TL;DR – And we should save for the next too.
We are living in extraordinary times. DPM Heng Swee Keat, who is also the finance minister, delivered a second budget speech recently. Yes, for the same year.
He announced the supplementary budget which he’d named the Resilience Budget where the government will spend a whooping $48 billion to mitigate its impact on the economy. (This is on top of the $6.4 billion announced in the Unit Budget back in February 2020.) That is how much we are going to spend this year to save lives and livelihoods.
The money will go to a whole host of measures. From shouldering a portion of monthly salaries of employees, to helping self-employed persons (SEPs) have some form of income, from helping companies stay afloat to defraying the cost of living for families, the resilience budget is probably the biggest ang pow the government has ever given.
To fund this Resilience Budget, we will have to tap into our past reserves. The government has estimated that we might need to draw $17 billion from our past reserves. This is unprecedented. But we are dealing with an unprecedented situation. It is unsurprising that President Halimah has already given her in-principle approval for the government to do so.
And we might need more than $17 billion. The size of our past reserves is a state secret. We don’t know how many more $17 billion we have in our past reserves. But our war chest is big enough that we can do more if needed.
We have such a big war chest only because we accumulated our past reserves over many decades. The generations that have gone before us scrimped and saved.
Many have questioned the need to put aside so much money. Many would rather we spend more and spend more now rather than save. The answer from the government has always been that we are saving for a rainy day. Well, that rainy day has come. And it is a mighty storm. If we hadn’t saved, if we had spent the way some people have wanted, we would not have the resources today to weather this storm.
I am grateful to the generations before ours for saving up. I am grateful that we have a government that did not give in to political pressure.
And it is absolutely clear to me now that once this is over, I will have to do my part to ensure that my children will have the same, if not more, resources to weather any storms in the future. Once this is over, once the economy recovers, and it will, we will need to save up again. We need to put back what we have drawn. Then we need to grow our reserves.
And that is why, at some point in time in the future, GST needs to go up.
In 2019, we collected $11.1 billion from GST. Based on that, if we raise GST by 2%, we can probably collect an additional $3.17 billion. If, after the economy recovers from the impact of COVID-19, we don’t spend any more than what we do now, our revenues from other sources are the same as before this crisis, and the increase in tax revenue from raising GST all goes to our past reserves, we will still need slightly more than 5 years just to put back what we have drawn this year.
With an ageing population, healthcare costs are likely to go up, which will lead to an overall increase in our expenditure. Which means even if we raise GST by 2%, it might take 6 to 10 more years before we actually start growing our past reserves. I hope we only face another mighty storm long after that.
I admit. I was not keen on GST going up. It will raise the cost of living. And GST seems like a regressive tax.
But I found out that in Singapore, tourists and the top 20% of resident households account for more than 60% of the net GST borne by all households and individuals. This is even after taking into account GST refunded under the Tourist Refund Scheme for goods bought here for consumption abroad. This is partly because foreigners do not benefit from the GST voucher and offsets, which are available only to Singaporean households.
Conversely, the bottom 40 per cent of resident households are estimated to account for less than 10 per cent of the net GST borne by all households and individuals with the GST Voucher.
That’s right. We collect quite a fair bit of GST from tourists – from their hotel stays, when they go out and eat, when they go and party. And foreigners working amongst us too. And those who are richer.
So, while raising GST by 2% to 9% will mean higher costs of living for most of us, foreigners and those who are richer will bear most of it. And it will give us a means to put back what we have drawn from our past reserves, and allow us to grow our reserves for the next storm that we, our our children, will meet. Just as the generations before us have done for us, I think we need to do this for our children and their children too. That is the Singapore way.
(Featured image via ST)