Lower-income families are among groups who could be hit hardest when the GST goes up from 7% to 9% sometime between 2021 and 2025.
Finance Minister Heng Swee Keat on 19 February 2018 said the hike is to help pay for “recurrent needs”, such as security demands, healthcare for an ageing population and other social spending.
To help lower-income households and seniors, he said the permanent GST Voucher scheme will be enhanced when the tax goes up. The GST Voucher Fund will get a $2 billion top-up this year, he said, adding that lower-and middle-income families will also benefit from an offset package for a period to help them adjust. DBS Senior Economist Irvin Seah predicted that the offset package could amount to at least $4 billion. Such a package will be necessary to “soothe the pain for households, particularly the lower-income families”, he said.
Academics and experts noted that the lower-income groups will feel the pinch more from a GST increase. This is even though the bulk of GST is paid by higher-income households that spend more.
OCBC Bank’s Head of Treasury Research and Strategy Selena Ling said Singapore’s overall fiscal policy has always emphasised a fair tax regime. She cited last year’s income tax hike, which impacted those in the wealthiest bracket most, as an example of addressing income inequality.
The tax hike will give Singapore the “fiscal ammunition” it needs to meet growing infrastructure demands and rising healthcare expenditures that will benefit all, she added. Said Ms Ling: “At the end of the day, a vibrant and growing economy with healthy job creation is a tide that lifts all boats.”
Observers noted that there is a political element to the timing, as tax hikes are unpopular moves. The hike will take place after the current term of government, allowing it to honour its earlier “promise” that there should be no GST increase till the end of the decade, said National University of Singapore (NUS) academic Simon Poh.
Said Associate Professor Stephen Phua of NUS: “Raising revenue is a matter of pure necessity, but where you are going to harvest it from is a policy choice.”
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Source: The Straits Times, 20 February 2018