Comment: Why is it necessary to increase the GST now?

The regressive impact of the GST is offset by progressive income taxes and large tax transfers, including WIS, Silver Support and the GST voucher program. In fact, the expansion of these transfers has increased the overall progressivity of the system over the past two decades.

DAMPENING IMPACT, SEEKING PUBLIC ENGAGEMENT

Yet there are fears that increasing the GST will increase costs at a time when inflation is accelerating globally. Prices rise here along with the cost of oil, food and raw materials; the government expects underlying inflation to be 1 to 2 percent this year, higher than in the past two years.

The S$6 billion insurance scheme, announced in the 2020 budget, will offset the impact of a five-year higher GST for most Singaporeans and 10 years for the low-income group. In designing this support, the government could seek to address short-term cost pressures in addition to the impact of the GST increase.

In addition to the consideration of costs, two other factors are essential to the public’s support for the increase in the GST. First, the government must be seen to be prudent in public spending, be it infrastructure development, economic programs or social spending. Otherwise, evidence of waste or extravagance would weaken the case for raising the GST.

Second, the overall tax system must remain fair, with the better-off contributing their fair share of taxes. To this end, the government could consider further strengthening the progressivity of wealth taxes or introducing new forms of wealth tax in due course.

However, there are limits to the amount of additional revenue this taxation could bring in without undermining Singapore’s attractiveness as a center of business and wealth.

A GST increase is never an easy sell. It will cause some upset, but the long-awaited move is part of a wider effort to help shore up Singapore’s revenue, empowering the nation to meet the challenges ahead.

Terence Ho is an associate professor in practice at the Lee Kuan Yew School of Public Policy. He is the author of Updating the Singapore System: Recalibrating Socio-Economic Policy for the 21st Century (World Scientific, 2021).

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