Goods and Services Tax (Amendment) Bill

Order for Second Reading read.

1.31 pm

The Deputy Prime Minister and Minister for Finance (Mr Lawrence Wong): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time".

The Goods and Services Tax (Amendment) Bill 2022 covers six amendments. Two give effect to measures that were announced in my Budget Statement this year. The other four arise from our periodic review of the GST regime to clarify tax rules and to improve administration.

MOF had sought views from the public on the draft Bill in June. We published our responses to the key feedback received on 10 October 2022. We thank the contributors for their inputs and have incorporated their suggestions where relevant.

Let me start with the changes announced in my Budget Statement this year, which is the increase in the GST rate from 7% to 8% from 1 January 2023, and from 8% to 9% from 1 January 2024.

Clause 4 of the amendments will give effect to this change. The proposed change in our GST rate has been robustly debated in this House but let me reiterate a few points.

Sir, this Government looks after our people, our families and our seniors. We have been expanding support for their needs, including their healthcare, social and ageing needs, and we will continue to do more. We also want to improve social mobility, invest in skills upgrading and green our economy and city.

To achieve all this, we will need more Government spending – on a structural and recurring basis.

This is why at this year’s Budget, I had raised a slate of taxes, including Personal Income Tax, Property Tax, GST and the ARF rates for vehicles. This is how, as a responsible Government, we plan ahead and we meet our future needs in a sustainable way.

This GST rate increase is an important revenue move that will provide us with additional resources to meet our growing healthcare expenditures and to take better care of our growing number of seniors.

The Government will help all Singaporeans adjust to the GST increase, especially the less well-off. We will help every Singaporean family through the Assurance Package. We had already planned for this at the same time as we planned for the GST rate increase. Members will know that at Budget 2020, Deputy Prime Minister Heng and then-Finance Minister set aside $6 billion for the Assurance Package. At this year's Budget, I enhanced the package by $640 million.

With the Assurance Package, we had committed that the majority of Singaporean households will not feel the impact of the GST increase for at least five years and that lower-income households will not feel the impact for about 10 years. Put another way, they will effectively not face additional GST expenses for many years. So, we will continue to uphold these commitments even as the inflationary outlook evolves.

Let me illustrate what I mean. In my Budget Statement, I gave an example of a middle-income family of four with two school-going children, living in a 4-room flat and earning a monthly household income of around $8,000. At that time, we estimated that they will incur GST on household expenses of around $3,400 a month, or $40,000 a year. With a two percentage-point increase in GST, this means their additional GST expenses would amount to around $800 per year. Under the Assurance Package, the family would have received around $4,000 in benefits. So, $4,000 in benefits, compared to $800 in additional expenses per year, that is about five times, which means that the Government pays about five years’ worth of the family’s additional GST. That was the computation we made earlier this year in the Budget.

With higher inflation this year and in the coming years, we can expect that the household expenditure and therefore the additional GST expenses will increase. The size of the Assurance Package will therefore need to be correspondingly increased to meet our committed levels of offsets.

Therefore, after reviewing the elevated inflation situation, I have decided to top up the Assurance Package by another $1.4 billion to reach around $8 billion. This ensures that the package continues to offset additional GST expenses for the majority of Singaporean households for at least five years, with around 10 years offset for lower-income households. I will share the details of this enhancement in my Budget Statement next year.

So, for those who ask the Government to delay the GST rate increase, the Assurance Package in effect does precisely that, for the majority of households. The cash and other forms of support under the Assurance Package amount to more than what most citizens will pay in additional GST for at least five years.

I have explained how the Assurance Package works and how it is for all Singaporean households and provides a cushion to ease the transition. Let me now turn to another important design feature of the GST system in Singapore – which is our permanent GST Voucher (GSTV) scheme and Government absorbing GST for subsidised education and healthcare services.

Because people say the Assurance Package, no matter how generous is temporary. Yes, but they do not fully understand that there is also another important design feature of GST which is a permanent GSTV scheme and the absorption of GST for subsidised education and healthcare. Households already receive these offsets today and as permanent measures, they will continue alongside, and even after, the Assurance Package.

Through the GSTV, we help lower- to middle-income households defray a significant part of their GST expenses permanently. The GSTV scheme has four components: cash; MediSave for seniors to support their medical needs; U-Save rebates to offset utilities bills; and S&CC rebates to offset S&CC bills. Besides the GSTV, we will continue to absorb GST for publicly subsidised healthcare and education.

So, after putting together the permanent GSTV and GST absorption – what we have is an overall GST system that taxes consumption in a fair and effective manner.

What are some of our features of our system? In effect, we have a multi-tiered GST system – one that is tiered by income levels, with lower-income households paying a much lower effective GST rate than higher-income households.

As I had explained in the Budget this year, on average, the bottom 10% of households do not pay any GST at all after the permanent offsets. This includes many retiree households without income.

And even after the GST increase, the effective GST rate for households in the first three income deciles remains unchanged at below 3%. That means the GST increase will not negatively impact them.

The full impact of the GST will be borne largely by higher-income households, as well as tourists and foreigners who are based here – and this is also the group that contributes the biggest share to net GST revenues from households and individuals.

Sir, we have designed our GST system carefully to achieve these outcomes. And as the inflationary outlook evolves, we will continue to monitor our scheme parameters to ensure that we uphold and maintain these objectives.

The GST is therefore a key part of our fair and progressive system of taxes and transfers that takes care of the less well-off and ensures that those who are better off contribute their fair share in revenues.

The second amendment updates the GST treatment for a supply of travel arranging services. Examples of such services include the arranging and facilitation of international transport, accommodation and travel insurance.

Currently, the basis for determining whether a supply of travel arranging services is zero-rated or standard-rated depends on factors like the location of the accommodation or whether the transportation being arranged is international in nature. For example, for the arranging of accommodation, if the accommodation is located in Singapore, today GST applies. But if the accommodation is located abroad, then the supply of arranging the accommodation today is zero-rated, which means that it is not subject to GST.

But today's treatment does not accurately reflect the place of consumption of such travel arranging services. Such arranging or facilitation services are in fact consumed by the Singapore-based consumer at the point of booking, rather than at the eventual place of consumption of the underlying travel product.

We are therefore updating the GST treatment of travel arranging services under clause 7 and with effect from 1 January 2023, the GST treatment for a supply of travel arranging services will be based on where the person who contracts for the service and where the person who directly benefits from the service belong. For example, if the contractual customer of the service belongs in Singapore, then GST will be charged at the standard rate.

This amendment will also ensure consistent GST treatment for travel arranging services, regardless of whether they are rendered by local or overseas providers. Today, overseas providers of travel arranging services already have to charge GST when providing services to Singapore-based customers, irrespective of where the underlying travel product such as accommodation is.

Let me now touch on the remaining four amendments in the Bill, which arise from our regular reviews to clarify tax rules and improve administration.

Clauses 8, 12, 13, 14 and 15 update the Transitional Rules in the GST Act. These Rules are to be applied during a change in GST rate or treatment. Based on the Rules, taxpayers will determine whether the old or new GST rate or treatment applies to their supplies. The amendments provide greater clarity in the application of the rules, particularly for more unique supplies made, such as supplies which spans both a change in GST rate and the effective date of GST registration of a business.

Next, clauses 2, 3, 5, 16, 17, 19 and 20 refine the rules for taxing low-value goods and imported services under the Overseas Vendor Registration (OVR) and Reverse Charge (RC) regimes. The refinements seek to prevent double taxation, provide tax certainty, and ease the compliance burden of businesses. For example, to prevent double taxation, the refinements clarify that where overseas vendors procure services already charged with GST from Singapore suppliers and subsequently onward supply these same services to their own customers in Singapore, they need not charge GST on these onward supplies. This is provided the overseas vendors are on the “pay-only” regime where they do not make any claims for refund of GST they incur on their purchases.

The next amendment relates to our efforts to counter Missing Trader Fraud. Missing Trader Fraud is a fraud scheme used by syndicates, where the seller absconds with the GST he has collected on his sales without paying the GST to IRAS, while businesses further down the fraud chain continue to claim refunds from IRAS on input GST paid on their purchases.

In 2020, we introduced several measures to deter Missing Trader Fraud schemes. This included denying input GST refund claims to businesses who knew or should have known that their purchases were part of a fraudulent arrangement, as well as introducing a 10% surcharge to be applied on the amount of input GST denied. These measures targeted businesses that did not conduct the appropriate due diligence when entering into business arrangements.

To directly target the perpetrators of Missing Trader Fraud, criminal sanctions based on a two-tiered approach are now proposed to be introduced from 1 January 2023.

Tier 1 offences apply to Missing Trader Fraud masterminds, co-conspirators and syndicate members who participate in such fraud schemes.

Tier 1 offences carry a maximum imprisonment term of 10 years and/or maximum fine of $500,000. This is a step up from the maximum imprisonment term of seven years for the offence of fraudulent trading, which such offenders are currently prosecuted under, and is intended to convey a strong deterrence message.

Tier 2 offences apply to current or former sole-proprietors, partners or directors of business entities that are used in Missing Trader Fraud schemes. These persons typically incorporate entities which are then used by syndicates for fraudulent purposes. Tier 2 offences carry a maximum imprisonment term of one year and/or maximum fine of $50,000.

The proposed sanctions are proportionate to the severity of the offences and are aligned with the sanctions for similar offences under other Acts, like the Penal Code and Companies Act. Clauses 6, 10, 11, and 18 of the Bill provide for this amendment.

The last amendment, provided by clause 9, empowers the Comptroller of GST to extend the filing deadline for GST returns. This allows the Comptroller the flexibility and authority to administer the GST regime efficiently, by extending the deadline for filing GST returns where necessary, such as during COVID-19. A similar amendment was earlier passed under the Income Tax (Amendment) Bill 2022, to empower the Comptroller to extend all filing deadlines in the Income Tax Act as well as the Property Tax Act.

Mr Speaker, the amendments proposed in the GST (Amendment) Bill 2022 are needed to make our revenue structure stronger and more resilient. These changes will put us in a better position to fund our common aspirations and to build a fairer and more inclusive Singapore. Mr Speaker, Sir, I beg to move.

Question proposed.

Mr Speaker: Mr Liang Eng Hwa.

1.48 pm

Mr Liang Eng Hwa (Bukit Panjang): Mr Speaker, this GST Bill comes at a time when we are facing rising global inflation and heightened economic uncertainties. The effects of the war in Ukraine and the never-ending pandemic have led to rising energy and food prices among others, which are now being felt at all households and businesses. Singaporeans are feeling the strain, with many households’ essential items like electricity bills, groceries at the supermarket, food at the hawker centre and coffee shops rising sharply. The low- to middle-income and the retirees are particularly impacted as they do not have the higher wages or savings to offset the cost increases.

So, the question then is whether should we go ahead with the GST increase at the current time? To answer this question, we need to go back to the fundamentals. Why do we need to raise the GST in the first place?

The Government has explained that our expenditures are rising and in the decades ahead, we will need to spend even more. Our population is rapidly ageing and along with it comes rising healthcare needs.

I have seen that first-hand in my constituency Bukit Panjang, where the demand for healthcare and senior care facilities has risen. We have recently opened a polyclinic in our town and it has been full house since day one of opening. There are increasing demand for places, for more senior care centres, dialysis centres and rehabilitation centres – there are always queues waiting – which we intend to further expand our capacity in coming years.

These are all necessary expenditures. If we postpone them, then we will not be doing right for our seniors, who could be our parents and grandparents of today and the future.

Besides ageing and healthcare-related spending, we would also need more funding for capacity building, climate mitigation, energy resilience, security, education, childcare and the various social and employment support that we want to do more of.

So, there is no dispute on the need for higher spending and hence, the need for higher revenue to fund these escalating expenditures.

Sir, the main difference between the Government and the Opposition positions is how this additional revenue should be raised.

The Government believes that a major bulk of our recurrent expenditures should be funded by recurrent revenues so that our fiscal finances are on a sustainable footing. Every year the Government draws revenues from a diversified sources of taxes to pay for our current expenditures, with corporate taxes and personal income taxes among the top contributors, at 18.3% and 13.6% of total revenue respectively. Property taxes, which tend to be cyclically driven, is expected to contribute about $2 billion in FY2022/23. The GST contributed 12.2% or $12.8 billion, our third largest revenue contributor; while the NIRC at 18.7% is now the largest revenue contributor to balance our Budget.

