5 reasons why a GST hike to 9% is not the end of the world

By June 22, 2022Current, Featured
Gst hike

TL;DR – Psst, DPM Lawrence just said that the upcoming GST hike will not be delayed despite rising inflation.

Some of us are old enough to remember a version of Singapore where paying for air tickets, steak dinners and a cup of kopi didn’t also come with an additional Goods and Services Tax (GST) — you know, the good old days.

Then 1 April 1994 (of all days in the year) happened and, just like that, everyday folks had to fork out an extra 3% for just about everything that they bought.

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Between then and now, Singapore increased its GST rate several times, with the latest being 2007 when it leaped to 7%.

Since then, all’s quiet on the western front — until now. Whispers began to swirl of another impending hike coming around the corner. In his Budget 2022 speech, Deputy Prime Minister Lawrence Wong finally announced that the hike will take place in 2023.

On 21 June, he also shared that an upcoming increase to the GST will not be delayed despite rising inflation, as he announced a new S$1.5 billion support package to help Singaporeans with rising costs.

The GST is set to rise from 7 per cent to 8 per cent in 2023, and to further increase to 9 per cent in 2024.

Look, we know. Nobody likes to pay more for something they used to pay less for. Besides, the pandemic has been more than unkind to us, both on the social and financial fronts. In short, it’s been super rough for Singaporeans — so why raise the GST rate to 9%?

We all want more, and better. But how do we fund spending?

 

Here are some solid reasons why raising the GST rate is not the end of the world as we know it.

1. We pay more here but we pay less elsewhere

When GST was first introduced in 1994, paying an additional 3% wasn’t a lot of money. In fact, most Singaporeans barely felt the pinch because, even though we paid more for the same plate of chicken rice, we paid less in other forms of taxes.

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For example, corporate and top marginal personal income tax rates were reduced by three percentage points to compensate for the introduction of GST. On top of that, nearly every subsequent increase in GST came with a support package to cushion its impact, especially for those in our society who needed support most.

As pragmatic as we were, Singaporeans did the calculations, complained a bit, adjusted to the new price tags and moved on with life. The world didn’t end then and it certainly won’t end now. To help cope with cost of living pressures, FairPrice has introduced the ‘Stretch Your Dollar’ programme. From 4 Mar till the end of the year, customers can get their daily staples across all FairPrice supermarkets at a 5% discount on Fridays.

2. We still have one of the lowest GST rates in the world even after the GST hike

Sure, a GST rate of 3% is a far cry from 9%, and we are most definitely going to feel the pinch. In fact, this time, it could leave a mark.

However, to put things in context, Singapore still has one of the lowest GST rates in the world. At the top end of the scale, the United Kingdom’s rate stands at a whopping 20%, or one percentage point higher than the OECD average of 19%. Furthermore, Singapore’s current GST rate of 7% is tied with Thailand and is still lower than the likes of China (13%), Australia (10%) and Japan (10%).

In fact, at 9%, Singapore’s GST rate will still be lower than the Asia average of 12%.

3. We need additional tax revenue for good causes

Look out of the window now — what do you see? Those street lamps? Not free. The electricity that powers them at night? Also not free. The road that it illuminates? Most definitely not free. In fact, every Singaporean child has had that conversation with their parents about how there was no such thing as free breakfasts, lunches, and dinners — and the same is true for public expenditures, such as social causes and healthcare.

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Between 2007 and 2019, public expenditure rose from S$$33 billion to S$75 billion a year — and it’s not like the money was spent to build a golden expressway or some other pointless vanity project, either. Instead, large chunks of it went to social spending.

For instance, social spending tripled over this period. Healthcare expenditure went from S$2.2 billion to S$11.3 billion — and for good reasons.

Aside from preparing for unforeseen circumstances, such as future pandemics, Singapore’s population is also ageing faster than ever before. By 2030, nearly one in four citizens will be aged 65 and above — that’s a lot of old people requiring seats on buses and trains, getting discounted movie tickets and, most importantly, requiring extra healthcare. Taxes collected, then, will go to building out the facilities, providing adequate healthcare and shoring up the necessary manpower.

4. We also need additional tax revenue for education and workforce training

A significant part of our tax revenue also goes to sustaining early childhood education and social mobility, or the ability for workers to upskill or reskill. For instance, the Workfare Income Supplement (WIS) and Silver Support schemes provide greater support for lower-income workers and retirees.

The purpose of these investments is to give the next generation of Singaporeans a solid foundation, as well as helping working adults with lower income to refresh their skills, keep up with changing demands of the job market and move to the next rung of their career ladder.

5. GST hike? 9% should be manageable for most people

Finally, for most people, going from 7% to 9% is going to be manageable. To prove our point, take out your pen and paper and let’s do some maths.

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This blog has a comprehensive breakdown of how much Singaporean households spend each month, from the lower end to the higher end.

If we remove ‘Rental’ from the list of expenses (since GST does not apply), Singaporeans spend about S$500 to S$5,360 each month on taxable goods and services, depending on your lifestyle. If we applied a GST rate of 9%, this means that Singaporeans would pay S$45 to S$482 in GST each month — again, it totally depends on how decadent your spending habits are.

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Ultimately, the decision to raise GST rates is all about the betterment of the more vulnerable people within society. From a child in a low-income family to an elderly person with specific healthcare needs, these people need all the help that they can get — even if the help comes in the form of tax revenue that the rest of us contribute.

Instead of paying a little bit extra at a fast-food chain and seeing it as a conspiracy to suck more money out of us, think about how that extra two percentage points will go into helping someone live a better, fuller life.

“We have looked at all the different possibilities for raising revenue and we have made various revenue moves in the budget… but they are still not enough and that’s why we have to raise the GST,” DPM Wong.

 

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Gabrielle Teo

Author Gabrielle Teo

I read lots, and I also spend an indecent amount of time trying to get my mostly unpopular opinions published. Oh, I argue a lot with fellow Singaporeans who complain incessantly about Singapore too.

More posts by Gabrielle Teo

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