PROPOSAL TO DEFER GST INCREASE GIVEN INCREASED TAX COLLECTION IN FY2021/2022 AND BELOW-INFLATION INCOME GROWTH

MP Jamus Lim

Assoc Prof Jamus Jerome Lim asked the Deputy Prime Minister and Minister for Finance in light of the recent study by DBS which found that income growth has not kept pace with inflation, and the sharp increase in tax receipts for the past financial year, whether the Ministry has considered (i) postponing the need to raise GST at the start of 2023 and (ii) adjusting the GST voucher amounts issued to lower-income household quintiles. 

Mr Lawrence Wong: Sir, Members have asked whether tax measures can be deferred in view of two considerations. First, the concerns with inflation, and second, the increase in tax revenue in FY2021. I will address these two considerations in turn.

First, the Government shares Singaporeans’ concerns over inflation. Over the past decade, Singaporean workers have experienced real wage growth. Wages have exceeded inflation. We do not have real wage growth figures for 2022 yet, as the data will only be available later this year. But we know that inflation has gone up in this year and that is why the Government will continue to provide support for Singaporeans to mitigate the impact of higher prices. Besides the measures in Budget 2022, we had announced a $1.5 billion support package in June, with more support given to the lower-income and vulnerable groups.

While we deal with these immediate cost pressures, we have also been working with employers and unions to help our companies and workers become more productive and competitive. This is important to sustain real wage growth over time. We will also continue to uplift the wages of lower-wage workers by expanding the Progressive Wage Model to more sectors and to raise the wages of lower-wage workers along with enhancements to their skills and productivity.

To help businesses adjust in this challenging economic environment, the Government is providing a transitional support of up to 75% for employers to pay their workers progressive wages. That is an increase from the previous level of 50%. This was enhanced in June as part of the $1.5 billion package. And as announced at Budget this year, the Government will also spend about $9 billion on transitional wage support to businesses and Workfare enhancements, as part of our commitment to help workers achieve broad-based and sustainable income growth.

 Let me now address the second point which is on tax revenue in FY2021.

 We experienced revenue increase of more than 22% in FY2021 and this sharp increase is partly due to a lower tax base in FY2020 arising from the impact of the pandemic that year.

 But more importantly the increase was also driven by higher-than-expected collections of sentiment-based revenue. In particular, stamp duty collection accounted for the largest share of the tax revenue increase in FY2021. The property market has recovered at a much faster rate than many market observers had anticipated. But just as a bullish property market can provide upsides, there can also be downsides in a muted market, as past experience has shown. We therefore cannot rely on such sentiment-driven collections, which can fluctuate from year to year, as a stable and sustainable source of revenue to meet our rising recurrent expenditure needs.

We have used the higher tax revenue in FY2021 to support new spending needs, including the enhancements to the Progressive Wage Credit Scheme, as well as to provide short-term relief for businesses and families. These include our COVID-19 support packages during periods of heightened restrictions last year and measures to help Singaporeans with cost of living support this year.

Sir, our spending needs are growing, largely driven by higher healthcare expenditure as our population ages. We also need to accelerate our economic and green transformation and shore up our resilience in essentials like food and energy amid global economic uncertainty. As Members would remember from the Budget Statement this year, we expect our Government expenditure which now stands at 18% of GDP to rise to 20% or more GDP by 2030. 

And this is why I had introduced a slate of revenue measures in Budget 2022. These will provide us with the resources we need to meet our longer-term priorities in a responsible manner. We will proceed with these measures, including the GST increase as planned. But as I have assured Members previously, we will also ensure that the majority of Singaporean households will not feel the impact of the GST increase for at least five years, while lower-income households will not feel the impact for about 10 years. That was the assurance we gave in the Budget. We will uphold this commitment even with the inflationary outlook and will further enhance the Assurance Package if necessary.

Sir, prudent management of our finances has been one of Singapore’s strengths. It has allowed us to emerge stronger from COVID-19 and will allow us to continue to meet our collective aspirations and to seize every opportunity that comes our way. Let us continue to steward our resources responsibly and sustainably, and leave behind a stronger and more resilient Singapore for our future generations than what we had inherited from our forefathers.

Assoc Prof Jamus Jerome Lim (Sengkang): Mr Speaker, if I may reiterate the second part of my original Parliamentary Question (PQ), the issue, which Minister Lawrence Wong has suggested is that, the distribution of real income growth and the impact that inflation has on real income growth for different quintiles of the income distribution is different. There has been a larger-than-expected erosion of real wages expected by the very poorest. And, so, it makes sense, I would argue, for this group to have a GSTV payout adjusted accordingly, unless perhaps the Minister has identified that it is still the case that the five years of frozen GST is still the case because of higher inflation.

And if I may follow with a second supplementary question, I wonder if MOF has actually performed studies to ascertain that the PWM payouts for this group will more than actually offset real income losses that they have already incurred as a result of inflation.

Mr Lawrence Wong: Sir, that was exactly the point I was making just now in my reply, which is that we are looking and monitoring very closely at income growth of the different segments of society, taking into consideration the rollout of PWM, Workfare and all of these measures; and then looking at how higher inflation is impacting each of these segments. We fully understand that higher inflation disproportionately impacts the lower-income groups. Which is why our measures have already taken that into consideration and we give a lot more help to the low-income groups, both in our Assurance Package as well as in the cost of living package which we designed and rolled out in June this year.

After taking all into consideration, we are monitoring, we are looking at the latest figures. And as I mentioned just now, if there is still a gap that some groups face, in terms of difficulties coping with higher inflation, even after taking into account all the different packages and measures, we will certainly consider doing more to help these families cope through these challenging times.

Ministry of Finance
12 September 2022

https://sprs.parl.gov.sg/search/sprs3topic?reportid=oral-answer-2872

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