The Government does review our tax rates from time to time and adjust them as appropriate. In recent years, due to higher funding needs, the Government has indeed been raising tax rates. In Budget 2022, income tax and wealth taxes, including property and vehicle taxes were raised. The Government has also increased the stamp duties and the ABSDs, which is another form of wealth tax, besides using it as a tool to cool the market.

This is the Government's approach, which is to build a diversified stream of revenues that is stable and sustainable to pay for our current and longer-term spending commitments.

GST is one stream of revenue that adds to the diversification, where in our unique system, we actually take in more taxes from the wealthier groups through GST – those with higher purchasing power – and at the same time, mitigate the impact to the lower-income or no-income Singaporeans. This is the Government's approach.

The Workers' Party disagrees, saying that current cost of living and inflation is high so we should not add further to the costs; that GST is regressive and it hurts the middle and low-income; and that there are alternative sources of revenue.

In their recent Hammer article, they said there are four alternatives to raising GST: (a) raise NIRC from 50% to 60%; (b) to use a portion of land sales for recurrent expenditure and raise property taxes for more expensive properties; (c) to increase corporate tax revenue from the compliance with BEPS 2; and (d) raise other taxes like carbon tax and sin taxes.

In the article, they even said that the amount we can get from any of these four, will produce the same amount of revenue annually as a 2% GST increase. Therefore, just do any one of these and there is no need to raise GST. Is this really the case?

What does the Government say? Looking at the previous debates and what the Government has been doing, this is what I see.

Firstly, the Government acknowledges that inflation is indeed high and that costs have been increasing. The Government understands that the GST will add to costs. But at the same time, the Government would have to make sure that we have the stable base of revenues that can cover our long-term recurring expenditures, especially healthcare, as our population ages rapidly over the next few years.

So, the Government's strategy is to strengthen our revenue sources, which also includes increasing the GST rate, but balance this with a two-pronged approach to cushion the middle income, the low-income and the retirees against both cost of living and the GST increase.

For cost of living, there are support packages. Earlier in the year, Deputy Prime Minister Lawrence Wong said that if there was a need to do more, the Government would do more. This year I saw how the Government had made good on this commitment. We have a $560 million package, the Household Support Package, in the Budget 2022. There was an additional $1.5 billion package in June. More recently, another $1.5 billion package in October to help Singaporeans to cope with the cost of living. So, there is a total of $3.5 billion of targeted support.

To help with the GST increase, the Government has another set of support measures, which is the Assurance Package that was announced and has since been enlarged to $6.64 billion. The Assurance Package effectively delays the GST increase by five years for the majority and 10 years for the lower-income.

There is also the Enhanced Permanent GST vouchers, separate from the Assurance Package, with additional cash payouts. This is not a temporary scheme. It is actually permanent.

Separately, the Government will also absorb the additional GST on publicly funded healthcare and education.

The Government will carry out the GST increase in two steps: 1% over two years, rather than one step of 2% this year.

The GST offset support has been in existence for about 15 years. It has very much been a permanent feature in our GST system to help neutralise the impact of GST to lower-income Singaporeans. The offsets focus rightly on essentials like utilities, S&CC, MediSave and a cash component as well. On the ground, I have seen these being very helpful to reduce the cost impact of GST to low- to middle-income Singaporeans, especially to the seniors.

This is the uniqueness of our GST system, where the lower-income groups have largely been cushioned, while we raise a larger proportion of the GST from the higher spending group, which tends to be the wealthier, the high-income and also includes the foreign visitors.

These two approaches are designed to cushion the middle-income, the lower-income and the retirees against both cost of living and the GST increase. This tells us we can be assured of support to get through this tough time and that those who need more help will get more.

At the same time, we can also be assured that when we get older, we will also get healthcare and other support because we will have a diversified and more stable source of revenues to pay for our various spending programmes.

What about the Workers' Party’s four alternative sources? I believe these were debated in the Budget debate earlier this year. I found Deputy Prime Minister Lawrence Wong’s round-up speech very helpful in understanding why there are reservations and doubts about the Workers' Party’s proposals.

Firstly, on raising NIRC from 50% to 60%. What that means basically is that we will put back less into the reserves. It also means less for our young people when they get older.

To dive a little bit more, based on the Budget 2022 NIRC estimates of $21.5 billion, reducing the retained NIRC to 40% would mean more than $4 billion will not be going into past reserves for reinvesting. This would reduce the NIRC that we can generate for subsequent years, including next year, and the cumulative impact over time will be even more significant.

Our NIRC has grown from $7.6 billion in 2012 to $21.5 billion this year, based on Budget 2022 estimates. About three-fold increase in 10 years. We hope that NIRC can continue contribute more, not by changing the ratio but by growing this base amount of our reserves. If we have not saved enough in the past, the NIRC today would be even lower and we would end up needing higher taxes or we may have to cut spending and subsidies. Surely, we want this NIRC annuities to keep growing to fund more spending and to reduce future tax burden for Singaporeans.

The Workers' Party also mentioned about land sales which was earlier dealt with in the earlier Parliamentary Questions, both answered by Minister Indranee. So, I will not talk about that, except to just mention about the property tax that the Workers' Party mentioned for the expensive properties.

The Government has already made some moves this year, in this year's Budget for the non-owner-occupied residential properties. It was raised from 10% to 20% range to 12% to 36% range. So, a significant increase there.

But the point is whether raising property tax from just the high-end properties would be enough – unless we raise it so high that it is untenable. If want to keep it tenable, then we may have to increase the taxes on other owner-occupied properties – which will impact the middle-income households and HDB owners.

Do not get me wrong, we are not in a disagreement about increasing property taxes. That can be another source, but the question is at what rate and how much can you raise it to?

On corporate tax, it was also mentioned that there will be increased corporate tax revenue due to the BEPS Pillar Two. The matter is still not settled. Maybe yes, maybe not. At this point in time, there is no visibility on the actual figures. More importantly, it does not take into account the potential outflows from BEPS, as there is a Pillar One and Pillar Two. There is no certainty that the revenue from BEPS Pillar Two will be as what the Workers' Party had produced in their calculations, as we cannot assume that companies will not shift their operations in response to the tax rate increases.

Having said that, I do not disagree that corporate tax should be another source of additional revenue that the Government should tap on as we do need all the revenue that we can get to fund a long list of our future spending needs – like I said, the economic capabilities building, transport, childcare, unemployment support and others. We need more funding and, if corporate tax can be another source, why not?

The key balancing consideration is whether the increase in corporate tax rate will compromise our competitive position, which would have direct implications on jobs and other opportunities.

On carbon tax and sin taxes, we are already tapping on these sources and, in my view, there are more upsides.

On carbon tax, the question is how high and how fast we can increase. Can the businesses withstand it and how much would be passed on consumers, especially when we know that a higher carbon tax could mean higher household electricity bills. There is a carbon tax debate coming up and I look forward to hearing the Workers' Party's proposal on the carbon tax rate.

On sin taxes, we can raise more. Perhaps, it is good to hear also how high we should raise the tobacco tax rate to, to make up for the 2% GST.

Sir, I have been scrutinising the Government's fiscal management for many years. I have also looked at the Workers' Party's current proposal which, like I said earlier, there are some aspects that I do not disagree. But when I look at all things in totality, I still prefer the Government's approach, which is that we continually build a diversified and stable source of revenue with income tax, corporate tax, wealth tax, property tax, GST and others, and augment with NIRC that we have to meet our current and longer-term spending commitments and continue to grow our reserves as they are our only backstop for our survivability.

Growing our reserves will also help increase NIRC, which will reduce the overall tax burden, even as we plan to spend exponentially more in the future.

For a tiny country with no natural resources, we need an even higher factor of safety to navigate through the troubled and more uncertain world that we are in today. Being more prudent in our finances has never failed us in our history; it has strengthened us. In the horizon ahead, we need this added strength, where we must be prepared for more and even bigger external shocks to come.

This Parliament must be about doing the right thing and the right thing for us to do today is to secure our finances in a responsible way so that we can really take care and look after the different groups of Singaporeans – those who are growing older, the families who support them, the middle-income, the lower-income, the retirees, the young Singaporeans and the future generations. Sir, I support the Bill.

Mr Speaker: Mr Louis Chua.

2.04 pm

Mr Chua Kheng Wee Louis (Sengkang): Mr Speaker, it is disappointing that the Government has decided to push through the GST hike, as set out in clause 4 of the Bill where the GST will be raised to 8% for 2023 and 9% for 2024 onwards.

While we recognise that the GST hike is meant to meet growing expenditure needs, the Workers' Party has consistently made clear our view that the GST hike is not necessary and that there are ways to raise recurrent revenue without resorting to an increase in GST, especially against the backdrop of macroeconomic uncertainties and soaring inflation. The only responsible approach is not to proceed with the GST hike without seriously considering the other better alternatives to secure the revenues we need, which the Workers' Party has described in detail during the 2022 Budget Debates earlier this year.

Before I touch on why I believe the GST hike is not at all appropriate, particularly given the current circumstances, I do recognise the sets of support packages provided to our fellow Singaporeans. Given how our fiscal position has and is shaping up to be, it is, after all, the right thing to do.

The first $1.5 billion package announced on 21 June provides relief for lower-income households and vulnerable groups. The package will be funded from the better-than-expected fiscal outturn in FY2021.

As I have shared in my Stamp Duty (Amendment) Bill speech in July this year, actual operating revenue collections for FY2021 turned out to be higher, compared to what was initially budgeted in Budget 2021 and even the revised estimates for Budget 2022 announced earlier this year. Overall operating revenues worked out to be $82.5 billion for FY2021 – $5.8 billion higher, compared to $76.6 billion as initially budgeted in Budget 2021 and $2.1 billion higher than the revised estimate of $80.4 billion as of Budget 2022.

This would already be more than sufficient to cover the first $1.5 billion support package.

Moreover, both operating and development expenditures are lower by a combined $3.6 billion, which, I understand, is due to lower-than-budgeted spending on COVID-19 response measures as the Omicron variant turned out less severe than anticipated.

Combining higher revenues and lower expenses would mean that the Government's primary deficit improved by $5.7 billion which, again, is more than sufficient to cover the recent $1.5 billion support package.

In September this year, I asked a Parliamentary Question on the current FY2022's to-date operating revenue, operating expenditure, development expenditure and the primary surplus deficit respectively and how these figures compare with the budgeted figures.

In his reply, Deputy Prime Minister Lawrence Wong noted that it is generally not meaningful to compare the latest revenue and expenditure figures against the budgeted figures so early in the financial year. I was thus a bit surprised that just one month later, on 14 October, the Government announced a second $1.5 billion support package, which will be funded from better-than-expected fiscal outturn in the first half of FY2022.

I would thus like to ask the Deputy Prime Minister once again just how much better was our fiscal position in the first half of the year and what is this projected to be by the end of the financial year.

I ask because, based on operating revenue data for the first half of the financial year, it appears that the total Government operating revenue of $48.9 billion is already about 60% of the full-year FY2022 estimates from Budget 2022.

Put another way, comparing revenue data on a year-on-year basis would suggest that operating revenues have cumulatively increased by 14% year-on-year or $5.8 billion in the first half of FY2022 alone. This will compare favourably to the projected increase of $1.4 billion for the full year. Even if we include the additional $1.5 billion package from October, there appears to be sufficient budgetary slack for the rest of the financial year.

Deputy Prime Minister Lawrence Wong may say that we cannot rely on sentiment-driven collections, such as like stamp duties, which can fluctuate from year to year. However, the increase in revenues was driven by tax revenues led by corporate income tax at $3.5 billion, GST at around $900 million and personal income taxes at around $700 million.

Is it not fair for us to ask is there really a need to push through the GST hike so urgently, especially when the effects of inflation have also partially contributed to the almost $1 billion year-on-year increase in GST collections in just the first half of the year alone?

