‘Not true that the GST increase hurts the poor’: Lawrence Wong

Finance Minister Lawrence Wong during the Budget 2022 speech. (PHOTO: Screenshot/MCI YouTube channel)
Finance Minister Lawrence Wong speaking during the Budget 2022 speech on 18 February 2022. (SCREENSHOT: Ministry of Communicatins and Information/YouTube)

SINGAPORE — Singapore cannot keep delaying the increase in the Goods and Services Tax (GST) as it is facing pressing revenue needs, Finance Minister Lawrence Wong said on Wednesday (2 March).

Wong was speaking in Parliament on the phased hike in the GST to 9 per cent over two years during the debate on Budget 2022.

In his Budget Speech on 18 February, Wong announced that the GST will be raised from 7 to 8 per cent on 1 January 2023, and from 8 to 9 per cent on 1 January 2024. He said then that the revenue from the GST increase will go towards supporting Singapore's healthcare spending, taking care of the senior citizens, and other expenditure needs.

On Wednesday, Wong said he was aware of the concerns about inflation and cost of living. If inflation turns out to be persistent and higher than expected, the government would deal with it separately through various measures.

He reiterated that the government is cushioning the impact of the higher GST on households of different income levels through the Enhanced Assurance Package and the permanent GST Voucher Scheme.

Citing the example of a family with two young children with an income of $2,500 a month and living in a three-room flat, the family will receive $2,400 per year of benefits over the next five years, more than the total GST expenses of around $2,000 per year over the same period. Wong pointed out that most low-income families will receive more benefits than what they will pay in GST.

Wong noted that the Workers’ Party (WP) and the Progress Singapore Party object to raising GST, claiming that the government’s offsets are temporary and the GST is regressive and disproportionately impacts the poor.

“It is not true that the GST increase hurts the poor, not in the way we have designed it. And even for the middle income, you can see they continue to pay an effective rate which is well below the headline 9 per cent rate,” Wong said.

Wong also responded to a question by WP Member of Parliament He Ting Ru on whether the government can implement a multi-tier GST system for different items, or exempt certain essential items from GST.

A multi-rated GST system would lead to highly arbitrary distinctions between products and "creative efforts" by businesses to get their products classified into the lower tiers, and would be costly and onerous to implement, Wong said. A GST exemption for a basket of goods tends to benefit the well-to-do more as they spend more on everything, from luxury items to basic necessities, he added.

Wong also rejected the “simplistic and divisive” suggestions by the opposition to close Singapore’s funding gap without having to raise the GST by making the wealthy, large companies, and future generations pay more.

Singapore cannot sustain a tax system where the bulk or all of the burden is borne by a small group of people at the top end, Wong argued.

“It will not be possible to hold our society together if only a small group of people are required to pay more taxes all the time, while the rest simply get to piggyback on their contributions to enjoy more benefits. And that's why having a broad-based tax like the GST is so vital.”

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