Goods and Services Tax Voucher Fund Bill

Sir, one of the common concerns and criticisms of tax on consumption is that it is a flat tax and, therefore, regressive in nature. It takes up a higher proportion of the pay from the lower income groups.

However, unique to Singapore and notwithstanding the GST, our overall taxation system is still progressive; taking into account the other Government subsidy programmes, such as Workfare, housing, education and healthcare. These assistance schemes typically require means testing and are specifically structured to favour the lower and middle-income groups so that they receive more subsidies.

The newly introduced GST Voucher is another addition to the suite of social transfers and is an effective way to mitigate the regressive nature of GST by directly assisting lower and middle-income households to cope with the GST. In some groups, such as the lower income seniors, the GST Voucher would more than offset the GST they pay.

When the scheme was announced in Budget 2012, what caught my attention is the word "permanent". The GST voucher is a permanent system of offsets as opposed to the earlier schemes which were one-offs and depended on the immediate budget position. The permanent nature of the scheme is a comforting assurance.

Cost of living is amongst Singaporeans' top concerns. Hence, this permanent scheme will go a long way towards addressing the concerns of the lower and middle-income households on the impact of GST on their available disposable cash.

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This is a major commitment by the Government, with $3.6 billion being set aside for the next five years to fund this scheme. The Government will make additional injections to the Fund as and when the budget position permits.

So, today's Bill will allow the establishment of the Goods and Services Tax Fund to finance the payment of the Goods and Services Tax Vouchers (GSTV). And this will ensure that there is funding available for the GSTV Scheme, regardless of the economic conditions in the next five years.

In this regard, I would like to ask the Minister how the GSTV will be funded beyond the five years when it is due? The outlay for the GST voucher is estimated to be about $680 million for FY2012 and the fund will mostly be depleted in about five years' time. Would the appropriation from the Consolidated Fund be substantially reduced if we are faced with a prolonged downturn that significantly impacts the Government's revenue?

Next, on the eligibility of the GSTV scheme, starting July this year, Singaporeans and households who qualify for GST Voucher would have received notification and the payout.

I have received some feedback with regard to the eligibility of the scheme. I agree that using household income and value of the home are, by and large, a fair attempt to ascertain those that need help from the GSTV scheme. However, it does leave out some people who may need help.

There are two segments that I would like to highlight with regard to this question of eligibility for the Cash and Medisave component of the GST Voucher. Firstly, the retirees and older Singaporeans who are aged 65 years and above, who own and live in homes that fall above the annual value criterion of $20,000. Secondly, older Singaporeans aged 65 years and above who do not have an income or property but are living with their children or relatives in properties that are above the annual value criterion of $20,000.

Annual property values have risen in recent years and may continue to rise. Would that mean that more Singaporeans will not be eligible as more home values could rise beyond the $20,000 annual value criterion? Such an increase in annual values is non-cash items for the occupier and may not necessary mean they would correspondingly be better able to cope with the higher cost of living.

While we encourage individuals to turn to their families for support, it may not be accurate to assume that those who live with families in properties above the $20,000 value do not require support or assistance. To an extent, it does seem that we are penalising those that live with their families.

Separately, I have also received feedback with regard to the eligible age of 65 to qualify for the GSTV scheme. I understand this is in line with the new retirement age of 65 under the new re-employment law. The question is: how many Singaporeans are, indeed, able to secure re-employment after 62 and whether the new terms of contract, often at lower salary, would still enable them to cope with the cost of living, including GSTs?

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Also, the assessable income used to determine the GSTV payout for 2012 is based on assessable income for Year of Assessment 2011; in other words, based on income earned in 2010 or two years ago. Would the lag be too long and can this be shortened so that it is more responsive to their needs?

For the above scenarios, I would request that a review and a further work be done to refine the eligibility criterion. Finally, I support this legislation which places the Fund under the purview of the Minister for Finance, and will ensure that the money set aside in the Fund is to provide financial assistance to eligible persons under the GSTV Scheme. Sir, I support the Bill.