This brings me to my next point on inflation, where I still recall Minister of State Low Yen Ling's response to Parliamentary Questions in February this year where she shared then that MAS' core inflation is expected to increase in the first half of 2022 before easing in the latter part of the year for headline inflation to average 1.5% to 2.5% in 2022 and that both MTI and MAS do not expect persistent accelerating inflation.

The current circumstances have proven otherwise, unfortunately, where core inflation and headline inflation have both accelerated over the course of the year, reaching 5.3% for core inflation and 7.5% for headline inflation – the highest levels since 14 years ago in 2008.

In its October monetary policy statement, MAS noted that core inflation is likely to stay around 5% for the rest of 2022 and remain high in the first half of 2023. Similarly, MAS expects headline inflation to average 6% in 2022 and stay elevated at 5.5% to 6.5% in 2023.

I fully agree with MAS that there are upside risks to this inflation forecast, including second round effects associated with a prolonged period of high inflation, which the Deputy Prime Minister also warned that it is unlikely that we return to a period of low inflation during his press conference last month.

Do we really want to fan the flames of inflation and contribute an additional unnecessary one percentage point increase in the cost of living? Are we contributing to inflationary pressures?

I am not much of a football person but, when your team is 5-0 down, does it make sense to respond by scoring an own goal?

If you consider the effects of the Household Support Package, public transport vouchers and the two cost-of-living packages in June and October, these arguably one-off assistance packages can cover just over half of the increase in cost of living for middle-income households on average this year. The key words I want to highlight is "this year".

Using MOF's illustration of a middle-income couple with two young children, the estimated annual household expenditure that incurs GST will amount to $40,320, which I assume to be based on average expenditure from 2018 to 2020.

Even if we incorporate only the 6% headline inflation across both 2022 and 2023, household expenditures will increase by about $2,500 a year over those two years whereas the two sets of cost-of-living packages in June and October will only result in an $800 increase in benefits across the Household Utilities Credit, cost-of-living Special Payments and additional CDC vouchers that these households will qualify for.

What is even more worrying is that, as shared by Deputy Prime Minister Lawrence Wong, we must also be realistic that inflation is not going to go back to the situation where we were used to over the past decade where it was very low rates of inflation. Even if inflation eases eventually, prices are not going to come down and will continue to increase, exacerbating cost of living pressures for our fellow Singaporean households.

My next point is then simply that Assurance Packages are temporary while a GST hike is forever.

I recognise that the previously announced Assurance Package was supposed to offset about five years' worth of additional GST for most households. Back to the case of a middle-income couple with two young children, as illustrated by MOF, the total Assurance Package over five years amounts to $3,850, compared to the estimated annual household expenditure of $40,320.

With the effects of inflation coming in hard, these five years' worth of offset is looking to be increasingly diminished. So, I do recognise the $1.4 billion top-up to the Assurance Package, which the Deputy Prime Minister has just announced.

The blunting of the near-term impact from the GST hike from the Assurance Package is a welcome salve for low- to middle-income households. But as we look forward into the horizon and take into context the very challenging road ahead, given the persistent inflationary environment, will low- to middle-income households then be on the hook for the higher GST rates after the benefits of the Assurance Package wear off, even after the topped-up Assurance Package?

Again, do we really want the successive GST hikes to be the straw that breaks the camel's back for our fellow Singaporeans who are already struggling with the cost of living?

Finally, Singapore has only narrowly averted a technical recession in the third quarter of this year, with the economy growing 1.5% quarter-on-quarter on a seasonally adjusted basis – a turnaround from the 0.2% contraction in the second quarter.

Singapore's GDP growth will come in below trend in 2023 and downside risks have intensified. Against a deteriorating macroeconomic backdrop with significant downside risks in the global and domestic economies, a GST hike at this point is counterintuitive and could lead to a lower path for GDP and private consumption.

Mr Speaker, when the decision to raise GST to 9% was mooted in 2019, circumstances could not be more different. There was no COVID-19, commodity prices were half of what they are today and inflation rates were one-tenth of what they are today.

To summarise, the timing of the proposed GST hike could not be any worse and it is irresponsible to proceed with it. This is especially so, considering the fiscally viable alternatives which have not been given due consideration, soaring inflation driving up the cost of living significantly and the fact that assistance packages provided are only temporary versus the GST hike, which is forever.

Given that the core amendment in this Bill is to raise GST to 8% in 2023 and to 9% from 2024 onwards, the Workers' Party cannot support this Bill.

Mr Speaker: Mr Leon Perera.

2.14 pm

Mr Leon Perera (Aljunied): Thank you, Sir. I would like to post a clarification to the hon Member Mr Liang Eng Hwa, on the speech that he made, I wanted to do it earlier, but I was not fast enough in raising my hand.

My clarification is really in relation to the 50% ceiling on the net investment returns (NIR) that goes into the Budget. So, as the hon Member would know, this framework was created in, I believe, 2008 when the Government decided that as society changes, it is time to reset the balance between how much of those investment returns get rolled back into the reserves and how much actually goes into the Budget.

Given all the trends we have talked about, the ageing society, the fact that Government expenditures are going to go up and so on, I would like to ask Mr Liang on this. Does he not agree that this balance point should be reviewed from time to time as the needs for Government spending changes, or does he think that this 50% ceiling should be set in stone forever?

And if he agrees that it should be reviewed from time to time, when does he think should it be reviewed again?

Mr Liang Eng Hwa: Well, Sir, nothing is cast in stone or is forever. But, in my view, we have not come to the dire state where we have to make changes in response to those differences, bearing in mind that we want to continue to accumulate the reserves, so that we can reinvest them and you can get the returns benefits straight, the year after.

Looking at the expenditures that we are seeing – I mentioned a few, not just for healthcare but even some for the infrastructure, energy resilience and so on – the spending is just going to escalate. At this point in time, we should safeguard our finances as much as we can, always bear in mind that reserves are backstop that we want to be able to deal with situations, such as we have seen during the COVID-19 pandemic and we had to draw down $50 billion. There could be other crises along the way that we will be required to take some actions.

So, there is no scientific rule about whether it is 50%:50%, or 40%:60%, but in my view, this is the best balance you can strike. In Hokkien, they say: "jit lang jit pua, kamcheng buay sua" (一人一半, 感情不散). That is how we strike a balance between future and current generations.

Mr Speaker: Mr Saktiandi Supaat.

2.17 pm

Mr Saktiandi Supaat (Bishan-Toa Payoh): Mr Speaker, Sir, looking beyond our shores, we have seen in recent weeks how a sound and sustainable fiscal policy is important to maintain investor confidence in a government and a national economy. As a global centre for investments, we must strive to maintain Singapore's track record of stable governance in a key distinguishing feature, which is farsighted planning.

Three million, or sometimes, $3 billion or $3 trillion question, for any elected responsible government, is how to balance government expenditure against revenues. There are more and more things that we would like the Government to spend on to improve the lives of Singaporeans. But no one likes the idea of raising taxes to finance that. So, this Bill, if passed, allows appropriate changes to be done in the run-up to the GST increase. On that note, I turn to this GST Bill.

Mr Speaker, the pick-up in inflation and the rising cost of living are some of the challenges Singaporeans are facing, especially for the lower- and middle-income families caring for their elderly parents and children.

In my Adjournment Motion last month, I spoke about the new normal of higher interest rates and higher costs on our Singaporean households. This is even before the proposed GST increase and, understandably, people are concerned. However, I note that the Government has been taking steps to address current costs of living, even before the GST hike kicks in.

First, MAS made five moves to appreciate the Singapore dollar since October last year and mitigated imported inflation. Two off-cycle tightening moves in January and July this year. This was done early by MAS and has been effective in reducing the impact of inflation on our import-dependent economy and, in some way, defended Singaporeans' purchasing power.

As Deputy Prime Minister Lawrence Wong explained in July this year, the stronger dollar had helped us keep the increase in food prices to 3%, even though the global increase was 20.3%. The increase in energy prices was 13.6% in Singapore from January to May 2022, whereas the global increase was around 27.5%.

So, I would like to take this opportunity to thank MAS and the team managing and formulating the Singaporean dollar policy for the pre-emptive calibrated moves much earlier in 2021, before moves by other central banks were made and before all the headline inflation concerns reared its head significantly in 2022.

Second, the Government has extended substantial assistance for cost of living, in the form of support packages, beginning with the $560 million Household Support Package in Budget 2022. It also brought forward some of the measures, like CDC vouchers in April 2022, and rolled out an additional $1.5 billion support package in June 2022 to provide immediate help for lower-income and more vulnerable groups.

Then, as recently as two weeks ago, the Government announced an additional $1.5 billion support package to provide further relief for all Singaporean households, including a cost-of-living special payment of up to $500 cash for 2.5 million adult Singaporeans. I am sure we can trust this Government to further add to that support if the economic situation continues to worsen.

Seeing the recent developments, would further support packages be targeted at all Singaporeans rather than just a smaller segment? That is a question that I would like to ask Deputy Prime Minister Wong. If not, will the Government consider raising the per capita income threshold for the definition of lower-income households, so that the broader base of Singaporeans can benefit?

From MOF's technical report, dated October 2022, I know that four rounds of support measures in 2022 have already helped retirees and the bottom 40% of Singaporeans cover more than 100% of their projected increase in spending due to inflation.

Mr Speaker, GST was part of the Government's plan to raise revenue long before the current inflation and cost of living issues arose. Since it was first announced in 2018, I note that the Government has been adjusting to economic conditions. It did not proceed with the GST increase in the height of the pandemic years and it has also taken the decision to stagger the GST increase over two years, so that consumers and businesses have time to adjust.

In light of the dynamic nature of the economic environment, I would like to ask the Minister for Finance several questions. Some have been asked by other Members before, but in light of the changing economic environment now, I want to ask and seek the Minister's views again.

First, should we delay the increase in view of heightened inflation? Second, whether a GST increase is the right fiscal stance as part of the macro policy mix now, given the risk of inflationary pressures remaining sticky for longer and a weakening global and domestic economy, possibly in 2023 – and you never know, maybe slightly beyond that? Third, would we proceed if there is a sharp deterioration in conditions? And fourth, can we delay the increase if our fiscal needs are not urgent?

If the answer is that we should still proceed with the GST increase, then it must be implemented carefully. We cannot leave the more vulnerable Singaporeans behind. I am cognisant that not many countries talk so much about GST offsets to mitigate its effects as much as Singapore, I think, and way in advance. I am thankful that there had been several announcements previously in the previous Budgets to offset the impact of the GST increase.

In this regard and on the basis of the economic environment we are in, and the macro outlook we are facing, I hope that the Minister for Finance and the Deputy Prime Minister, can assure our lower-income and middle-income households as well, and in particular, the sandwich class segments in Singapore, that they will be buffered against the GST increase, even in this heightened inflationary environment.

The GST Voucher (GSTV) scheme is one of the ways in which the Government helps to buffer the middle- and lower-income against GST increase. So, I would like to seek some clarifications to ensure that the GSTV scheme is able to meet this objective well.

Some of my residents have inquired on the GSTV scheme during my recent launch of the cost-of-living assistance programme, or CLAP as we call it in Toa Payoh East, a ground-up initiative involving the tripartite partners of the local merchants, residents and Toa Payoh East CCC Community Development and Welfare Fund (CDWF). It is aimed to supplement additional help to lower- and middle-income families beyond the Government's COL transfers or payments, and GSTV, to cope with the daily expenses and boost the businesses of our heartland merchants and hawkers.

First, has the Government conducted regular reviews to assess the need to raise the per capita income threshold, such that more households can qualify for permanent GSTV?

Second, the annual value of home is a key factor in the eligibility criteria of eight programmes, such as GSTV and CHAS schemes. Has the recent boom in the property market led to any significant increases in the annual value of homes, to the extent of affecting their occupiers' eligibility of schemes, like GSTV?

In terms of administration, how many of those eligible have yet to sign up for GSTV and what are the avenues available to those who are less digitally inclined and unfamiliar with checking the eligibility through the e-service?

How many of those eligible last year were sent cheques that they did not encash?

