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SINGAPORE – While the Goods and Services Tax (GST) rate will remain at 7 percent next year, the rate increase cannot be deferred indefinitely as revenue is necessary to support Singapore’s spending needs to ensure its long-term future, the deputy prime minister said. Heng Swee Keat on Thursday (October 15).
“We will continue to study the timing of increasing the GST rate carefully, taking into account the pace of our economic recovery, our revenue prospects and how much spending we can defer to subsequent years without jeopardizing our long-term needs,” he told Parliament . in a speech to round off the debate on the Government’s Covid-19 strategy.
Heng noted that this year’s GST collections are forecast to decline by 14 percent from initial estimates before the start of the year, mainly due to travel disruptions and the impact of the breaker period.
GST collection is also expected to remain lower than usual for a few more years, until international travel fully recovers, he added.
In February, Heng, who is also the Coordinating Minister for Economic Policies and Minister of Finance, announced that the GST rate will remain at 7% next year (2021).
However, he assured Ms Foo Mee Har (West Coast GRC) that a $ 6 billion guarantee package has been reserved for GST for Singaporeans when the rate is finally raised.
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Ms. Foo had previously raised concerns about the impending GST hike amid the bleak economic environment. Heng said the guarantee package will offset the GST increase for five years for most households and 10 years for low-income families.
Noting that more than 60 percent of the GST collected by individuals and households comes from foreigners residing here, tourists, and the wealthiest 20 percent of households, Heng said that setting aside the increase in the GST rate indefinitely It means giving up the extra income of these groups that can be used to improve the lives of Singaporeans.
In response to a question from Mr. Liang Eng Hwa (Bukit Panjang) on how the Government would balance its budget with the still weak income situation, Mr. Heng said that medium-term revenues are expected to be moderate and uncertain due to Two reasons.
Global economic growth is likely to remain weak for several years, and global competition for tax revenues can be expected to intensify, he said.
Even with these challenges, Singapore cannot lose sight of its goal of securing its long-term needs, he said.
Spending on public health and preschool education, for example, can be expected to rise. This is vital to ensure that the country takes care of its old and young, he said.
The government is studying how to strengthen its fiscal toolkit, he said, and has been seeking loans for important long-term infrastructure even before Covid-19 arrived.
“This will help spread the high upfront costs equitably among current and future generations who will benefit from such investments,” he said.
[[nid:483575]]But the government’s approach will be prudent and principled, he stressed.
“We will only borrow for infrastructure that benefits multiple generations, and we will ensure that our level of debt and future payments are sustainable … We will not borrow just to make up for income shortfalls or to be opportunistic in market timing,” he said.
However, for recurring expenses like health and education that benefit the current generation, the responsible way is to pay for them with recurring income like taxes. “This discipline ensures that each generation wins and pays its share,” he stressed.
In his speech, Heng also mentioned how the latest round of Covid-19 support measures that he announced in August is being fully funded with the budget reallocation.
He said the government made a thorough analysis to identify postponements or reductions in spending.
Some, such as those on the MRT lines, the HDB upgrade and the sewer and drainage works, were postponed due to delays from the circuit breaker and the subsequent reopening of the construction sector.
[[nid:483748]]Other expenses were lower than previously anticipated due to Covid-19 and safe distancing measures.
“However, most of these are not savings but late expenses, which will still be incurred in future years,” he said.
“These projects are necessary to raise the standard of living of Singaporeans and our economic development. We will move forward when conditions allow.”
Large infrastructure projects are already being reviewed to take into account the long-term impact of Covid-19, Heng said.
For example, the construction of Terminal 5 at Changi Airport has been suspended for two years. This is due to uncertainties about how the pandemic will affect the aviation sector.
There could be further postponements or downscaling if demand takes longer to recover, Heng said. Conversely, the need to incorporate more strength and safety features could also increase project costs.
[[nid:494142]]Mr. Heng was responding to deputies such as Mr. Murali Pillai (Bukit Batok) and Mr. Xie Yao Quan (Jurong GRC).
Mr. Murali had asked, given the expected drop in government revenues, if there would be any delay or cancellation of major infrastructure investments, and if the government expects any loans to finance the projects it has committed to completing.
Xie said he appreciates the government’s commitment to minimize its use of reserves, but asked whether the amount originally budgeted for strategic development should be set aside in a fund and other Covid-19 support measures funded with more resources from reserves.
This article was first published in The times of the strait. Permission is required for reproduction.
