of NIRC will be reduced by that amount, right? Because you have to pay for the HDB grant. And besides that, there are other expenditures, which two of them I have mentioned in my last Adjournment Motion speech. So, can you answer the question, please?
Sir, I have already answered the question on the second point. The basic point is all Government sources of funding, whether from NIRC or from revenue, come into a consolidated fund. We do not hypothecate, which is something that Mr Leong is saying – identify this revenue source, link to this particular spending item. That is not what we do in Singapore. All the revenue sources come in; because monies are fungible, this is a general pot of funding. And then, we spend according to our priorities and therefore there is no point going through and identifying these sorts of linkages.
On the first point of whether or not there will be unspent funding, it is the same point. Generally, we do not believe that there will be surpluses, because we are running such a tight ship now, these days. But should it happen, for example, that we have an unexpected windfall, a good year, maybe because of property sentiments, cyclical reasons why revenue has some upside, can it happen? Maybe, from time to time, it can happen. Then, what is the right response for us to do? Well, if there is that surplus, we might very well consider whether there are longer-term needs in the future that would be prudent for us to set aside some of that surplus into these so-called funds.
For example, climate change adaptation. We have set aside, I think, $5 billion. Do you think we would only need $5 billion for climate change adaptation? To build sea walls and all? Of course not. So, in a good year, for example, if we have that extra money, we will look at longer-term needs and we will set aside these funds prudently, as we have always done to manage our fiscal and finances in a responsible manner.
Leader. Exempted Business, please.
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