Here's what PM Lee said the last time GST was raised from 5% to 7%

Aging population and income inequality were the reasons why GST was last raised.

Jonathan Lim | May 23, 2018, 07:17 PM

When asked about Singapore's impending GST increase to a 9 percent rate just as Malaysia is scrapping its 6 percent GST, Prime Minister Lee Hsien Loong told reporters on May 19:

"We have given a lot of notice. There is time to explain, and there is time to work out how exactly we will make sure that Singaporeans are given the right support in order to be able to live with a new tax... It is something which we are taking very seriously indeed."

On explaining the hike, he said:

"You have to work very hard to make sure you have a very good case to be able to explain to voters why you are doing this, what you are using the money for and to persuade them that you know what you are doing and they can trust you. Then you must implement it well to make sure that it goes in smoothly. That the burden is carried fairly."

2006: Last time PM Lee announced GST would be raised

It was in November 2006 when PM Lee gave a speech in Parliament following the President's Address to talk about inequality.

He talked about Singapore's aging population and widening income gap. He said that by 2020, the median working age would be 40 and there would be 575,000 elderly persons (age 65 and above) and five working adults will support one elderly person. In contrast, in 2005, there were 291,000 elderly persons and nine working adults would support one elderly person.

He said then that these were problems that needed to be addressed and resources were needed:

If we do more for the lower-income and the elderly who are needy and also invest more for their future, then government spending has to go up. There is no other way. We have kept this government lean and trim. The government spends only 14 percent to 15 percent of the GDP, i.e. $1 in $7 approximately. This is lower than virtually any other country in the world. The Europeans, as I told you, spend more than half their GDP. We are even lower than Hong Kong, which spends 18 percent to 19 percent of its GDP. So Singaporeans are really having a very cheap Government -- high quality but cheap government. But we will have to spend more. I think this is inevitable over the next five to 10 years.

Before he announced the raising of GST to meet needs, he made another announcement: That they would draw more money from Singapore's Net Investment Income (NII) by including realised capital gains. Originally the government only drew money from investment dividends and interests:

Under the Constitution, the government can spend up to 50 percent of Net Investment Income (NII) on past reserves, and 50 percent of Net Investment Income has to be kept for the future. I believe this is the right formula. It is a fair balance between the claims of the present and the future generations, and will protect our reserves, our seed corn, from being depleted. But we can refine the implementation of this 50 percent rule because, currently, the definition of Net Investment Income only includes dividends and interest. This is not quite right, because a significant part of the returns on our reserves are capital gains. We should look at total returns on the reserves as the basis for deciding how much it has grown. Therefore, we intend to change the definition of Net Investment Income to include realised capital gains. This will increase the amount which we can draw on average. Some years, if the markets are bad, we may end up with less but, on average, we should end up with more. To do this, we need to amend the Constitution. We will amend the Constitution and work out the details with the Elected President.

He also explained why raising direct taxes (income and corporate tax) would make Singapore less competitive:

But it is not sufficient just to depend on NII to meet our future spending needs. We also have to plan ahead to make sure that we have enough revenues, including from taxes. Direct taxes cannot go up. In fact, we have been bringing down our direct taxes, i.e. personal income tax and corporate tax. We have brought them down to 20 percent over a long period of time. In fact, we may have to lower them further. Hong Kong is competition for us. Their corporate tax is 17.5 percent. They are thinking about GST. If they do a GST, they may decide to bring their corporate tax rate down and we may have to follow suit. The Central and Eastern European countries are also very competitive. Many countries in the former Soviet bloc, e.g. Poland, Hungary, Slovakia and the Czech Republic, have corporate taxes which are below 20 percent. Slovakia and Poland are just 19 percent. In the Baltics, e.g. Latvia and Lithuania, they pay only 15 percent tax. They are highly competitive. Many of them have joined the EU so they have an additional advantage over us and increasingly, they are direct competition to us. They will attract investments which may otherwise come to Singapore and we have to watch them. If we have to bring our corporate tax down, every percentage point we bring it down, from 20 percent to 19 percent, for example, will cost us $400 million a year. It is big money.

And with that he announced that GST would go up from 5 percent to 7 percent:

Therefore, we need to consider raising indirect taxes, in other words, the Goods and Services Tax (GST). It is now 5 percent; I think we need to push it up to 7 percent. Even 7 percent will still be lower than nearly all other countries which have GST or VAT. But if we raise it from 5 percent to 7 percent, it will give us precious extra resources to implement social programmes like workfare later on.

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The government's explanation for 9 percent GST

In the Budget Statement this year, Finance Minister Heng Swee Keat shared that "even after exploring various options to manage our future expenditures through prudent spending, saving and borrowing for infrastructure, there is still a gap."

He said that "healthcare, security and other social spending, the increases will be recurrent" and that these expenditures would benefit Singaporeans of today and the future and that was why the "responsible way to pay" for this spending is through taxation "so that every generation pays its share."

Top image from Lee Hsien Loong Facebook