In addition, what are the cost drivers of the administrative expenses under the GSTV fund, which for FY2021/2022, amounted to $10.7 million. This was $200,000 more than the previous FY. So, could the Ministry also share what measures have been taken to minimise such expenses over the years? Will the new GovCash initiative be implemented this year reduce such processing expenditure?

Mr Speaker, the good thing about raising GST, is that it catches everyone, even tourists, who just stop by Singapore for one day or one week. This is not the same for personal income tax or property taxes, which will definitely hit Singaporeans, but not necessarily our foreigner friends. With our recovering tourism numbers post-COVID-19, it makes the GST increase an even more attractive revenue option.

How much additional revenue are we expecting to raise from the GST increase and how much of that are expected to come from foreigners, like tourists, and what is the projected level of tourism recovery compared to pre-pandemic levels as of today, 1 January 2023 and 1 January 2024, both in tourist numbers and the economic value that would be generated as a result?

Mr Speaker, on this note, on the new sections 39 to 39F in the Bill on the treatment of services provided and of payments received across periods of different tax rates, another issue is, has the Government prepared easy-to-understand guides for small merchants, for example? If not, may I ask if the Government will do so.

Speaking for myself, I did take a while to understand the various illustrations provided in the Explanatory Statement to the Bill. While the amendments are unlikely to impact our neighbourhood store owners who typically provide one-off goods and services, such guides would help some of our local SMEs who might not fully grasp the options available to them.

I also remain concerned about businesses taking the opportunity to increase their prices, at a rate that goes beyond passing on their costs to their consumers. Taking an example we are all familiar with, the prices of cooked food at our hawker centres and coffee shops, are usually hiked at 50 cents to $1 at a time, which is a substantial percentage increase where their base prices are around, on average, $4 today. Any unjustified increases might not be high enough to pass the threshold to be reported to the Committee Against Profiteering; and even if they do, the average consumer is hardly going to report the economy rice or nasi padang stall for a higher price than they expected. So, I would like to invite the Ministry or the Committee Against Profiteering to devise a systematic way to analyse costs increases on the ground, especially repeated increases in a short period of time.

On the new measures in the bill to address missing trader fraud, can the Ministry also clarify what is the difference between the new section 62C, and the existing regime? I understand that this is to catch a situation where a seller collects output GST on goods sold but disappears without paying it to the Inland Revenue Authority of Singapore (IRAS).

In the meantime, other parties in the supply chain continue to deduct input GST claims on purchases they have made. The products are then exported by the last seller in the chain, who also does not need to pay GST to IRAS, since export sales are zero-rated. However, I understand that it is already a chargeable offence – six men were charged in 2021 in connection with Nagore Trading. So, are the amendments only to include enhanced maximum penalties of a $500,000 fine and/or 10 years imprisonment? If so, will the sentencing precedence under the existing regime still be applicable to guide the appropriate sentences under this new enhanced framework. Mr Speaker, Sir, notwithstanding the clarifications sought, I support the Bill.

Mr Speaker: Assoc Prof Jamus Lim.

2.29 pm

Assoc Prof Jamus Jerome Lim (Sengkang): The GST (Amendment) Bill will codify into law the Government's plans to increase GST from the current rate of 7% to a rate of 9% over two years. The Workers' Party has opposed this increase and continues to do so.

Nevertheless, in the spirit of advancing the debate, we have offered a number of, what we believe, are credible alternatives to the decision to stubbornly plough ahead. I previously shared with this House about why raising the GST is not ideal.

To reiterate, perhaps ad nauseam, I spoke during the Budget debate about why raising GST was unnecessary, given alternative revenue options available. I followed it up in an Adjournment Motion about how fiscal policy should not undermine our efforts at tackling inflation by increasing the headwinds that the economy faces.

More recently, I explained in my speech on the Income Tax (Amendment) Bill, why a temporary postponement of the GST hike – whilst clearly second best to not doing anything at all – would nevertheless allow the Government to better fulfil its promise of addressing inflation that was higher and more persistent than expected.

Now, you would think that I would have nothing else to add to this topic of GST and yet I do. Today, I wish to suggest why a temporary postponement of GST on essential items, in effect allowing for additional exemptions in the amendments in section 16 of the principal Act, has much to merit serious consideration. While this is in our view, unambiguously inferior to some of the alternative revenue generation strategies that the Workers' Party has previously advocated, it may offer an important stop-gap measure that affords precious relief to our people at this time.

To be clear, the Government's decision to implement the GST increase in an incremental fashion rather than in one fell swoop has been welcome by both businesses as well as many Members of this House. However, it is notable that even back in February, some consumers remained skeptical and this sentiment has probably been further compounded by the continued erosion of purchasing power in recent months due to stubbornly persistent inflation.

There is a strong likelihood that increase in GST will further feed this inflation monster. In principle, this need not be the case. Tax increases could well dampen overall demand and thereby tame rising prices. But if taxes end up raising the costs faced by firms, they could instead, end up constricting supply and then give rise to price increases. But, that is in theory.

In practice, we have often observed increases in the inflation following the introduction of Value Added Taxes, such as the GST. The example I had previously shared with this House, the case of Japan, is instructive here. Japan increased its version of the GST thrice over the past quarter century. Each time, the inflation rate would more or less double for up to a year thereafter. Now, imagine a doubling of our inflation rate from our current already unbearable levels.

Now, to be completely fair, it should be noted that Japan's hikes occurred in a much more benign inflationary environment, which could have amplified the effects of the GST hike on inflation outcomes. It is nevertheless, difficult to envision conditions where the impending GST increase would not give rise to another bout of inflation. To be fair, the Government has tried to get ahead of this possibility by convening the Commitee Against Profiteering. This Committee is tasked with investigating feedback on unjustified price increases in essential items while using the GST hike as a cover. Yet the task in front of the Commitee to effectively adjudicate cases of profiteering when the global inflation environment has itself ran amok, seems nigh well impossible. After all, how can we reasonably expect the Commitee to successfully disentangle the share of the price increase that is attributable to profiteering from a 1% GST hike when inflation itself is already running at more than seven times that rate?

Deputy Prime Minister Lawrence Wong has explained that the Government believes that it is, and I quote, "more responsible", to proceed with the GST increase even amid the uncertain inflation outlook. Mr Speaker, given what I have just shared, one could just as easily make the case that it is just as irresponsible to do so, at least at this point in time.

Inflation has hit the hardest in the categories that are often excluded from the so-called core measure of inflation commonly targeted by central banks, which is food and fuel. Yet, these selfsame goods and services are, not coincidentally, also frequently the most visible ones to the average consumer. While the MAS officially targets a different definition of core, which excludes private transport and accommodation instead, these categories have, likewise, been among those that have experienced the greatest bouts of price increases in recent times.

Food prices overall have risen by 6.9% compared to a year ago. But in certain categories, this increase is more stark and significantly greater than overall food inflation. The prices of fish, for instance, have jumped by an average of more than 10%, prompting another Member of this House, Mr Melvin Yong, to fret that if this trend of existing expensive fish will continue into the future. He speculated on that, excuse me. It also makes it harder for the wallets of those of us who are trying to heed the call of Healthy SG to improve our diets. Another Hokkien saying says "boh he, heh ma hoh", literally "no fish, prawns are good too". Yet, in April the price of prawns jumped by a whopping 14%.

The cost of utilities has jumped by more than 16%, with electricity in particular, shooting north of 26%. This has led to shock and dismay among others, my Sengkang residents, some of whom have come to us during Meet-the-People Sessions to ask for relief from overdue utilities bills, which they are finding difficulty in paying.

The culprit of high utilities prices is unsurprisingly, the high cost of energy. High fuel prices have also reared their head in transport costs, which have increased by around a-fifth. We can, of course, lay the blame on the feet of the Russo-Ukrainian War. But the fact is that many are facing sticker shock when they book a Grab or a Gojek because they are late for an important business meeting.

So, while Singaporeans accept the inflation is very much a global phenomenon, the reality is that inflation has inadvertently become a tax on our people.

The Government has tried to assuage some of this pain arising from this inflation tax with a range of incidental measures, such as issuing additional U-Save rebates, S&CC credits and CDC vouchers. The prices of public transport options have also been mostly kept in check. Such additional support, to be clear, helps, but, and especially for lower-income Singaporeans, including those that reside in Sengkang, appreciate this relief. Yet, those patches appear piecemeal and inadequate since they refer – they cater to the average household within each income group.

In our walkabouts, incredulous residents have come up to me and asked, "How can inflation be only 7% when my "cai peng" has doubled – has gone from $3 to $5, and my SP bill has doubled?" Herein lies the conundrum. Nobody is truly average. And so those who consume a narrower basket of goods and services will feel the pinch more acutely. This leaves many individuals and families feeling like the coupons, subsidies and rebates fail to make up for the magnitude of the price increases that they face. Their worries are compounded since by definition, spending on such necessities is seldom view as optional.

But there is a simpler way. To temporarily exempt these categories of essential goods and services from the GST hike altogether. Since these categories have been subject to the greatest price volatility in recent months and given the enormous pocket share that such items command in the average household's budget, it is reasonable to offer temporary, targeted and relief for these essentially non-discretionary aspects of their spending.

My Sengkang colleague, Ms He Ting Ru, has previously made this case during her speech, during the annual Budget debates.

This Government has counted that such a multi-rate GST system will benefit higher-income households more than low-income ones, making exemptions regressive. This is, by and large true, although under normal economic circumstances.

But we are not in a normal economic environment, are we? Inflation is a generalised rise in prices and affects us all. GST vouchers and U-Save rebates targeted to the lowest two or three quintiles of our economy leaves our large and beleaguered middle class in the lurch.

Recall, taxes paid by such households will tend to be nominally higher, assuming that they were lucky enough to receive a salary adjustment this year. Yet, they would have been left without most of the additional support measures that have been targeted at the lower-income groups. This then amounts to a real tax increase even before the GST hike.

Moreover, as Ms He has also pointed out, even if a system of exemptions turns out to be regressive, keeping the existing system of no exemptions may be even more regressive, since the pernicious effects of GST on the incomes of the poor may well be greater than the benefits of raising more revenue from the rich.

The other common argument is that multiple rates will complicate our system, raising compliance costs for businesses. But surely the current patchwork of credits, vouchers, rebates and subsidies is even more complicated to administer.

Furthermore, Ms He also stressed that modern technology essentially means that only a few additional lines of code are required to ensure that scan barcodes apply differentiated rates. Surely, our revenue collection systems are at least as sophisticated as those in advanced economies such as Australia, Canada, the United Kingdom and the United States, all of which along with emerging economies such as India, Indonesia and South Korea, employ some form of differentiated GST regime, and compliance is after all, limited to only the largest firms.

In my earlier speeches, I had explained how short-term macroeconomic conditions warranted continued support from easy fiscal policy, of which a postponement of the GST increase would be a form. Today, I wish to also touch on how longer-term structural changes likewise lend credence to the notion of a temporary delay.

MOF had previously estimated that healthcare spending for the current five-year period between 2021 and 2025 was expected to increase by 0.5 percentage points of GDP. As it turns out, total expenditure by MOH for fiscal years 2020 and 2021 busted this budget – it grew by 3.5% of GDP, from 2.2% – which is little surprise, given COVID-19 related expenditures.

But those were extraordinary expenditures which were funded in part from our reserves. Hence, if we now allow the rate of growth of healthcare expenditures to revert to its original trajectory of a steady 0.1% increase annually, we still have wiggle room to forestall an immediate increase in GST. After all, the $3.5 billion that a two-percentage point GST increase is expected to raise will amount to about 0.7% of current-day GDP, which is far greater than the projected increases needed by MOH for the couple of years ahead.

It strikes me that a postponement of GST for essential items will not have any significant detrimental effects on our fiscal balances and can eventually be made up in the future. In contrast, a delay will make a substantial difference to families who are bearing the brunt of expensive necessities, today. Importantly, such a move would provide relief for even families not covered by the GST Voucher Scheme who nevertheless face the same price increases that we all do.

Finally, it is worth pointing out that the current setting affords a precious opportunity for evaluating how a differentiated GST regime would affect tax revenues. MOF has either not conducted studies of such a possibility, or if the Ministry has indeed performed such analysis, it has ever never disclosed its evaluations publicly.

