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Last Monday, undergraduate student Marcus Aw Chen Feng, 21, wrote to ST Forum arguing against the impending raise of GST to 9%, which is expected to happen between 2021 and 2025 announced by the new PM-designate Heng Swee Keat in Parliament earlier (‘Drawbacks to raising GST‘, 8 Jul).
Marcus wrote, “Raising taxes means higher prices for consumer goods, including necessities such as rice, salt and sugar. This will adversely affect the spending power of lower-income residents. They will have less disposable income for other expenditures and may become unhappy.”
“High tax rates can negatively affect economic growth. The cost of production will increase for firms, making them less willing and able to invest in their businesses. They may even cut back on production, resulting in unemployment,” he added.
Marcus also said that the increased cost would even deter foreign firms from investing in Singapore. He proposed that to combat inequality, Singapore could introduce progressive taxation so that the rich would get taxed more instead of the poor.
No doubt, implementing Marcus’ proposal would mean taxing people like our high-salaried million-dollar ministers and civil servants more, and nobody likes to be taxed more.
MOF defends raising GST
In a ST Forum letter today, the MOF Director of Corporate Communications Lim Yuin Chien, who is a Public Administration Medal winner, wrote in to debunk Marcus (‘Increased GST needed to support rising expenditures‘, 15 Jul).
Not surprisingly, Mr Lim echoed what Heng Swee Keat had said in Parliament that GST rate has to be increased to help support “rising expenditures to care for an ageing population”.
Mr Lim also said that the increase is also needed to invest in early childhood education and to keep Singapore safe from “rising security threats like terrorism”. One can only surmise that the previously announced acquisitions of those billion-dollar stealth planes, ships and advanced submarines must have been targeted to be used on the would-be terrorists.
“The GST collected will support public spending that benefits Singaporeans, in the form of social support and security spending so that we can better care for, develop and protect our people,” Mr Lim said.
As for helping the lower-income group, he said that the government will “continue to fully absorb GST on subsidised education and subsidised healthcare”.
“We will continue with and enhance the current GST Voucher scheme when the GST is raised, to defray costs for lower-income households and seniors,” he said.
It’s not hard to imagine that these lower-income households and seniors who end-up receiving those free GST vouchers would probably be “grateful” to the ruling government and enhance their nostalgic feelings about the “lightning logo” when elections come.
Mr Lim continued, “We are focused on ensuring that Singapore’s overall system of taxes and transfers, comprising subsidies and grants from the Government, remains equitable. Lower-income households receive more transfers from the Government than all the taxes they pay, while the better-off pay more taxes than the transfers they receive.”
But Mr Lim also said that the government has been “actively tapping progressive taxes”. He said, “We announced the increase in personal income tax rates for higher-income earners in 2015, and increased buyer’s stamp duties for higher-value residential properties last year.”
As for Marcus’ argument that high GST rates may affect economic growth and investments, Mr Lim countered that GST is applied on domestic consumption and that businesses are allowed to claim GST incurred on their purchases.
“As such, GST does not discourage savings, work and investments. Our system of taxes and transfers strikes a balance to help Singapore maintain its competitiveness globally, and we will continue to review and refine it,” Mr Lim concluded.