Photo of Lee Hsien Loong from Yahoo Singapore

Singapore economists expect the Singapore PAP Government to raise the GST to fund the slew of healthcare, housing and infrastructure projects announced by Prime Minister Lee Hsien Loong.

Photo of Lee Hsien Loong from Yahoo Singapore
Photo of Lee Hsien Loong from Yahoo Singapore

Project Jewel, Pioneer Generation Package, Medishield Life and Jurong Lake are some of the initiatives by PM Lee Hsien Loong recently and the economists do not expect the PAP Government to raise income taxes to fund them. According to UOB economist Francis Tan:

“Raising income tax is not very possible if Singapore wants to remain relevant for multinational corporations and high-income global talents.

A more probable venue for change is the consumption tax bracket, and I do not think it’s impossible for us to increase GST from the current 7 per cent to 10 per cent. For years we’ve been cutting income-related taxes to move towards a more consumption-based system. This is to make Singapore more attractive than other developed countries where income tax rates are much higher. I don’t see us reversing this trend.”

Another economist from Barclays, Joey Chew pointed to DPM Tharman’s Budget 2012 speech and said that the DPM compared Hong Kong’s income tax levels with Singapore’s and therefore there is a limit to how high income taxes can go without hurting competitiveness.

Joey Chew also criiticised the GST as regressive but said that the PAP Government has however made GST Voucher Scheme permanent to indicate that the GST have only the up direction to go:

“GST is regressive, but the government would provide offsets to lower-middle income households, as they have done so in previous rounds of GST hikes. Now that we have the permanent GST Voucher Scheme, the offsets are even easier to implement. The groundwork has already been laid for an eventual increase in GST.”

CIMB economist Song Seng Wun also gave similar sentiments:

“Over the longer run, as our population ages, Singapore’s operating revenue might shrink, and spending rise — only then would we need to increase tax, in which case I think the government will more likely focus on GST… Overall, I don’t see our business attractiveness or growth potential getting diminished (by the new measures).”

Prime Minister Lee Hsien Loong will likely only announce the increase of the GST after the coming General Elections to avoid any political backlash from Singaporeans.

Relatively, the lower income you earn, you pay more taxes as compared to the rich. The GST effectively taxes the retirees, unemployed and even the ComCare recipients. Under PM Lee Hsien Loong​, the GST has been raised numerously times from 3% in 2004 to the present 7%.

GST Vouchers functions as an effective political carrot as well as it sees the ruling party back to government every election year when they are announced. In 2015 this year, 1.6 million Singaporeans will get up to S$600 in cash depending on their income level and household they are living in.

Screenshot from GST website
Screenshot from GST website