SINGAPORE — The Singapore government will need to go ahead with the Goods and Services Tax (GST) increase next year to fund rising healthcare expenditures, Minister of Finance Lawrence Wong told parliament Monday (4 July).
Wong, who is also Deputy Prime Minister, was responding to questions posed by various Members of Parliament (MPs) on whether the government was considering postponing the GST hike given the global downturn and soaring inflation.
The GST is set to increase from the current 7 per cent to 8 per cent in January 2023, and to 9 per cent in January 2024. The hike was announced by former Finance Minister Heng Swee Keat in Budget 2018 and planned for 2021, but was then delayed.
MPs also sought to clarify the scope, duration and size of the measures in a S$1.5 billion support package announced by Wong last month as a response to the rising cost of living.
In his response, Wong assured parliament that the government will do more if the global and domestic situation worsened, including enhancing a S$6.6 billion Assurance Package that was first announced by Heng in 2020.
Under the Assurance Package, originally pegged at S$6 billion, every adult Singaporean will get cash payouts ranging from S$700 to S$1,600, spread over five years. Wong enhanced the Assurance Package by S$640 million in Budget 2022.
The Assurance Package is meant to cushion Singaporean households from the impact of the GST increase, and a “majority of Singaporean households” would not feel the impact of the hike for at least five years. For lower-income households, the impact of the GST increase will be delayed by about a decade, Wong reiterated in his speech Monday.
“We will continue to assess the adequacy of the Assurance Package as the inflationary outlook evolves. If need be, we will further enhance the Assurance Package to uphold our commitment,” Wong said.
The Singapore government’s approach was to “provide short-term relief, and to support longer-term economic restructuring”, which in turn explained the need to go ahead with the GST hike, said Wong.
“We should not push back the GST increase any further, as we will need the funds urgently to take better care of our growing number of seniors, and to meet our rising healthcare expenditures,” Wong said,
The government, already anticipating the higher inflation outlook earlier this year, had hence staggered the GST increase, he added.
“Crucially, we must always ensure that we have sufficient resources to tackle our longer-term challenges, and do so in a fiscally responsible and sustainable manner,” he added.
The Assurance Package and the S$1.5 billion support package were two examples of how the government monitored and reacted to global and domestic developments.
“You have my word that if the situation worsens significantly, we will be prepared to do more, especially to provide targeted help for the lower- income groups. We will continue to do so while living within our means, and upholding prudence and responsibility in fiscal management,” said Wong.
“In Singapore, we have used a combination of monetary, fiscal and other policies to cushion our people from the extremes of global inflation, target help to those who need it most, and help businesses adjust to higher prices, not just for today but for the medium-term. With careful fiscal planning, we are able to mount further support, if the situation warrants it,” he added.
Wong, who is also Deputy Chairman of the Monetary Authority of Singapore (MAS), said that the MAS aims to keep inflation low over the medium term through its exchange rate-centred monetary policy.
When inflationary pressures build up, MAS allows the trade-weighted exchange rate to appreciate faster, thereby helping to directly reduce imported inflation, he said.
The stronger exchange rate has helped dampen imported inflationary pressures, the minister said. Over April and May, while global food commodity prices increased by an average of 21.7 per cent year-on-year, domestic food prices increased by an average of 4.5 per cent, he said.
Singapore's core inflation reached a 13-year high of 3.6 per cent in May.
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