A temporary postponement of GST for selected basic necessities will offer a pilot that would allow the MOF to recover some real-time numbers for how the differentiated GST regime would operate in practice. This is in the spirit of the usual approach that this Government adopts: to pragmatically test options that present themselves, to determine if it is a policy that is worth adopting and to calibrate the scope of the policy accordingly.

I see I have a little bit of time yet, so I will just touch on a few points in rebuttal to arguments made about why some of the revenue options that we suggested are not quite tenable.

One argument has been made is that property taxation would not raise quite enough for the purposes of offsetting the needed increase in GST amounts. This is, in fact, true. In our own calculations, we estimate that the amounts raised by changes in the property tax regime would raise a non-trivial amount of about $0.4 billion, but this is still insufficient. The crux of where we think we can raise an additional amount comes from property sales.

Just to be clear – the way that we compute property sales does not suggest that we are taking non-recurrent permanent revenues and using it for recurring purposes. Rather, as we have explained we are using the Government's own treatment of land leases with tenure of less than 10 years, which currently gets directed to recurring revenues, and, instead, we are saying "Let's take this, be consistent and take the full amount of the 10 years, whether the tenure of the land sales is for 30 years or 60 years or 99 years, and instead take that amount and put that into our recurrent revenue". This will raise in excess of $2 billion which is a big part of where this revenue strategy would raise necessary funds.

Likewise, on the issue of corporate taxation, it is important to note that our proposal of respecting the terms of the OECD BEPS agreement, essentially just operationalises what would be necessary to an agreement for which we are already a signatory.

In fact, we will not touch SMEs and our estimates of a net revenue increase are not ours alone. Others such as Mr See, who wrote in The Straits Times in 28 February, pointed out how BEPS was unlikely to hurt competitiveness and may net Singapore net gains in revenue as well.

Finally, I should point out that on the issue of reserves, it is just as possible to over-save as it is to under-save. Based on our calculations, we calculated that when the Government adjusted its NIRC contribution in 2008, it moved from about a contribution of 10% to the current 50%. Was it under-saving then? Would our proposal of going from 50% to 60% necessarily mean that we are still under-saving or are we over-saving? I think these should all be kept in mind.

Mr Speaker, inflation has hit Singaporeans hard. While some may cope better than others, higher prices affect everybody: businesses and consumers, rich and poor. Raising the GST is more than likely to exacerbate these inflation pressures that our citizens already face.

I should point out, however, that there is one entity that is comparatively shielded from this rise in inflation: the Government.

That is because many taxes are collected as a percentage of the taxable base. For example, if a business raises prices in response to higher costs of raw materials, it will earn more revenue in dollar terms, and hence, its greater nominal profits will now be subject to corporate taxes, even if the tax rate remains completely unchanged. Similarly, GST revenue will automatically be higher in dollar terms next year – even if it does not increase from the current rate of 7% – because GST will be levied on the higher sticker prices already being charged for goods and services.

This is why I had stressed, in my earlier speeches, that the Government has a responsibility to rebate fiscal surpluses that has resulted from inflation —

Mr Speaker: You have 45 seconds left.

Assoc Prof Jamus Jerome Lim: Yes. And the Government has announced two and now recently three packages which amount to – still in our calculations – less than the $8 billion excess revenue that had been raised in the most recent fiscal year.

So, Mr Speaker, for reasons outlined in this speech and earlier ones, I cannot support the increase in GST. Let us not shackle Singaporeans with yet another chain around their ankles when there are alternative ways forward. [Applause.]

Mr Speaker: Mr Desmond Choo.

2.49 pm

Mr Desmond Choo (Tampines): Mr Speaker, thank you for allowing me to join the debate. Workers and unions are concerned the rising cost of living and the need to adapt to new ways of working. But their primary concern has always been: “Can their wages keep up with rising costs of living? Would the increase in GST worsen the cost-of-living problems?” The anxieties are real and lived, but workers also keenly understand that higher costs are here to stay and longer-term solutions are needed.

The time-tested solution is a three-pronged one: firstly, timely assistance during exigencies; two, sustainable wage growth in the long term; and three, moderating costs of living. Allow me to take them in turn.

The Labour Movement is thankful for the 22 October $1.5 billion cost of living support. This was in addition to the $1.5 billion that was given out in June 2022. These short-term packages help to blunt the impact of sharp increases in costs during unprecedented inflation globally. We are also mindful that the Assurance Package will still be in place to support workers when GST kicks in next year. It was $6.6 billion; it will be boosted to $8 billion. Workers are assured that if inflation remains high, Government will continue to support them. My fellow Labour Member of Parliament, Ms Yeo Wan Ling, will share how these packages have helped our lower-wage and our self-employed workers to cope.

We cannot rely on special packages indefinitely. The lasting solution is we must keep wages growing ahead of inflation sustainably. We appreciate that costs of doing business have increased. Singapore is a price-taker for virtually any items we import. We are price-takers for most of our factors of production. Therefore, we must not lose sight in driving productivity. We need to ensure that there is continued investment in companies and workers so that our economy is vibrant and productive. Only when businesses do well, can our workers enjoy sustainable wage gains.

Training is essential to help our workers get those better jobs and better pay. It is tempting to reduce training costs during such times. But these are longer-term investments in our workforce that will reap longer term benefits. We hope that the Government will continue to fund and maintain the SkillsFuture movement.

We will also need businesses to rethink business models to capitalise on technology to increase productivity. NTUC has embarked on the proliferating the set-up of Company Training Committees (CTCs) to foster and engender transformation at the firm level. This was done in partnership with the Government. These 2,500 CTCs, by the end of 2025, will develop the Operation and Technology Roadmap programme (OTR) with companies. OTR can assist businesses to use innovation and technology move up the value chain. Workers can be more productive as a result.

Particularly, I urge SMEs owners to consider participating in OTR Programmes. SMEs hire the bulk of our workforce and are instrumental in helping a large proportion of our workers to get better wages. Eligible SMEs may apply for grants extended by Enterprise Singapore to offset up to 80% of OTR costs.

The Government and the union stand ready to assist both workers and enterprises at every step of the way to boost productivity. We are not merely idle observers of rising costs. We can determine our own fate.

Raising productivity is key but we must also make sure that gains are shared fairly and equitably. This is an important tenet of our social compact. There are workers, especially lower-wage ones, in sectors where market forces work against them. PWM has helped these workers to be paid better. It also helps to keep wage disparity tighter. It has served both economic and social purposes. We have expanded to the retail sector and workers will see around 8.5% wage increase. We will expand into food services and waste management next year. We will need to study expanding into other areas more rapidly to help our lower-wage workers.

The support from the Government via the Progressive Wage Credit Scheme (PWCS) to help businesses cope with the increased cost of wages are vital in the interim. Throughout the period of PWCS support, I hope businesses will use this period to devise new ways to attract local talent and increase productivity. Businesses should tap on grants to increase productivity. Examples of these grants – there are a lot of them – that seek to increase job productivity include the Productivity Solutions Grant which offers up to 80% support in the food services and retail sectors. There is also the NTUC Company Training Committee Grant which provides funding support of up to 70% of qualifying costs for each project and aims to enhance business capabilities.

I hope that the tripartite partners will persist in the implementation when the easier path might be to delay them in the face of rising costs.

As for our vulnerable workers, such as mature workers, PWDs and ex-offenders, MOM will be extending Jobs Growth Incentive (JGI) to March 2023. I hope that employers will continue to tap on the JGI to hire our vulnerable workers, who are very qualified as well.

Beyond 2023 March horizon, I also call on the Government to consider further extensions of the JGI if inflationary pressure has not eased by then. Additional support for PWDs in the form of the Enabling Employment Credit, which offers employers wage offsets of up to 30% for eligible Singaporean PWDs should continue to ensure sufficient employment support.

But we must at no point be under any delusion that Singapore is able to do all these without resources. We could do all this because firstly, there are investments to create new and better jobs; two, we have the resources to invest in our workers and care for Singaporeans. This system has helped us grow our wages over the years. For example, real basic wages grew by 2.8% a year over the last 10 years.

The economic and geopolitical imperatives to train and transform will be even greater as structural changes become deeper and more pervasive, economic conditions become more volatile, even more resources will be needed to help workers.

So, we must keep faith in investing in our workers for the long run to protect them against inflation. Similarly, we must reject short-term solutions that harm longer-term viability. Solutions such as consuming more of our NIRC now instead of investing them to meet future unpredictable challenges are very risky. More consumption today must also mean less to invest for future returns. This is inevitable. Sustainable wage growth is still the best protection against long-term inflation.

NTUC will do our part to help workers tide over challenging times. The union has always stood ready to step up during times of need. In recent years, when the pandemic first hit in 2020, NTUC Enterprise rolled out a $50 million support package to help with the cost of living. In 2021, they rolled out another $20 million package to manage the cost of living and help stretch savings across different areas such as insurance, healthcare, education, and financial planning. This year, NTUC also launched a $3.7 million NTUC Care Fund (Special assistance) Programme in August to help 28,000 lower-wage income workers defray daily expenses and higher inflation. These are in addition to the support provided by the various unions.

NTUC and its social enterprises will continue to moderate the costs of living. It was a mission that we took on since the formation of the cooperatives in 1970. Our social enterprises face the same cost pressures as any other businesses. We face the same cost increase in logistics, manpower and goods. We are in tradable sectors where there is the same competition for raw materials and manpower as other commercial entities.

But we will persist in our mission. NTUC FairPrice continues to benchmark prices and keeps food and daily essentials available and affordable. It is constantly updating and enhancing its range of House Brands to offer better value and quality to meet the evolving needs of consumers. For example, late last year, NTUC FairPrice brought down the cost of Antigen Rapid Test (ART) kits by half to help relieve the financial burden on workers, including those rostered to go through routine rostered testing. There is also the “Greater Value Everyday” campaign which consists of various discount and value schemes. For example, the Save Even More scheme sees groups such as the Pioneer and Merdeka Generations, our seniors, CHAS Blue card holders enjoying the same existing discount schemes from Monday to Friday.

Kopitiam and NTUC Foodfare launched a new initiative in May this year to help workers access cooked food and drinks at lower prices. By the end of this year, 2.4 million NTUC members and NTUC Link members will be able to benefit from 10% savings when they pay use the NTUC FairPrice app for purchases at Kopitiam.

Ahead of the implementation of Goods and Services Tax (GST) increase, NTUC FairPrice has announced that it will be offering a discount on 500 essential items for the first six months of 2023. This initiative will apply across all FairPrice supermarkets, including FairPrice Online. This basket of 500 key essential items is selected based on items that customers purchase frequently and serves the top-of-mind needs of customers. They comprise national brand, house brands, fresh fruits, vegetables and meat, staples, dairy, paper products and household cleaners – quite a lot.

The union will continue to actively monitor the impact of inflation and will work in tandem with the Government to enhance our efforts when required.

Mr Speaker, the Bill aims to guard the fiscal health of our nation and care for Singaporeans in the longer run. To combat the short-term impact of the GST increase, the Labour Movement is heartened that the Government has rolled out a comprehensive set of measures since the start of the year and will stand ready to help Singaporeans if things do not get better.

The Labour Movement will complement the Government’s effort to help Singaporeans cope. NTUC, along with its Social Enterprises, will continue to ensure that our workers and families have accessible, affordable and quality goods and services. We believe that a longer term and more sustainable approach for our workers and businesses to cope with the rising cost of living is through boosting skills and capabilities. We stand committed to work with the Government to help workers stay relevant with training and help businesses do even better. Mr Speaker, I support the Bill.

Mr Speaker: Order. I propose to take a break now. I suspend the Sitting and will take the Chair at 3.25 pm.

Sitting accordingly suspended

at 3.01 pm until 3.25 pm.

Sitting resumed at 3.25 pm.

[Mr Speaker in the Chair]

Goods and Services Tax (Amendment)Bill

Debate resumed.

Mr Speaker: Mr Leong Mun Wai.

3.25 pm

Mr Leong Mun Wai (Non-Constituency Member): Mr Speaker, the reasons for the Opposition's objection to the GST hike have been documented extensively in social media and in the minds of Singaporeans. As the Progress Singapore Party's Secretary-General Francis Yuen has said, the move to hike GST is unnecessary, untimely and uncompassionate.

