SINGAPORE - There will be no need for further increases in goods and services tax (GST) up to 2030, Deputy Prime Minister and Finance Minister Lawrence Wong said on Feb 28.

Wrapping up the debate on his Budget statement in Parliament, he said: “As of now up to 2030, we are in a sound position.”

He was responding to a question by Progress Singapore Party Non-Constituency MP Hazel Poa, who asked if there would be a need to raise GST from now until 2030.

To this, DPM Wong said the 2 percentage point GST hike – from 7 per cent to 8 per cent on Jan 1, 2023, and to 9 per cent on Jan 1, 2024 – is meant to close the gap between revenue and expenditure until 2030.

“We have closed the funding gap up to 2030. The GST increase that we announced was intended for this, so we are okay up to 2030. We do not need further GST increases up to 2030,” he said.

The Government has said the revenue from the increase in GST will go towards meeting Singapore’s medium-term needs, such as in healthcare and social spending.

In an occasional paper on medium-term fiscal projections published in February 2023, the Ministry of Finance (MOF) projected that government spending would rise to about 19 per cent to 20 per cent of gross domestic product in the 2026 to 2030 financial years, and may exceed 20 per cent of GDP by FY2030.

To close this funding gap, moves were made at both Budget 2022 and Budget 2023 to strengthen the Government’s revenue position so that rising expenditure can be balanced by total revenue in the coming years, DPM Wong said previously.

In Parliament on Feb 28, he said MOF will continue to update its projections of Singapore’s medium-term fiscal needs on a rolling basis.

He added: “So, post-2030, we will have to see what the picture is.

“And beyond that, we will have to see if indeed there is a funding gap, if there are increased expenditures, and whether or not additional revenues or tax changes are needed to close those funding gaps.”

Impact of GST hike on inflation

Workers’ Party (WP) MP Jamus Lim (Sengkang GRC) said the GST hike had likely contributed to domestic inflation, adding that increases in value-added taxes in other jurisdictions have typically caused a spike in inflation. He asked if DPM Wong “still believes that the timing of raising GST was justified”, or if it would have been wiser for the move to be postponed.

To this, DPM Wong said that while hiking GST does cause prices to go up, this impact is “once off” and is “not permanent”.

He added that it was clear from inflation trends that the GST increase was not the key driver behind the spike in prices here, and “neither will it cause us to have inflation remaining high”.

The rise in inflation was a global trend, and Singapore had been hit as well, but the inflation rate here has since come down and continues to moderate, he said.

Through the Assurance Package to help Singaporeans cope with cost-of-living pressures, the Government has deferred the impact of the GST increase on the vast majority of Singaporeans, especially the lower-income groups, by more than five years, he added.

As for the timing of the hikes, he said: “If we had not done it at the time we did, when will be a good time to do it?

“And, well, if we were to do it this year, or next year, will the opposition therefore support it? I seriously doubt so.

“So, I think our approach is let’s do it correctly. Let’s do it in good time, make sure that our fiscal system remains sound and always ensure that we have sufficient revenues to cover our spending.”

Avoid ‘fiscal fantasies’

Opposition MPs have often called on the Government to use more of the past reserves to fund current spending, DPM Wong said, noting that this will be detrimental to both current and future generations of Singaporeans. 

If this is done, the Net Investment Returns Contribution (NIRC) – which comes from the long-term returns of investing the past reserves – will shrink as a percentage of GDP, and the funding gap will increase.

This means future generations will have to pay more taxes, he warned.

Unlike many other advanced economies, where debts and deficits are rising and the fiscal systems are close to breaking point, Singapore is enjoying the benefits of savings from the past, he said.

Around the world, many political parties are not prepared to speak the hard truths, he added, and policy debates are dominated by “fiscal fantasies”, including overly optimistic forecasting assumptions, unrealistic suggestions to raise funds from only the rich or kicking the can down the road indefinitely.

Calling on the House to commit to maintaining fiscal sustainability, DPM Wong said: “Let’s not indulge in fantasy thinking. Not in this House, not in Singapore.

“Having the resources to pursue a strong economy and a strong society, and achieve good outcomes, is not a fairy tale. This is very much our Singapore reality, but it requires us to focus on prudence, fairness and sustainability.”

He said the ruling People’s Action Party’s (PAP) position on the issue was quite clear.

“Where it comes to certain fundamental principles, and values, like fiscal responsibility, a basic orientation not just to look at today but for the future, this must never be compromised, this must never change,” he added.

“These principles were put in place by our founding leaders. They have continued under successive leaders of the PAP, and they will certainly continue under my watch.”

There was a time when there was an alignment between the PAP and the WP, under former chief Low Thia Khiang, on this ethos, but this has changed under current WP chief and Leader of the Opposition Pritam Singh, he added.

To this, Mr Singh suggested that the PAP, too, had changed its position.

He pointed to how the “PAP government (of) yesterday” would return money drawn down from the reserves as a “matter of principle”, but may not do so today.

Contrasting the drawdowns from the reserves made during the global financial crisis in 2008 with those during the Covid-19 pandemic, Mr Singh said the Government had returned the money to the reserves after the global financial crisis but has said it is unlikely to return the amount drawn down during the Covid-19 pandemic.

“Global financial crisis, Government draws down, returns the money, and I think there were some statements made about why it was doing that. This time round, reserves are used for another emergency, and they are not returned,” said Mr Singh.

“Just (a) simple statement of fact. Positions change.”

In his wrap-up speech, DPM Wong said if the opposition parties have different views on Singapore’s fundamental fiscal philosophy, they should take the issue to the ballot box for people to decide.

“Make drawing more from the reserves an election issue. Go to the people, ask them for a mandate to change the Constitution, compel the President to let you spend 60 per cent, 75 per cent or even 100 per cent of the NIR (Net Investment Returns),” he said.

“The PAP will join issue with you – we will present our case to Singaporeans, and ultimately Singaporeans can decide what is the best fiscal approach to take Singapore forward.”