Recently, Singapore’s Goods and Services Tax (GST) hike was debated heavily in parliament. The hike in GST from 7 to 8 percent will be implemented in 2023, and it will increase to 9 percent in 2024. On one end, the GST can help raise the government’s revenue, in a time where expenditure for certain sectors like healthcare keeps rising. However, there are arguments that the government can search for revenues in other areas and a GST might elevate increases in costs of living during a time where Singapore faces high amounts of inflation. I will discuss whether the GST hike is justified.
Firstly, the GST’s ability to increase the government’s revenue can aid the government in its subsidies in key sectors in Singapore. With the wave of COVID-19 persistently challenging Singapore, Singapore’s healthcare sector has taken a major hit. To make matters worse, Singapore’s rapidly ageing population results in greater demand for healthcare as seniors might live for a longer period of time and have greater medical needs. In addition, the economic impact of COVID-19 and the Russia-Ukraine crisis has meant that Singaporeans have suffered greatly and costs of living have increased. With that, the government has had to bolster social service programmes. In Budget 2022, Singapore has had to increase cash payouts. With rising inflation from the war, the government has had extensive support packages, with a 1.5 billion support package rolled out in October 2022 to provide further relief to low and middle-income Singaporean households. The support packages cover daily necessities, transportation and education, something that certainly requires an extensive amount of funds that can be raised from the GST.
Secondly, the GST’s ability to increase the government revenue and prevent the government from increasing taxes will benefit the economy. Singapore extensively relies on investments from Multinational Corporations (MNCs), and with the government being able to maintain a low corporate tax, this can maintain Singapore’s competitiveness in attracting Foreign Direct Investment (FDI) from MNCs. Also, not increasing the progressive personal income taxes allows Singapore to again remain competitive in attracting the wealthy, who have high purchasing power and are able to help stimulate Singapore’s economy. Moreover, while the GST is a regressive tax, and as the government does not increase progressive personal income taxes, one might argue that it would widen Singapore’s income inequality. However, the GST system in Singapore is in fact not a regressive one. When one calculates the GST Vouchers, Medisave top-ups, utility rebates and educational and transport subsidies by the government that are received by lower and middle income households, the net result is that they actually earn more than what they pay through the GST hike. As such, the GST hike is justified to maintain low corporate and personal income taxes in Singapore to ensure continued growth in the economy.
However, there are drawbacks to an increase in GST in this current period of time. Inflation from the Russia-Ukraine conflict has skyrocketed, as energy prices increase, leading to increases in costs of living, as the Consumer Price Index (CPI) inflation rose to about 6 percent in 2022. A Member of Parliament (MP) from the opposition party, Mr Louis Chua likened the GST hike in a time of inflation to scoring an own goal in a game where one’s team is down by 5 goals. An increase in GST that applies to all goods, including necessities, can harm the low-income households who have large proportions of their incomes spent on daily necessities. Members of the opposition parties in Singapore have constantly talked about a GST that is exempt from daily necessities. In theory, that would be a much better system. However, there will be a lot of questions raised on what a necessity is, because different families have different needs. Moreover, considering Singapore’s multiculturalism, different cultures have different staples and necessities needed for cooking, for example, making a GST exempt from necessities difficult to design. Furthermore, linking back to the measures imposed by the government in response to the GST hike, it is evident that there will be sufficient support for low-income households to deal with inflation and the GST hike. Also, members of the opposition have also argued that the GST hike could occur when economic conditions are more ideal, when inflation is under control. However, it is worth noting that the inflation and economic outlook is uncertain, as mentioned by Deputy Prime Minister Lawrence Wong. With the war in Ukraine continuing, and global economic slowdown, it will be difficult for the government to predict exactly when economic conditions can be “more ideal”. Hence, despite the GST possibly worsening the current economic conditions, there might not be a better time to increase the GST in the future, and the government’s measures to support the low-income households prove that the current GST hike is justified.
Next, another argument raised by some members of the opposition is that government revenue can be increased from other areas like Singapore’s reserves. Non-Constituency MP Leong Mun Wai raised an analogy of Ah Seng, who was struggling financially and his grandfather refused to use the ancestral assets, arguing that they should leave the assets for future generations. Leong made this analogy in response to the government’s hesitance in using the reserves. While the reserves would allow the government to not hike the GST, it is worth considering that sooner or later, the government would have to find a way to increase the reserves. Since the parliament has seen so many different analogies, I would like to put forth my own analogy too. Think of the reserves as a non-renewable resource, it is finite, it is rivalrous. When the government uses it, the government has to find ways to raise funds to make up for the lost reserves. As such, either way, the GST hike will come, just that it would affect the next generation. From a selfish perspective, postponing the GST hike would be justified. However, we must consider the impact not just to the current generation but also to the future generation. Hence, despite the possible solution of obtaining funds from the reserves, the negative impact it might bring to future generations proves that the GST hike occurring at this current moment is justified.
In conclusion, while the GST hike occurs during a time where inflation is rising, and even though there are other methods to increase government expenditure, the GST hike is still justified. This is so as the GST system in Singapore is far from being regressie, when considering the support packages implemented by the government. Also, the possibility of economic conditions worsening means that the government would need to supplement its revenues, so that it can better support the economy in the future. Finally, when discussing the use of government reserves, we must consider the negative impacts it will bring to the future generations and hence the GST hike is justified.
References
Budget 2022: Singapore to raise GST from 7% to 9% in two stages in 2023 and 2024 | The Straits Times
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