The Government has basically put up two arguments against the Opposition.

First, while the Government does not deny that it has ample revenue, it insists that much of the revenue is not to be used for this generation.

Second, the GST is not regressive because the poor are compensated by GST vouchers, never mind the other Singaporeans, including the sandwich class, who have to pay more.

In my speech during the Committee of Supply Debate in February, I have stated that the sandwich class would be paying $1.2 billion more as a result of the full implementation of the 2% GST hike at a time when they are facing challenges with soaring inflation and escalating housing prices. The Government, however, did not confirm or deny that figure.

I do not want to raise the same questions. The time is better spent telling a story to illustrate what is happening and let Singaporeans decide.

Many would remember the story about Ah Seng and his grandfather, Ah Gong, told by former Member of Parliament Lee Bee Wah. However, she did not complete the story. Today, I will share one more episode with all of you. Sir, in Mandarin, please.

(In Mandarin): [Please refer to Vernacular Speech.] The Story of Ah Seng – Second Episode. Ah Seng’s parents died when he was very young and he was brought up by his grandfather. Ah Seng was not a prodigal son or a "see gui kia" who only knew how to get money from his grandfather. Ever since Ah Seng started working, he had always been giving his grandfather a large proportion of his salary.

After Ah Seng got married and had children, his expenses began to increase rapidly, but his grandfather continued to ask Ah Seng to increase his allowance. Grandfather had his reasons, like he needed money to pay his wife's medical bills, or because he needed money to refurbish the ancestral homes. Hence, all this while, Ah Seng carried a heavy financial burden and had limited cash savings.

If the extended family was truly short of money, grandfather's requests would be reasonable. But as Ah Seng grew older, he realised that the extended family, headed by his grandfather, was doing pretty well financially, as their ancestors had left behind many properties and assets. However, the grandfather never revealed this to Ah Seng, and deliberately kept it as a secret.

All this while, Ah Seng, who had a strong notion of self-reliance, had not given much thought to the ancestral assets. He did not complain even when he had to pay his grandfather the market price to purchase a house allocated to him out of the ancestral assets when he got married. At the time, the grandfather gave Ah Seng some money to help with the down payment, and Ah Seng borrowed money from banks to pay for the rest of the house. After that, the grandfather continually invest the proceeds from the sale of the house that he received from Ah Seng.

As Ah Seng entered middle age, his career began to flounder and his income became unstable. The cost of living also began to rise precipitously. Under such circumstances, when grandfather again asked Ah Seng to increase his allowance, Ah Seng felt aggrieved, and started to feel some discontent towards his grandfather.

Furthermore, each time any family member questioned the grandfather about the ancestral assets, he would rage and call them spoilt children. He would warn them not to spout nonsense. Actually, Ah Seng agreed that they should leave behind more assets for the future generation, but not without addressing the urgent needs of the present generation.

Fellow Singaporeans, do you agree with the grandfather's behaviour? If you are Ah Seng, would you agree to his grandfather's request for an increase in allowance?

Justice is in the hearts of the people.

(In English) Mr Speaker, Sir, the Progress Singapore Party does not support the Bill.

Mr Speaker: Mr Shawn Huang.

3.33 pm

Mr Shawn Huang Wei Zhong (Jurong): Mr Speaker, I would like to ask Mr Leong Mun Wai one particular question. His story of Ah Gong and Ah Seng is very compelling. But it seems to only include two characters, which is Ah Gong and Ah Seng. In this particular story, has he considered other characters, for example, other family members, friends, visitors who have come to the house to visit, from whom Ah Gong would have collected a fair share of collective to increase the fiscal capacity to further help Ah Seng.

In fact, Ah Gong has repeatedly mentioned that for every dollar that he collected from Ah Seng to plan for this future and future generations, he would have collected, collectively, from others and given back to Ah Seng $2 for every dollar of tax that he has paid or in fact, $3 for every single tax dollar.

Could he please clarify if he would consider including other characters in his particular story?

Mr Speaker: Mr Leong.

Mr Leong Mun Wai: Mr Speaker, I thank Member Shawn Huang for his question. As I have said in my speech at the beginning, there are other episodes to the story, so let me add in other episodes in other Sittings.

Mr Speaker: For the next episode, Mr Sharael Taha.

3.35 pm

Mr Sharael Taha (Pasir Ris-Punggol): Thank you, Mr Speaker, Sir, for letting me be a part of this debate. Personally, Mr Speaker, Sir, this debate is a difficult one and I am sure many of our colleagues here in the Chamber would agree.

During my block visits and conversation with the residents of Pasir Ris-Punggol, cost of living, healthcare and taking care of our increasingly ageing population are issues that weigh heavily on their minds. While we can all try to understand what is going on in the world today and explain the confluence of reasons for the global inflation, or how the Singaporean dollar has strengthened to reduce the net impact of inflation, all these explanations fade away when at the end of the day the price of our grocery bill is more expensive than what it was previously.

Firstly, inflation is at an all-time high in Singapore. MAS expects headline inflation in 2022 to come between 5% and 6%, with core inflation to average between 3% and 4%. Prospects in 2023 do not look too rosy either. Economists expect inflation rates to ease but will remain high at 3.5%.

This comes with a forecasted slowdown in GDP growth. MTI narrowed its range for Singapore's GDP growth this year to 3% to 4% from an earlier projection of 3% to 5%. This was in tandem with a worsening outlook for the global economy and stubbornly high inflation globally.

In my conversations with Pasir Ris residents, across the board, high inflation rates, cost of living and healthcare were top on everyone's worry. In a Public Policy Forum with youths at Pasir Ris East, our youths were concerned about the cost of living, affordability of healthcare for our seniors and the load of supporting our rapidly ageing population across a smaller base.

One of them, Mr Charles Chow, a young working professional, is concerned for the fact that four working adults are supporting one senior now; but by 2030, only two working adults will support one senior. What are the future financial challenges for working adults if this trend continues? He wonders how we can distribute the costs of providing affordable healthcare among a larger group of taxpayers.

Last week, in a dialogue session with more than 70 members in the Malay/Muslim community through M³ Pasir Ris-Punggol, the top three concerns they had for the community were: rising cost, including assistance for low-income families; healthcare cost for our ageing population; and education for students from lower-income families.

Many of the residents in my ward are between the ages of 55 and 65. Their children have only recently begun working, their homes will be paid for in the next few years, they have extensive work experience and they plan to retire soon. However, present inflation rates and rising costs of healthcare raise a real concern that their retirement account would prove insufficient. They worry that they would be a burden to their own children after retirement.

We also have more "middle-aged" families. They are in their mid-30s or 40s with school-going kids and have relocated from their BTOs in Punggol or Sengkang to Pasir Ris to be closer to their parents who will retire soon. They are concerned about the rising cost of living for their family and the assistance available to care for their elderly parents. They feel sandwiched between their family and responsibility for their parents.

In the last Budget debate in February this year, Deputy Prime Minister Wong highlighted that we almost tripled healthcare spending from $3.7 billion in 2010 to $11.3 billion in 2019. If our current healthcare spending continues to increase at a similar rate over the coming decade, we will spend around $27 billion by 2030.

How can we fund this increasing healthcare cost? Do we lessen spending on social development, security and external relations or economic development or do we need to increase our revenue sources and redistribute resources more fairly to create a more inclusive society?

We all agree that more must be done to keep healthcare affordable and provide greater assistance to lower-income families. We want more to be done without overburdening the lower- and middle-income. We believe that those who have been blessed with more should give back more to society.

So, what are our options to provide the necessary healthcare support for our rapidly ageing population while minimising the impact on the majority of Singaporeans?

In MOF's analysis of revenue and expenditure based on FY2021, about 70% of Singapore's revenue comes from NIRC, corporate tax, income tax and Goods and Services Tax. In his Budget speech, Deputy Prime Minister Wong mentioned the consideration of all the other types of taxes. Hence, I will not touch on them here. However, I would like to provide a perspective from the industry on corporate tax and, in particular, the impact of Base Erosion and Profit Shifting (BEPS 2.0) and if this can be a dependable alternative to raise the additional income we require to finance the increasing healthcare cost.

Mr Speaker, at this juncture, I would like to declare my interest. I lead strategy and programme execution, including where to invest, for a company that has a 30% global market share for the maintenance repair and overhaul of aerospace jet engines. In my previous role, I was also involved in making decisions of expansion plans for a global multinational company (MNC). My portfolio included setting up new manufacturing facilities and retrofitting factories that build advanced jet engines in UK, Germany, Canada and Singapore.

Under Pillar One, 25% of the residual profits – defined as profit in excess of 10% of revenue – will be allocated away from where the economic activities are conducted to where the markets are.

Given Singapore's small domestic market in comparison to those around us as well as our role as a regional hub for MNCs to do business from, there is an expected net outflow of tax revenue as tax is allocated away to the markets where the MNCs are serving.

In his earlier speeches, Deputy Prime Minister Wong mentioned the magnitude of fiscal impact would only be clear after international negotiations have been concluded and it has not.

Pillar Two of the multilateral consensus includes a global minimum effective tax rate of 15%. By increasing the minimum effective tax rate, we may collect more corporate tax and hence, may just possibly increase tax revenue. However, this truly depends on how other governments and companies react.

Mr Speaker, the real question is – will there be a net increase in income from corporate tax such that gains in BEPS 2.0 alone can be sufficient to make up the hole left behind by not raising GST?

Though collectively planned for in 2023, implementing BEPS 2.0 across 135 OECD countries will be difficult and uncertain. There is no clear timeline for implementation or how governments will react to it.

Should we be the first to implement BEPS 2.0 by hiking corporate taxes willingly ahead of others and foregoing this competitive lever of our economy, especially at a time where other countries are aggressively courting more business investments to aid in their economic recovery? How will this impact our ability to attract investments? Should we put our country's competitiveness at risk since we do not know when and how other countries will implement the changes?

Secondly, what will the net income of BEPS 2.0? If we raise corporate taxes to the same level as other countries or worse, ahead of other countries who are competing for the same investment, we would lose this competitive lever for attracting foreign investments.

Let me share with you the perspective from the industry now: (a) with the current forecasted inflation rates, high interest rates on working capital; (b) with the increase in payroll cost due to multiple reasons such as a very tight labour market in Singapore, aspirations of our workforce to have higher pay each year and factors like the Progressive Wage Model (PWM) because we want to do this, we want to pay our lower-wage workers better, we want our workforce to be paid more each year but remain competitive in the global market; with the challenges and cost of talent acquisition in Singapore; with managing supply chain volatility; (c) with the strength of the Singaporean dollar decreasing export and service competitiveness; (d) with the global increasing energy cost, and; (e) on top of that, we add on an additional headwind to the businesses like the impending increase in carbon tax – because that is the right thing to do – not for the income of carbon tax but to use carbon tax to encourage our businesses to adopt the right behaviour to protect our environment.

It is of no doubt that with all the headwinds I have mentioned, we will have to do something and spend on non-tax incentives to restore and enhance our business competitiveness to continue to attract foreign investments when we lose preferential tax rates as one of our competitive levers.

At the very least, we will have to spend more on our workforce through programmes like career conversion programmes to train, upskill and attract more of our local talents into high growth industries.

We also have to spend more to form collaborations with research institutions like the $65 million Joint Lab programmes between A-star, Rolls-Royce and Singapore Aero Engine Services Private Limited (SAESL) to drive productivity and develop novel technologies for the world.

We will also need to spend more on programmes, such as the Productivity Solutions Grant, Enterprise Development Grant, CTO-as-a-Service and many more grants, to help our SMEs grow and develop capabilities that would instill investor confidence that this tiny dot of ours, our Singapore, has the ecosystem that will enable their investments to grow and flourish and, most importantly, provide good jobs to our people despite not having preferential tax rates.

There is also the uncertainty of how businesses and governments will react when they lose this competitive lever, too.

The business world is neither simple nor static. Businesses and governments will react to this tax equalisation through the provision of grants or corporate schemes to continue to attract investments whenever they lose preferential tax as a lever to attract investments.

