Will the PAP raise GST again?
(EDITORIAL POLICY: This article may NOT be reproduced on any blog or website, but link-backs or SNIPPETS with FULL attribution to this site are welcome and appreciated.)
Written by Ng E-Jay
26 August 2013
In the run-up to the 2011 general elections, the Finance Minister Tharman Shanmugaratnam said that there would be no reason to increase the GST for at least the next five years, because the previous increase from 5% to 7% made in 2007 was sufficient to cover future expenditures. These were his exact words:
“At least for five years, there’s absolutely no reason to raise the GST, because this (the previous raising of the GST from 5% to 7% in 2007) was the whole idea: We strengthened our revenue base in time, in fact in the good years before the crisis (the crisis of 2008), it came in very handy in the crisis, but it’s also going to come in handy in the next five years, when we build up our expenditures on health, on infrastructure, and we increase our support for the poor.”
The Finance Minister’s words were reported on Channel News Asia and other mainstream media outlets, and they were the basis for PAP’s promises to the electorate that the GST will not be raised for the foreseeable future.
However, PM Lee Hsien Loong recently cautioned that taxes might have to be raised again to pay for increased social spending, such as spending on healthcare and financial assistance for the needy.
At a post-National Day Rally dialogue on Thursday evening, Mr Lee said that while the government will do more, “good things need to be paid for“.
The government “does not have a magic source from heaven“, he said.
Mr Lee added: “If I’m discussing whether to raise taxes or not, I think I will never finish that discussion. So, one day when we have to raise taxes, the government will just have to make up its mind and say, ‘ok, I have to decide, I have to do this, I have to persuade people’, because otherwise it’s not workable.” (Channel News Asia, 23 Aug)
Economists have suggested that should taxes be raised, the government is likely to first look into raising the GST. If a move to raise GST is held within the next three years, that would contradict Mr Shanmugaratnam’s assertion during GE 2011 that there is absolutely no reason to raise GST within the next 5 years (from 2011).
For the last fiscal year ending March 2013, Singapore’s operating revenue was $55.8 billion. Including other revenue such as land sales, the gross earning was $80.4 billion. The government spent around $46.2 billion, leaving $34.1 billion in surplus.
Given the government track record of having large surpluses such as the one recorded for last year, I believe there is no good reason for the GST to be raised as far as the eye can see.
The GST is a regressive tax that punishes the lower income, because the lower income spend a larger percentage of their take home pay on basic necessities. Every increase in GST hurts them disproportionately, unlike the upper income classes who can control their expenditure.
The electorate must remind the PAP of its election promise to hold the GST steady.
If the government needs more revenue to fund social programmes, it should rely on existing budget surpluses instead of pouring them all into the reserves.
In the future when revenue from land sales drops, it might also be time to consider raising income tax levels. Thus far, the government has kept the income tax level low to maintain competitiveness. However, the income tax level is but one factor that determines economic competitiveness. Other factors include having a business-friendly environment, adequate but not stifling regulation, an open and free market, and rule of law as opposed to rule by law.
To maintain competitiveness, we also need to keep costs steady. In the past several years, the cost of living and the cost of doing business in Singapore has risen drastically because of escalating property prices and rentals. This factor alone might have hurt our economic competitiveness.
The willingness of the government to open up and allow people to express themselves freely is also a determinant of overall economic competitiveness and social resilience.
So instead of simply looking to raise the GST every time there is a need to spend more, the government should instead be looking at how to liberalize its attitudes towards freedom of speech and expression, and create a more business-friendly environment where costs are kept steady. Rentals, which are a major component of business costs, should be kept steady over time, instead of being allowed to escalate exponentially like in the past several years.