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It is difficult for the Good and Services Tax (GST) to be replaced by alternative revenue options such as a wealth tax, a corporate tax or the revenue from land sales, Deputy Prime Minister Lawrence Wong said in Parliament on Feb. 24.

"Given our growing needs, it's not a matter of choosing between (the) GST and any of these alternatives. Contrary to what the Workers' Party (WP) believes, we will need all of them, and a mix of taxes on income, consumption and assets to provide sound and stable public finances in Singapore."

Wong, who is also Finance Minister, was speaking at the closing of the debate on the 2023 Budget, in which he responded to the suggestions and proposals laid out by Members of Parliament (MPs) from both the People's Action Party (PAP) and WP.

The very wealthy can avoid the net wealth tax

Wong addressed the net wealth tax on individuals earlier proposed by the WP.

Such a tax is attractive on paper but hard to implement effectively in practice, according to Wong, with many countries having tried the move, then doing away with it.

"The reality is that the net wealth tax does not only target the very wealthy, who are able to avoid the tax through tax planning. And in the end, it's the middle income and upper middle income groups who end up paying the net wealth tax," he explained.

In the case of Switzerland, which has has been cited as a model, it collects about two per cent of GDP in revenue through wealth taxes. "This is comparable to what we collect in wealth taxes from property tax and stamp duties," Wong said.

Singapore will lose revenue under BEPS and its competitiveness for MNEs is at risk

On corporate tax, Wong noted that under Pillar One of the Base Erosion and Profit Shifting (BEPS) project, profits will be reallocated from where economic activities are conducted to where consumers are located.

Singapore will therefore lose money because of its small size.

As for Pillar Two of BEPS, it effectively sets a global minimum corporate tax. Under Pillar Two, Singapore will implement a Domestic Top-up Tax (DTT) that will top up the Multi-National Enterprise (MNE) groups' effective tax rate to 15 per cent.

"The intent of Pillar Two is for large MNEs to pay more taxes wherever they operate. So when Pillar Two comes into play, and Singapore implements the Domestic Top-up Tax, we will get additional revenue, assuming the affected MNEs here do not leave," he said.

This is a big assumption however, Wong added.

Countries willing to subsidise corporations to maintain advantage

Despite the professed intent of BEPS to tax MNEs more, countries are now rolling out vast subsidies to strengthen their competitive advantage.

Singapore may not be able to outbid the major powers in spending, but it certainly cannot afford to stand still, Wong emphasised.

"Contrary to what (WP MP) Mr Louis Chua thinks, the MNEs based here are not stuck with us permanently. They are mobile, and they have options, and they will certainly have more options when they decide where to locate their next investment project.

Within the region, there are many other places where land and electricity are cheaper, and wages are lower."

This is not a "hypothetical worry" as the MNEs are already making these points clear in the government's consultations with them, Wong pointed out.

BEPS means they will no longer enjoy the same tax advantages in Singapore while other countries in the region are cheaper, and their home country offers "very generous" incentive packages.

Highlighting comments by Chua and PSP NCMP Hazel Poa, Wong struck a note of caution. "We cannot afford to price ourselves out of the competition, or else Singapore and Singaporeans will end up the biggest loser," he said.

In the meantime, Singapore will require more funding resources to review and update its broader suite of economic development schemes to stay competitive.

GST must increase because government spending is expected to reach 20 per cent of GDP by 2030

According to Wong, government spending is expected to reach around 20 per cent of the country's Gross Domestic Product (GDP) by 2030 with an ageing population and rising healthcare costs.

"On the revenue side, without the GST increase and other tax moves we made in last year's and this year's budgets, the projections clearly indicate that we would not have sufficient revenues to cover the increases in spending," he said.

In addition, while the revenue situation has improved with the GST increase and other tax measures made in the 2022 Budget, as well the changes from the 2023 Budget, the assumption here is that the government is still able to keep spending to 20 per cent of the GDP by 2030.

Such a projection has not taken into account any additional spending that may arise from new policy initiatives, Wong noted.

He also pointed out that government spending for the past decade had risen by three percentage points of GDP, from 15 per cent to 18 per cent at present.

Due to the tight fiscal position, the planned GST hike has to proceed, as deferring it only "stores up more problems for the future."

The government also pays attention to the overall tax burden

Wong also pointed out that the government pays attention to the overall tax burden. After factoring all the changes, including the full GST increase, Singapore's tax to GDP ratio is 14 per cent which is "considerably lower" than most other advanced economies.

As for whether the tax distribution is fair and progressive, Wong said that the outcomes are "evident" when one looks at the benefits and taxes across different groups.

"The top 20 per cent bear the heaviest burden in taxes and receive the least in benefits. In recent years for every dollar they paid in taxes, they received only about 30 cents in benefits.

Conversely, the bottom 20 per cent paid the least in taxes, and received the most in benefits. For every dollar they paid in taxes, they received around S$4 in benefits."

Glad that WP supports the budget, but WP does not acknowledge unique GST set-up to help the poor

Wong added that he agreed with remarks by WP's Pritam Singh, the Leader of the Opposition, that fiscal distribution should not be about pitting one group against another.

He was also glad the WP supported the budget this year, even though it also includes the second step of the GST increase.

Wong then said:

"But the irony is the Workers' Party shares the government's view that those who earn more should pay more in taxes, yet it consistently refuses to acknowledge the unique way that the PAP government has implemented our GST system, which requires the well off to contribute more and does not hurt the poor."

Wong added that he could not help but feel that the WP thinks there is political mileage in pushing for ideas to "soak the rich", and that there is also political advantage in rejecting the GST.

GSTV is a permanent scheme, govt did not break a promise

Wong also addressed a point by WP MP Jamus Lim that the increase in the GST Voucher (GSTV) "restores" the government's original promise to offset the GST increase.

Wong said this was a rather "disingenuous" phrase as it somehow suggests that the promise had been broken in the first place which is incorrect.

The GSTV, Wong said, is a permanent scheme and is targeted at lower income households and the elderly, with the aim of keeping the overall system of taxes and transfers fair and progressive.

As for the Assurance Package (AP), it is intended to delay the impact of the GST by five years for the vast majority of Singaporean households and by 10 years for the lower income households.

Wong concluded:

"We have to do what is right for Singapore and Singaporeans, and when tough calls like raising the GST have to be made, we have to be upfront, explain our positions and persuade Singaporeans why such painful decisions are necessary, but will ultimately benefit everyone."

Top screenshot from MCI YouTube