Businesses have a choice to make and these are not binary choices of to invest or not to invest. Businesses can choose to slow down their growth, especially slow down their growth in Singapore, choose to not grow their operations in Singapore, diversify elsewhere or, worse, exit Singapore. Any of these decisions will hurt our workers and our economy and that has a secondary effect of lowering our tax collection further.

Hence, taking into consideration the uncertainties – the uncertainty of when it is to be implemented across all the OECD member states, uncertainty of the net income we can receive from it, uncertainty of how businesses and governments will react – how can we have the confidence to rely on this uncertain revenue source to finance something as certain and as critical as the healthcare needs of our ageing population?

The real question is, Mr Speaker, Sir, will there be a net increase in income from corporate tax such that gains in BEPS 2.0 alone can be sufficient to make up the “hole left behind by not raising GST”? Is the implementation of BEPS 2.0 a viable and sustainable alternative to GST in paying for our increasing healthcare costs?

Mr Speaker, with all the uncertainties, the only thing that is certain is that if there is an increase in revenue from corporate taxes, there will not be a direct flowthrough of revenue to income as we will have to do something – spend more to restore the lost competitive lever.

My worry, Mr Speaker, Sir: one in four Singaporeans will be above the age of 65 in 2030 is a certainty; 200,000 Singaporeans will be above the age of 80 by 2030 is a certainty; our increasing healthcare cost is a certainty. How do we risk the expenditure of something so certain with an uncertain income source? Do we want to take the risk and jeopardise with the healthcare of our population?

If corporate tax is not a suitable alternative at present, then how about GST?

Sixty percent of GST income comes from the top 20% income earners and foreigners spending in Singapore. Imagine that. When a tourist is having a meal at our restaurants or booked for himself a 5-star hotel, if he spends $1,000 for a three-day stay in one of our hotels, that additional tax income contributes to paying for our healthcare cost. As fellow Parliamentary colleague, Mr Saktiandi Supaat, mentioned earlier, which other taxation tool allows us to tax a non-residential population so effectively?

According to the Singapore Tourism Analytics Network (STAN), 22.84 million tourists visited Singapore in pre-COVID-19 2019 and spent an average of more than $1,000 during their stay. Though they can claim tax refunds for goods that they purchased, the additional tax that they pay for services contribute to our tax income directly.

Nevertheless, as much as GST allows us to earn more from visitors, we must do as much as we can to assist the middle and lower income, such as through the Assurance Package, the cost of living and GST packages. The enhanced GST cash vouchers, GST U-Save rebates to offset utilities, S&CC rebates, MediSave top-ups for seniors and GST Seniors' Bonus means that many Singaporeans pay GST below the headline rate. In fact, with the 9% GST and enhanced GST Vouchers, 70% of the population will pay less than the current 7% GST and the bottom 10% of Singapore households, including many retiree households, do not pay GST at all after the offset. Mr Speaker, in Malay, please.

(In Malay): [Please refer to Vernacular Speech.] Inflation is at an all-time high in Singapore. In my conversations with Pasir Ris residents, including those from the Malay/Muslim community, many said that they are worried about the high inflation rates, cost of living and healthcare.

During a dialogue session with more than 70 members of the community through M³@Pasir Ris-Punggol network, the top three concerns that they faced were the need to take care of the elderly, assistance for low-income families who are facing increasingly rising costs, and education for students from low-income families.

I understand and note that the issue of GST hike is complicated, especially with the increase in the cost of living. However, the fact is, this GST increase will be channelled to take better care of our seniors whose number is increasing; besides meeting the rising healthcare expenses.

Almost one in five Singaporeans are aged 65 and above, and this figure will increase to about one in four by 2030. Between 2012 and 2022, healthcare expenditure has increased from around $3 billion to $10 billion a year. This is a threefold increase in 10 years. In fact, this amount will continue to increase and is expected to reach $27 billion a year by 2030. That is almost 10 times increase compared to the cost in 2012.

Therefore, we need to prepare a revenue stream right now to ensure that we will have sufficient resources.

Mr Speaker, the question is, how can the Government mitigate the impact of the GST hike?

First, the Government will fully absorb the GST on education and healthcare, which will receive public subsidy.

In addition, the Assurance Package means that all adult Singaporeans will receive cash payouts between $700 and $1,600 over five years. This can offset at least five years’ worth of additional GST spending for most households, and 10 years for those living in 1-room to 3-room HDB flats.

The GST Voucher Scheme, which has three components - cash payment, Medisave top-ups and U-Save rebates - will be enhanced when the GST is raised. This will fully offset the GST for retiree households living in 1-room to 3-room HDB flats, significantly offset the GST for retiree households living in 4-room to 5-room HDB flats and offset about half of the GST for low-income households without seniors.

(In English): Mr Speaker, Sir, the high level of inflation, coupled with the needs of our ageing population, is top of everyone’s worry.

It is of no doubt that, as our population ages, our healthcare cost will increase and we must be prepared for it. We all believe in a fair and inclusive society where the lower income families should receive more assistance.

Deputy Prime Minister Lawrence Wong has shared many alternative taxation tools considered in previous debates. With regard to corporate tax and the impact of BEPS 2.0, from an industry perspective, when Singapore loses the competitive lever of preferential tax rates, we will definitely have to do something and spend more on non-tax incentives to restore and enhance our business competitiveness.

With all the uncertainties in implementing BEPS 2.0, the only thing certain is that even if there is an increase in revenue from corporate taxes, there will not be a direct flowthrough of revenue to income. How do we then depend on something so uncertain to fund our increasing healthcare cost? With the right rebates, like the enhanced GST Voucher, U-Save rebates, S&CC rebates, Seniors' Bonus, CDC vouchers, just to name a few, we can delay the impact of the GST increase to many of our residents. In fact, the lower 10% of the population does not pay GST at all. With that, Mr Speaker, Sir, I support the Bill.

3.54 pm

Ms Joan Pereira (Tanjong Pagar): Mr Speaker, Sir, in order to provide better support for the vulnerable and the increasing number of elderly in our society, more tax revenue from different sources is required. GST, being a consumption tax, is one of the ways to obtain revenue. More GST is being borne by the higher income group. As data from previous years show, the top 20% of the households here, foreigners and tourists account for more than 60% of the GST collected.

I would like to share a real story of how such revenue is used by the Government to help my elderly residents, two of them, and how more targeted support measures can help to alleviate some of the financial stress experienced by them and other Singaporeans.

Mr H, aged 68, stays with his wife, Mdm L, aged 63, in a 3-room HDB flat. Mr H left his job as a taxi driver in 2020 when his wife was diagnosed with kidney failure and needed to start dialysis. In addition, he takes care of their eight-year-old granddaughter. The couple’s greatest concern was medical costs. They were very worried about financial challenges if Mdm L was not able to continue working. The dialysis cost is about $300 per month after subsidy. Other costs include half-yearly treatment costs and medicines amounting to about $600.

The family was relieved that Mdm L could continue working and she currently earns about $2,800 a month as a childcare teacher. With various Government subsidies and assistance schemes, they can cope with the dialysis costs and daily expenses. Their granddaughter is also receiving financial assistance from MOE.

But Mr H shares with me that he is very concerned about the depletion of his and his wife's MediSave accounts. Currently, they are depending on their MediSave to pay for their medical bills. As they get older and may not be able to continue working, the contributions to MediSave may stop. By then, it will be very tough for them to cope with their medical bills. Mr H hopes that the Government would consider topping up higher amounts for the MediSave accounts of the vulnerable elderly.

In view of rising medical costs and that one of the key reasons why we have to increase GST is that our ageing population requires more support, I would also like to ask for higher withdrawal limits for MediSave. I hope that there can be more support and subsidies for outpatient treatments of chronic illnesses through the existing CHAS scheme for our Pioneer Generation and Merdeka Generation. Sir, in Mandarin.

(In Mandarin): [Please refer to Vernacular Speech.] In view of rising medical costs, and that one of the key reasons why we have to increase GST is that our ageing population requires more support, I would also like to ask for higher withdrawal limits for Medisave. I also hope that the Government can provide more support and subsidies for outpatient treatments of chronic illnesses through the existing CHAS scheme, for our Pioneer Generation and Merdeka Generation.

(In English): Other than the elderly, I can understand the burden of the sandwich class as I speak to many of them during my walkabouts. They feel very stretched by the increasing costs of living. Inflation is affecting their incomes which may not have kept pace with the increase in costs.

Separately, I would like to suggest that the Government send each Singaporean an annual consolidated statement of the various subsidies, top-ups and cash payouts he or she receives in the mail. This statement totaling all the benefits should also be available in the Singpass app such that our citizens will know how much assistance or support they have received.

It is important that our people obtain the correct perspective on how revenue collected and redistributed helps to assist the less privileged in our community so that no one gets left behind. Our nation is built upon a mutually supportive and enabling ecosystem, of which a cohesive and united people are the foundation. Sir, I support the Bill.

Mr Speaker: Mr Sitoh Yih Pin.

4.01 pm

Mr Sitoh Yih Pin (Potong Pasir): Mr Speaker, Sir. The Workers' Party has proposed the following as alternatives to the GST hike: (a) to use more of the net investment returns contribution, or NIRC, for expenditure, that is, 60% instead of the current 50%, and to put back a smaller amount, 40%, into the reserves; (b) to use a portion of our land sales as operating revenue; (c) raising corporate tax so that the effective tax rate is 15%; (d) raising tax on activities which have negative externalities and raising "sin" tax.

Deputy Prime Minister Wong had earlier this year, in his Budget round-up speech, explained why this cannot replace the GST increase. For today, I wish to comment on their NIRC proposal.

But Sir, before I do so, I think it is even more important to re-examine why we are having a GST hike. Of course, we all know a GST hike is never politically popular at any point in time anywhere. But in Singapore, the PAP has always done what we think is in the best interest of Singapore now and for successive generations; sometimes, regardless of the political cost. That is why we are where we are today.

The first principle in terms of taxes and expenditure is that each generation must, as far as possible, bear the cost of the public services it consumes. That should not be an inter-generation transfer of liabilities such that one generation pays for the services consumed by another generation. It is surely not a "pay as you go" arrangement that we see in other countries. This is the slippery slope that we must not go down and there are many examples of this elsewhere. Eventually, it pits one generation against another and leads to society fissuring and even fracturing along generation lines. One can see many examples of this around the world.

Mr Speaker, Sir, today on the NIRC, we have a 50-50 arrangement which we think is equitable. This current generation takes 50% of the NIRC and leaves 50% for the next generation. If we drop to 40% to reserves, what is there to say we cannot drop to 30% or even 20%?

I must say 50-50 is not rocket science, and I am the first to admit empirically, it feels like the right thing to do. We are an Asian society and generally speaking, our forebears have tried very hard to give us a better life than what they went through. This is possible only because they consumed less than what they produced and left us with the rest. We should continue this good practice of leaving something for our descendants.

So, at this juncture, I would like to take a pause and comment on some of the speeches that were made earlier. The hon Member Mr Louis Chua likened a GST increase to scoring an own goal when you are 5-0 down in football. When he said that, I am reminded of the Suzuki Cup semi-finals last year, on Christmas Day, where I was there with Minister Edwin Tong and which Deputy Prime Minister Lawrence Wong also mentioned during his Budget speech. In that game on Christmas Day last year, our Lions lost 4-2 against Indonesia. We had one man sent off, two men sent off, three men sent off. We were down to eight men. Our back was against the wall. But the Young Lions battled, they were clearing shots off the line, they defended stoutly and they were throwing bodies all around. That is how Team Singapore play. Not the way that Mr Chua has spoken about – conceding an own goal or scoring an own goal when you are 5-0 down.

Mr Speaker, Sir. Assoc Prof Jamus Lim also made mention of over-saving for our reserves. For a small country like Singapore, there is no such thing as over-saving. We are not just saving, we are re-investing. We are then flowing it back to the NIRC of future generations. Just a short while ago, I see a group of students in our audience; they just left. But why do you think even in such turbulent times, we are able to invest in education, to invest for the future? It is precisely because of the reserves that our forefathers had given us. So, let us not kid around. There is no such thing as under-saving or over-saving for a small country like Singapore. We have to save as much as we can, and I dare say, for a small country like ours, do what you can and do not ever use that word "over-saving", please.

