Heng: Decision to raise goods and services tax was a difficult one

Finance Minister says Govt looked at all alternatives

The decision to raise the goods and services tax (GST) was a difficult one, but it is the most appropriate option to help Singapore raise revenues at this stage, said Finance Minister Heng Swee Keat.

Over the past year, the Government had thoroughly scrutinised all alternatives, he said.

"We looked at all the different taxes we could change, even non-tax measures that we could take. Each of these has its pluses and minuses, and when we looked at the overall scheme of things, we decided that at this stage, the GST is still the most appropriate."

For instance, other countries are reducing corporate taxes, he noted. So a corporate tax hike could have "unpredictable consequences" - including the possibility of businesses shifting out of Singapore.

Mr Heng was speaking to The Straits Times, a day after he delivered a wide-ranging Budget on Singapore's long-term challenges and how they would be addressed - one that he terms a "multi-year agenda" for the country.

The most expected announcement - a GST hike to 9 per cent from 7 per cent - materialised. It will kick in some time from 2021 to 2025.

It is difficult news for Singaporeans, Mr Heng acknowledged yesterday, but hoped they can see the bigger picture.

"We are in a tight fiscal situation, not this year, not next year, but over the longer run," he said.

While there was a Budget surplus of $9.6 billion last year, this was due to "unexpected factors"- a buoyant property market brought in higher stamp duties and financial market fluctuations led to a big jump in investment returns for the Monetary Authority of Singapore (MAS) - which means "it can turn the other way round".


Meanwhile, long-term trends such as an ageing population necessitate healthcare spending.

"Revenue will not be enough," he said.

As it is, the money from the GST hike will not cover healthcare spending; the latter is estimated to rise to 3 per cent of gross domestic product a year, while the GST hike is forecast to bring in revenues amounting to 0.7 per cent of GDP every year.

As for when the hike will take effect, Mr Heng said it depends on the economy and financial markets. Even new medical technology, which can drive healthcare costs up, will play a role.

On whether a confluence of factors later on could render the hike unnecessary, he responded: "I will be very happy if that happens, but I will caution it is unlikely because the existing taxes will have to be extremely buoyant and the growth will have to be very, very high in order for us to be able to come up with that extra revenue to meet the expected rise in expenditure."

Mr Heng said the Government has been careful about managing its expenditure, and the money raised is channelled to long-term needs.

"It is not as if tomorrow we are going to spend on something that is totally superfluous. If people feel that this is profligate spending, then I will be very sad," he said, addressing criticisms from some quarters.

On whether he considered tapping more of the reserves - tweaking the Net Investment Returns formula so it can spend more than half the long-term returns from assets managed by GIC, Temasek and the MAS, Mr Heng said the numbers might be debated but what is more crucial is the principle that every generation pays its fair share.

For example, he said, investments in infrastructure are upfront and lumpy, but the benefits come many years down the road, so it is only right that future generations should pay for them.

Looking ahead, Mr Heng did not rule out the possibility of more measures to raise revenues down the road.

"Will there be other possible revenue measures that we have to take later on? We will have to look at how our expenditure growth pans out in the coming years."

Reactions to Budget 2018

Finance Minister Heng Swee Keat unveiled a raft of measures to better position Singapore for the future. Here is a round-up of reactions from various groups.

Singapore Manufacturing Federation

President Douglas Foo said schemes such as the Productivity Solutions Grant, which offers up to 70 per cent funding for productivity solutions, and the tax deduction for intellectual property registration fees, will boost innovation.

The PACT scheme can also coax smaller manufacturers to work together, pool resources and scale up.

Singapore Institute of Accredited Tax Professionals

Chairman Gerard Ee said the tax savings measureswill "put companies here in good stead to tap innovation and the growth opportunities in 2018 and beyond".

Ride-hailing firm Grab

It said the increased support for innovation would help companies here compete with global rivals, for instance, by developing digital innovations customised for South-east Asia and investing in capability development.

Women's rights group Association of Women for Action and Research (Aware)

The organisation's executive director Corinna Lim said measures such as enhancing the Proximity Housing Grant for caregivers who live with or near their parents and merging the Agency for Integrated Care with the Pioneer Generation Office could help caregivers.

But they "seem to suggest that we must continue to rely on our informal family networks for caregiving, without substantial support from the Government", she added.

Singapore Environment Council

Chairman Isabella Loh said the new carbon tax will benefit the environment, as it will help "Singapore reach its carbon reduction target of 36 per cent".

Singapore Chinese Chamber of Commerce & Industry

President Roland Ng is heartened by the measures to help businesses transform and upgrade via higher productivity and innovation. But businesses, especially small and medium enterprises, will be hit by the carbon tax and "will need the Government's grant support to improve their energy efficiency to help mitigate the impact".