Delay in GST hike? Healthcare expenditure? Using more of past reserves? Lawrence Wong addresses these queries & more.

Questions asked and answered.

Sulaiman Daud | November 07, 2022, 11:45 PM

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The proposed hike to the Goods and Services Tax (GST) in 2023 and 2024 will go ahead as planned after the bill was approved by Parliament, although the opposition Members of Parliament (MPs) recorded their dissent.

No fewer than four opposition MPs -- Louis Chua, Jamus Lim, Leong Mun Wai and Leon Perera - sought clarifications from Deputy Prime Minister and Finance Minister Lawrence Wong at the close of the debate on Nov. 7, asking about everything from Net Investment Returns Contribution (NIRC) to healthcare expenditure.

In the back and forth exchanges that lasted over 20 minutes, Wong set out the government's position on the GST hike, including why it should not be delayed.

Louis Chua - Revenues have gone up, is there some slack?

First at the bat was Chua of the Workers' Party (WP), who asked if the government truly did not have a surplus this year.

He said that based on just the first six months of operating revenues that have already been disclosed, Singapore has an increase in revenues of S$5.8 billion, as compared to the year before.

So, even if one was to subtract the S$1.5 billion announced in October, and the S$1.4 billion top-up announced earlier in the same Parliament sitting, Chua asked if it would be wrong to say there is still some "slack".

Second was the NIRC contributions, and Chua asked if it was wrong to say that increasing the NIRC rate will not result in a decline in revenues.

Third, Chua addressed GST exemption, and said that right now, there are already provision of zero rated GST for exports of goods and international services, and there are already classes of goods and services exempted from GST, such as the sale of residential properties and the provision of financial services.

Lawrence Wong - Revenues up, but so is spending

In response, Wong acknowledged that revenues had gone up, but reminded Chua that fiscal spending had gone up as well.

Overall, the surplus in FY 2021 and better-than-expected outturn revenue net of expenditure in the first half of FY 2022 has already been fully utilised for the packages announced this year. The outcome of the second half of FY 2022 remains to be seen, and the government does not expect a surplus in FY 2022, at the end of the financial year.

On NIRC, Wong said that it contributes about 3.5 per cent of GDP to revenue today, and it is expected to keep pace with economic growth, but it does not take into account the potential for the expected long term real rate of return to be reduced because of structural challenges, such as an ageing population and climate change.

On GST exemption, Wong said it has been kept to a very "tiny" group of items. If the zero rate were to be expanded to many items, or essential items such as food, then it'll result in a "large expansion" of zero rating, and the complications and downsides seen in other countries will also be present in Singapore.

Jamus Lim - Would the govt pause GST hike if inflation shoots up?

WP's Lim was next, and asked if Wong could confirm that the estimates of impending healthcare needs over the next two years are "so urgent" that the GST hike cannot be delayed even in the short term, and would this mean that delaying the hike would result in a deficit.

Lim added that in his speech earlier in the debate, he was not being "alarmist" by saying that the GST hike could potentially increase inflation. In his wrap-up speech prior to taking clarifications, Wong chided Lim for raising Japan as an example of what could happen with a GST hike, as it may not be so relevant to a local context.

Lim now asked that if Wong was confident that the hike would not lead to a rise in inflation, would he commit to pausing the hike if inflation does turn out to be higher than expected as a result.

Finally, Lim asked if the current circumstances could be a way to test the idea of postponing GST on essential items.

Lawrence Wong - Given the Assurance Package, impact of GST hike already delayed by more than 5 years

In response, Wong made the point that in effect, the Assurance Package is helping to delay the GST by more than five years, a longer time than the two year delay that was suggested.

"So I'm not sure why I would want to delay only for one (or) two years because I can delay for much longer," he quipped.

He also pointed out that with the way the scheme is designed, wasn't it better than the hike was delayed for the vast majority of Singaporeans, but getting those who could pay to pay first. This was met by applause in the House.

Next, Wong said that he could consider a delay due to heightened inflation, but only in the event of a very significant change in the external environment, globally and then impacting Singapore. This would also likely impact not just inflation, but the economy and labour markets too.

"For example, if we were to go into a deep recession next year. It's not in our baseline expectations at all, but who can tell in this uncertain world, what can unfold? If something like that were to happen then, as I said, just now, we will certainly take a pause to review, to take stock of the economic circumstances and consider our position for the second step", he said.

Third, Wong said "don't get me wrong", it's not as though he is reluctant to take in new ideas. But on this particular case, it is not for a lack of studies. There has been "considerable" work put into multi-tiered systems, both by governments and independent organisations, and the studies have been overwhelmingly negative.

Instead of trying a pilot scheme in Singapore, Wong said alternate solutions should be found.

