SINGAPORE: A DBS research report published on Tuesday (Nov 28) expects the government to raise the goods and services tax (GST) from 7 per cent to 9 per cent in next year’s Budget.
And the projected hike is likely to be staggered over the next two years, said the report by DBS senior economist Irvin Seah.
Mr Seah estimated that a 1-percentage-point increase in GST would bring in an additional S$1.6billion to S$1.8billion in tax revenue for the government — equivalent to 0.4 per cent of Singapore’s nominal gross domestic product.
“Hiking the GST is politically challenging given its regressive nature. In this regard, timing is crucial. With the next General Election (GE) due (by January 2021), policymakers will have to act fast… the GST is perhaps the most direct and effective tool in terms of raising tax revenue,” Mr Seah said.
Senior Minister of State (Finance) Indranee Rajah told the Straits Times in an interview published on Sunday that the Government has not decided on the date of the impending tax hike. She added that the Government will take into account factors such as setting aside enough time for people to absorb the news, and ensuring the needy “have enough buffer” against the impact.
Speaking to TODAY, Mr Seah said he expects the GST hike to be announced during the Budget statement – which is traditionally delivered in February or March – and implemented in the second half of next year.
However, other economists whom TODAY spoke to were divided on whether a GST hike could kick in so soon, given that the Government could require more time to explain why it is raising taxes, and the fact that consumer spending had picked up only recently.
CIMB economist Song Seng Wun said he expects an increase in GST to be implemented in 2019. “I think the government will likely use next year’s Budget to explain fully the rationale (behind a hike),” he said.
He added: “We are likely to see a small deficit in next year’s Budget, which will set the backdrop for the government to explain why there is a need to increase GST.”
Maybank economist Chua Hak Bin also felt that it “does not seem appropriate” to raise GST next year. “Consumer spending has only started to pick up and raising the GST now might just puncture this recovery,” Dr Chua said.
IHS Markit economist Bernard Aw, however, agreed with Mr Seah. “Singapore’s economy has been strengthening this year, and recent Nikkei Singapore Purchasing Managers’ Index data suggest that the current upturn is likely to continue into 2018. (This creates) a more favourable economic climate for raising the consumption tax,” said Mr Aw.
Apart from investments in infrastructure and the economy, the government will incur heavy spending on social services and safety nets, including healthcare.
Speaking at the People’s Action Party convention on Nov 19, Prime Minister Lee Hsien Loong reiterated that it is a matter of when and not if taxes will be raised. He added that “well before the time comes”, the Government will explain to Singaporeans what the money is needed for and show how it will benefit the young and old.
