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SINGAPORE: Excise taxes, including the Goods and Services Tax (GST), are needed to reduce the tax burden on younger workers in Singapore’s aging population, said Second Finance Minister Indranee Rajah in Parliament on Wednesday (October 14).
“If we continue to rely primarily on personal income taxes, the tax burden will increasingly weigh on younger Singaporeans who are still working,” he said.
“So you have to try to spread it out and make sure you rely a little on personal income taxes, but you also need to have excise taxes like GST.
“And GST reduces the problem by balancing taxes more broadly among the population.”
Ms Indranee was responding to a question from Bukit Panjang Member of Parliament (MP) SMC Liang Eng Hwa about how the aging of the population would affect the tax burden on the workforce.
READ: The number of babies born in Singapore falls to the lowest in 8 years
Ms Indranee noted that Singapore’s most recent total fertility rate of 1.14 is “below replacement,” adding that around 15 percent of the country’s population in 2019 was 65 or older. This will increase to about 25 percent by 2030.
“What this means is that we have a smaller proportion of the workforce contributing to an aging population,” he said.
“So those who are not working, the numbers are going to expand. And if we don’t have a replacement, the numbers that can actually enter the economy and contribute are going to shrink.”
As the population ages, annual healthcare spending will increase “exponentially,” Ms Indranee said, noting that it is expected to increase from 2.1% of current GDP to almost 3% of GDP over the next decade.
“What this means is that, in addition to savings, you need fresh income and must keep your sources of income diversified,” he said.
Indranee said personal income tax accounts for 18 percent of Singapore’s tax revenue, with the remainder coming from corporate income taxes, asset-related taxes and GST.
“And actually, when you have recurring expenses, you also need recurring income,” he said.
“So that was a key reason we introduced GST in 1994, because we recognized then that an aging population structure would require us to reduce our dependence on personal income taxes.”
READ: Timing of GST increase and other moves to shore up revenue position will be ‘carefully’ monitored: Heng Swee Keat
Deputy Prime Minister Heng Swee Keat first noted the need for the GST to be raised from 7 to 9 percent in the 2018 budget, then said the increase would occur sometime between 2021 and 2025.
During his first Budget in February this year, he announced that the GST increase would not take place in 2021 after taking into account the current state of the economy.
Indranee stated Wednesday that tax revenues depend on the growth of the economy, highlighting the importance of transforming the economy, increasing productivity and ensuring that the resident workforce can support economic development.
“That is why we supplement the local workforce with foreign skilled workers, especially in areas where we do not yet have the necessary amount of local skilled workers, although obviously we want to increase local skilled workers to be able to do those jobs,” she added.
“And in the long term, increasing birth rates. That remains the most sustainable solution to our demographic challenges.”
READ: Singapore’s population drops to 5.69 million, with fewer foreigners
To moderate the impact of aging and low birth rates, Ms Indranee said Singapore receives a “stable and measured” number of new citizens and permanent residents each year.
Data released by the National Population and Talent Division last month showed that Singapore’s population declined by 0.3 percent last year to 5.69 million in June 2020, with a drop in the number of foreigners.
Sembawang GRC MP Poh Li San had asked whether the government will review long-term population targets given the growing trend of outsourcing work abroad and a reduction in the employment of foreign workers in Singapore.
In response, Ms Indranee, who is also a Minister in the Prime Minister’s Office, said that the population outlook of significantly below 6.9 million by 2030 “remains valid today.”
READ: It is not true that the government plans to increase Singapore’s population to 10 million: NPTD
Singapore’s long-term population outlook was a hot topic during the recent general election, amid allegations that the government planned to increase the population to 10 million.
“The Government has clarified through a press release and Factually articles in March and July 2020 that it does not have a population target, nor does it seek to achieve a particular population size,” Ms Indranee said.