Mr Speaker, Sir, thank you for allowing me to speak on this Bill, which is of importance to many Singaporeans.

The Bill is designed to help financially needy Singaporeans with GST costs and this is useful as it helps cope with rising costs of living in Singapore. Although reports have suggested that the inequality gap has widened here in Singapore, transfer payments from the Government have actually helped narrow this gap, and this Bill is another example of how the Government can help further plug this gap.

As costs of living in Singapore have increased over the years, at a pace that is faster than the rate of income growth for most Singaporeans, there have been calls to look at how these financial burdens may be alleviated. The Goods and Services Tax is one area in which some of the public attention has focused on, especially since the rate of GST has increased gradually in line with the Government's public finance policy of a greater shift to indirect taxation from direct tax. Such calls have asked to exempt low-income Singaporeans from paying GST on basic necessities.

While I do not think that this would be a productive or effective move, I recognise that the emotion behind this argument has been fuelled by a view that the GST is an additional burden on this group of Singaporeans. In light of that, this Bill is timely and relevant as it is a more direct and effective way in helping low-income Singaporeans deal with the GST costs. There are some points though that I would like to raise in relation to this Bill.

First, I would have hoped that the Bill stipulated the criteria through which the beneficiaries of this Bill would be defined. It would have been a good opportunity to determine, which Singaporeans would qualify for this assistance and which would not. If these criteria are intended to dovetail any existing criteria stipulated in other schemes or regulations, then this should be made explicitly clear.

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One of the reasons I feel that it is important to specify these criteria clearly and explicitly in the Act, is so that a more accurate number of Singaporeans who fall under these guidelines may be determined and, therefore, a better estimate of the amount of payment likely to be paid out can be made. This will make the fund more efficient, the size of which would be better estimated.

Touching on the size of the fund, it may be also useful to stipulate how this would change in accordance with the rate of GST. Should the GST rate be increased in the future, for example, would this then lead to a larger size of a fund, to reflect a larger quantum of financial assistance that may be needed to be paid out in future? Theoretically speaking, it should, but it should be useful to have this enshrined.

Since the fund may be used for investment, the incomes of which would help grow the initial fund size, I think it may be useful to also provide more clarity and guidelines on the nature of investments the fund may engage in. I would think, given the use of the fund, it would be prudent to ensure that the fund's risk-appetite is not that large. It would be better for the fund to be invested in less risky investments. This should be stipulated, especially since a third-party may be engaged for the purposes of managing these investments of this fund.

As this fund is also public money, there should be little tolerance of any attempt to cheat or mislead the system to benefit from the financial assistance being meted out. As such, I feel that the sentences being meted out to those whose actions are intended to cheat the scheme, should be harsher so as to create a strong deterrent. On the whole, Sir, I support this Bill.

Mr Speaker, Sir, I thank the Members Mr Liang Eng Hwa and Mr R Dhinakaran for their support of the GST Voucher Fund Bill.

Mr Dhinakaran highlighted how the GST Voucher Scheme can help lower-income Singaporeans. Indeed, the GST Voucher − Cash and Medisave – has benefited close to 1.4 million Singaporeans while the GST Voucher − U-Save has benefited about 800,000 HDB households. One such family is that of Mdm Noorashikin, a homemaker living with her husband and two school-going children in a 4-room HDB flat. The family estimates that they spend about $1,300 each month on daily necessities which means that they pay about $85 in GST. In August this year, Mdm Noorashikin's family received a total of $500 in GST Voucher – Cash. This in addition to the $220 in GST Voucher U-Save that they will receive annually. Their total GST Voucher of $720 means that about 70 cents of every dollar they paid in GST will be covered. With more resources in hand, the family was able to celebrate Hari Raya Puasa comfortably and put aside a little something for the children's education.

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The GST Voucher is also designed to help retiree households with more modest assets. For example, a retiree household living in a 3-room flat is likely to pay less GST than the amount of GST Voucher they receive this year.