Leong Mun Wai - What is share of NIRC that is not spent?

Non-constituency Member of the Parliament (NCMP) Leong Mun Wai from Progress Singapore Party was up next and asked two questions, after a lengthy preamble. First, what is the share of the NIRC that is not spent in the Budget, and secondly, whether the NIRC contributed by past land sales cover the deficit of the HDB grant.

In response, Wong pointed out there is no unspent NIRC, as the government no longer runs a surplus, but balanced budgets instead (and sometimes a deficit).

"Every revenue we collect, including the NIRC, is spent!" Wong said.

Secondly, Wong said that the HDB grant has always been financed on its deficit, "ever since he was a young officer in MOF."

When HDB has a shortfall due to selling flats to Singaporeans at a subsidised cost, the deficit is covered by government funding, Wong said.

He said that this has always been the basis of the Singapore system, as the government wants to assure Singaporeans that HDB flats will always be affordable.

Leon Perera - Time to revise framework on how reserves are used?

WP MP Leon Perera began by saying that there are some points of agreement between the WP and the PAP. For instance, they both don't wish to go into debt markets to finance the deficit.

Instead, the disagreement is "philosophic" and has to do with the slope of the growth of the reserves, and WP advocates for certain measures that will slow the slope of the reserves growth, which the PAP disagrees with.

Perera asked if Wong agreed that different policies are advisable as the reserves have grown from its previous amount of S$100 billion. He referred to Chua's point that during the Covid-19 pandemic, when S$50 billion was withdrawn from the reserves, it was considered a small fraction of the total amount by most estimates.

Since it has been 15 years since the framework was last revised, Perera asked if it behooves the government to consider these options.

Secondly, Perera asked if there was a risk of some merchants using the GST hike as an excuse to raise prices more than is necessary. It may be difficult for the authorities to disentangle legitimate price rises from profiteering at a time of high inflation.

Lastly, Perera followed up on Lim's earlier question, and asked how much will healthcare expenditure increase over the next few years, and whether the rate of increase requires urgency in hiking GST in 2023 and 2024.

Lawrence Wong - Unlike WP, PAP does not want to use more of past reserves

Wong said that the main difference between the WP and PAP is that the WP wants to use more past reserves and leave behind less for "our children and grandchildren".

Wong remarked that WP should state honestly and not have "fancy words" such as "slow down the rate of growth of reserves".

In other words, Wong said that WP was basically asking to use more of the past reserves and leave behind less for the next generation. He said,

"Fine, that's a legitimate position to have. But is this a wise thing to do? Is it a responsible thing to do, considering the new and global environment that we are in, the uncertainties that we face, all the challenges that many members here have spoken about. Is it wise to do it this way?"

He said that if the forefathers had taken this approach, and taken 20 per cent more NIRC for themselves, today Singaporeans would be talking about an 11 per cent GST rate, not 9 per cent.

If the current generation did the same, future generations would have less resources to deal with unexpected crises and challenges. Wong also said that it was unlikely the government could pay back the S$50 billion withdrawn to deal with the pandemic for now.

Therefore, he preferred the PAP government's position not to change the parameters of using the reserves now, and raise revenues through other sources.

Lawrence Wong - Is WP's opposition to GST hike political in nature?

Wong also said that throughout Singapore's history, the WP has consistently opposed the increase in GST.

"So it's not just a philosophical matter about the results. It's also a philosophical matter about the GST. You fundamentally oppose the GST increase, for whatever reasons I cannot quite fathom."

Wong said the way GST is designed in Singapore is "very different" as it does not hurt the poor, it is fair, effective and a unique system, yet the WP continues to oppose it.

"I surmise the only reason why you might do so, is because of a political reason. Because you know, this is unpopular, and therefore, it serves your political interest to oppose the GST," he said.

As for profiteering, Wong said the Committee Against Profiteering has been effective in deterring merchants from profiteering in previous instances when GST was raised.

Lawrence Wong - Healthcare spending to rise due to ageing population

On healthcare expenditure, Wong referred to projections made in 2010, made on account of Singapore's ageing population. As the elderly require more healthcare spending on a per capita basis, as Singapore ages such expenditure goes up.

While Wong hopes that Healthier SG can help to slow things down, older folks will still require more healthcare spending.

He said that a structural increase is clear, but on a year-to-year basis, it's not so clear how much healthcare spending will go up in two years' time, as there will be some "lumpy investments", like perhaps a new hospital, and are less predictable. However, the broader trend of the increase is very clear.

"The only other way to address this is if we are, again if we are honest, let's don't pay, don't spend so much for the elderly. And I'm sure no one in this House wants to take such a position," Wong said.

Top image from MCI YouTube.