Mr Liang Eng Hwa has raised certain scenarios under which retirees may not be able to benefit from the GST Voucher. This is because some of them live in homes with Annual Values above $20,000, or live in homes which have appreciated over time to above $20,000. However, that does not translate into income for the retirees.

The eligibility criteria for the GST Voucher are set to target those who need it most. Today, we have used a combination of income and property Annual Value as the best available proxies of financial strength. The Annual Value of $20,000 means that 80% of homes in Singapore are covered, including some private property. Our existing criteria already benefit one in two adult citizens and eight in 10 citizen-households. About 85% of all elderly Singaporeans can also expect to receive the GST Voucher – Medisave each year.

Mr Liang Eng Hwa asked if Singaporeans aged 62 to 65 have been successful in securing re-employment, and if they earn enough to cope with the cost of living. This is a valid and important question which would be more appropriately addressed by the Minister for Manpower.

Mr Liang asked if the time period between the GST Voucher payment and the income assessment period can be shortened. I would like to explain that the eligibility criteria aim to be practical. Using this year as an example, for Singaporeans to receive their GST Voucher by August, we must determine the payout based on the latest available Assessable Income, which is for Year of Assessment 2011 based on income earned in 2010. If we were to use income earned in 2011, it would mean delaying payouts until December, after all the tax assessments have been completed.

Nonetheless, Singaporeans facing extenuating circumstances can write in to the Ministry of Finance. We will take into account their more recent income situations and consider their applications on a case-by-case basis.

We will also continue to explore avenues to refine the eligibility criteria to target those who will benefit most from the GST Voucher, and we will take into account changes in property Annual Values and incomes in our reviews. In the meantime, I encourage Members to look out for needy individuals and households who may not qualify for the GST Voucher and refer them to other channels of assistance, for example, the Community Development Councils. Schemes, such as ComCare, have some degree of flexibility which can offer help to such families.

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Mr Dhinakaran has raised three points which I would like to respond to. The first is that the criteria for defining the intended beneficiaries of this Bill should be spelt out, so that the number of beneficiaries can be estimated more accurately.

The second related point is that the Fund size will need to be adjusted in the event of a GST rate increase. I believe the Member's concern is whether the funds set aside will, indeed, be sufficient. This was a point also echoed by Mr Liang. The Members are right to counsel prudence in the way we estimate our financial commitments in the GST Voucher Scheme. Let me assure the Members that the Government takes this commitment seriously. It is the reason we have set aside a very significant $3.6 billion for a start, which is expected to provide for five years of the Scheme. Additional injections to the Fund will be made as and when the Budget allows. And this must, of course, be predicated upon the continued health of our public finances.

Mr Dhinakaran suggests that the size of the Fund in relation to the GST rate be enshrined in the law. This is a very interesting suggestion which merits further consideration.

To Mr Dhinakaran's question, monies in the GST Voucher Fund will be invested with the Government which will pay a fixed return to the Fund annually. This is the same for other funds, such as the National Research Fund.

The Member's third and final point is that there should be little tolerance for those who seek to defraud public monies. He will be pleased to know that the penalties under the GST Voucher Fund have been benchmarked against those for similar offences, as laid out in the Medical and Elderly Care Endowment Schemes Fund Act and the Community Care Endowment Fund Act.

Once again, I thank the Members for their thoughtful comments and their support of the Bill. Sir, I beg to move.

I would like to check with the Minister of State if the interest is a fixed interest, or whether the Fund income is fixed income from other Government investments. If that is the case, what is the revenue estimated for the five years on this Fund, whether that is already included into the Fund? What is the total amount of that income?

Mr Speaker, Sir, in response to the Member's question on the GST Voucher Fund, it is co-mingled with other funds and managed by the Government on a consolidated basis. What is committed to the Fund is that the Government will give it a fixed annual return. So, from the Fund's perspective, there is actually no risk that is being borne.

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*Question put, and agreed to.*

*Bill accordingly read a Second time and committed to a Committee of the whole House.*

*The House immediately resolved itself into a Committee on the Bill. – [Mrs Josephine Teo].*

*Bill considered in Committee; reported without amendment; read a Third time and passed.*

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