Mr Speaker, Sir. I will go back to my speech now. If I have time, I would like to say something on Mr Leong Mun Wai's speech but let us see.

Sir, the argument against the GST hike, as some have said, is that times are hard, we are experiencing terrible headwinds and people are suffering from the rising cost of living. I recognise that. We all know that. I am sure the Government knows that both in their hearts and their minds. So, what is their solution?

Here I am reminded of what a doctor friend told me. I learnt a new word. The difference between analgesia – I hope I pronounced it correctly – analgesia and pain relief. Analgesia is the absence of pain. For example, an anesthetist is trained to achieve analgesia in a patient undergoing surgery. But when a patient is in this state, he needs constant monitoring and this consumes a lot of resources. It is not possible to have a long period of time whereby a patient feels no pain. This is because pain is a sensation and not to have any sensation is dangerous. While we do not like pain at all, a little pain is necessary because it is what makes us alert, it is what keeps us alive. To have no sensation of pain, unless induced by a doctor through anesthetic intervention for a short while, is not good at all. A good example is a person with badly controlled diabetes. Often, he has no sensation in his lower extremities because his nerves have died due to the scourge of diabetes. He feels no pain. Not just pain, he actually also feels nothing at all in the area where the nerves have died. As a result, he may not know he has developed bad diabetic ulcers, which can sadly end up with an amputation of a part of the leg. He may even die from these painless diabetic ulcers.

So, in summary, only the deceased feel nothing for a long period of time. It is therefore neither possible nor advisable that the Government shield Singaporeans from difficult economic conditions worldwide, so that they feel no pain at all. It is also not responsible for the Government of this generation to spend more than its fair share so that this generation of Singaporeans feel no pain. The can is kicked down the road and subsequent generations have to feel additional pain because of the profligacy that takes place now.

I know this sounds somewhat harsh, but reality is like that. No one owes Singapore a living. We must be prudent so that we are always resilient, no matter what or how the global climate is. Any good government must understand this. Only then can we bounce back from difficult challenges and grow even stronger in the future.

But it is also vital that the Government also feels for and understands the pain of Singaporeans during such challenging times. What the PAP aims to do is to reduce the pain, as in providing effective and substantial pain relief. Where the pain is most severe and sharpest, we will give the most pain relief through targeted assistance schemes. But we cannot provide analgesia so that we do not feel, at all, the adverse conditions around us. That would obtund us to the point that we may have a festering wound threatening our lives in the long term and yet we are not aware of it. We may then die from it eventually, or at the very least, we may need drastic intervention not unlike chopping off a part of our limbs. That would be a disastrous outcome that we need to prevent.

We are here to help. Yet, we do so in a way such that Singaporeans remain alert, sensitive and even quickened to the challenges and threats around us. That is how Singapore can continue to stay resilient, thrive and prosper.

Sir, the GST hike is implemented to help balance the books. But at a deeper level, the hike reminds us, both the Government and the individual, that we need to remain prudent in our consumption behaviour and that the world is going through tough economic times. But I must say, this does not stop the Government from intervening decisively to help families and individuals to lessen the pain in these trying times. And I think that the Government has shown, through the years, that no matter how challenging the internal or external environment is, we will continue to support Singapore and Singaporeans on the cost of living here. Even with the impending GST hike, the Assurance Package and Enhanced GSTV scheme effectively buffer many Singaporeans from the increase.

Sir, the fundamental difference between how the PAP and the Workers' Party approaches the problem is really this: the Workers' Party wants to provide analgesia for an extended period of time. The question is whether we, as a country, are better off and more resilient if we take this approach? Or are we better off if we take the PAP’s approach, which is to keep the country alert to dangers and challenges, while we give relief to those who are suffering more, as we forge ahead through these difficult waters?

Mr Speaker, I think that the answers are clear. Planning for the long-term interest of successive generations of Singaporeans, always ensuring that Singapore remains resilient through choppy waters, while at the same time, supporting Singaporeans in facing the challenges of today, is surely a better, more holistic approach than providing analgesia to numb the senses so that we can all pretend that the pain does not exist.

Mr Speaker, since I have a little bit of time, I would like to comment on what the hon Member Mr Leong Mun Wai said and since he used Mandarin, I will try my best to do so.

(In Mandarin): [Please refer to Vernacular Speech.] Earlier, Mr Leong Mun Wai shared a story about Ah Gong and Ah Seng. Of course, he is the author of the story, and we cannot stop him from writing the story as he pleases.

So basically, Mr Leong is saying that this Ah Gong comes from a very rich family and he keeps taking money from Ah Seng until Ah Seng is out of breath. Of course, this is his narration. But I want to share with him this saying, I do not know if he has heard of it before - "you can raise a child for 100 years and you will worry about his welfare for 99 years." We are an Asian society. We take care of our children and grandchildren for 100 years and for 99 years we keep worrying about him.

In an Asian society like Singapore, are there stories as he has mentioned? Of course, there are, but they are rare. He keeps talking about how Ah Gong tries to collect money from Ah Seng until Ah Seng is out of breath. I think that this is very rare in our society.

I do not know whether he has heard of another phrase – "A thousand gold can’t buy being poor at a young age", which means that if you are not rich when you are young, when you grow up, you will appreciate what you have and treasure the people around you more.

Hence, I found it very hard to believe his story. Perhaps Ah Gong is trying to teach the grandson, or to save for his grandson to prepare for his education in the future and so on. So, I think the story Mr Leong told is very extreme. [Applause]

Mr Speaker: Mr Leon Perera.

4.14 pm

Mr Leon Perera: Thank you, Mr Speaker, Sir. I believe my colleague, Assoc Prof Jamus Lim, has a clarification as well. I just want to ask the hon Member Mr Sitoh Yih Pin, he said that some of our proposals are analgesic and anesthetic and so on. If that is the case, would the hon Member agree that the Support Package is also an anesthetic and it is better to have pain – no pain, no gain? That is my question.

Mr Sitoh Yih Pin: Mr Speaker, I thank the hon Member Mr Leon Perera for his question. I do not see how the Support Packages can be "no pain". The support packages are meant to help our fellow citizens to get over this period.

I noticed the Workers' Party kept saying "You are trying to fan the inflation". Yes, I think the Government implementing the GST in this difficult inflationary time. But please bear in mind that GST is also a consumption tax, in the sense that it is charged from the spend. So, I think the Assurance Package, GST Voucher is meant to help Singaporeans. I do not see his point that it is meant to be "no pain" at all. I am sorry, I missed the Member's point.

Mr Speaker: Mr Perera.

Mr Leon Perera: I thank the Member for his reply.

My point is that if I understood his speech correctly, he is saying that measures to ameliorate the negative impact of GST on the population are, in a way, kicking the can down the road or somehow dishonest because actually the population should feel the pain. And we should not try to take measures that are alternatives to that – even though there are viable alternatives that we believe, which we have put forward as proposals, relating to NIR, relating to land sales, for example – we should not take that route. Rather, we should allow the population to experience more pain. That is what I understood what the Member was saying.

So, in that light, I would like to ask him whether some of the ameliorating measures that the Government has proposed will also fall into the same category.

Mr Sitoh Yih Pin: Mr Speaker, Sir, I think Mr Perera is putting very serious words into my mouth.

What I am saying is that we are all going through difficult times. I did not say the assistance packages are not helpful. In fact, I think they are very helpful and the Government is targeting it at the people who need it most. I did not say we deserve to go through this pain. What I am saying is that in these turbulent times of calamity, we have to bond together as a nation and we have to go through this together – 同甘共苦的精神, the spirit of sharing weal and woe – if the Member knows what I mean.

Mr Speaker: Assoc Prof Jamus Lim.

Assoc Prof Jamus Jerome Lim: Thank you, Speaker. I always thought that academics were the only ones to conceive of unrealistic scenarios, but I was somehow shocked to hear Member Sitoh Yih Pin say that there is no such thing as over-saving.

If we take this argument to his own logical extreme, why do we not simply just lower our NIRC ceiling to 0% and not tap on NIRC at all?

Let me put it another way. If we think there is no such thing as over-saving, is he saying that the Government of 2008, having tapped on a lower percentage, actually under-saved? [Please refer to "Personal Explanation", Official Report, 8 November 2022, Vol 95, Issue No 74, Personal Explanation section.]

If so, then, in his own words, can he provide the empirically verifiable evidence that they, in fact, did so?

Mr Sitoh Yih Pin: Mr Speaker, I thank the hon Member Jamus Lim for his question. I think if you were to play the tape, I said for a small country like Singapore, do not talk about over-saving. I said for a small country like Singapore.

I am reminded of 1997, during the Asian Financial Crisis. Remember? The countries around us – their currencies all collapsed. In the summer of 1998, the SAR Hong Kong government, with the backing of Beijing, had to come in to defend the Hong Kong dollar and to defend the Hang Seng Index.

So, for a small country like Singapore, saving is a virtue and we should continue to save. That is my point.

Mr Speaker: Assoc Prof Jamus Lim.

Assoc Prof Jamus Jerome Lim: Just a quick clarification. As far as I checked, in 2008, it was the same country of Singapore.

Mr Speaker: Mr Sitoh Yih Pin.

Mr Sitoh Yih Pin: Mr Speaker, Sir, sorry, I do not get his point. What about 2008?

Assoc Prof Jamus Jerome Lim: In 2008, as far as I believe, the Government altered its NIRC contribution percentage. We do not have, at least on the record, the specific shares. Our own calculations suggest that it went from somewhere in the order of 10% or 20% of the NIRC contribution up to the present rate of 50%.

So, I am not talking about China here. I am talking about Singapore. This PAP Government, which was in power in Singapore at the time, in 2008, altered the NIRC share.

Mr Sitoh Yih Pin: Mr Speaker, Sir, I think the issue here is not about the NIRC. As far as I know, the Workers' Party agrees with having the NIRC system and so do I. It is a good system to have. But the question that they have posed is should we have 50-50 or should we allow 60% to be used as expenditure.

I completely agree that the NIRC system is a good system. It is here to stay. For now, I think 50-50 is about right. It is fair.

Mr Leon Perera asked a question earlier after Mr Liang Eng Hwa's speech. I think he asked about what if 50-50 is not enough. Well, we have a mechanism, right? If using 50% of NIRC is not enough, there is a mechanism for the Government to tap on the reserves, with the permission of the President. I think our system works perfectly well.

Mr Speaker: Mr Leon Perera.

Mr Leon Perera: Mr Speaker, Sir, I just want to follow up on what Assoc Prof Jamus Lim, my colleague, asked.

I think the question was really, if we heard the hon Member correctly in his speech, the hon Member said that there can be no such thing, in theory, by definition, as over-saving for a small country like Singapore. Is that the Member's position or is that not the Member's position?

Mr Sitoh Yih Pin: Mr Speaker, Sir, I was responding to Assoc Prof Jamus Lim's speech when he mentioned over-saving in his speech and I say it again. For a small country like Singapore, with a limited population, with no natural resources, saving is a virtue. I do not think we should grouse about over-saving.

Mr Speaker: Mr Leon Perera.

Mr Leon Perera: Thank you, Mr Speaker, Sir, for giving me some latitude here. I think the question has not been answered. My question to the hon Member Sitoh Yih Pin is – do you or do you not believe that there can be such a thing as over-saving, in theory, for a small country like Singapore? It is a yes or no question.

Mr Sitoh Yih Pin: Mr Speaker, Sir, I thought I already answered Mr Perera. I said for a small country like Singapore, saving must be a virtue and as far as we can, we can continue to save, not just for future generations but for a rainy day.

I would like to pose it back to Mr Leon Perera. Does he not think that savings should be a virtue or does he think that we should saving now?

Mr Speaker: I think, Mr Sitoh, I would like to save some time and move on to Ms Jessica Tan. Thank you.

4.22 pm

Ms Jessica Tan Soon Neo (East Coast): Thank you, Mr Speaker. With inflation and households facing rising prices in many areas, such as energy and food, many of our residents continue to express concerns with the higher cost of living. I think many Members have expressed that as well.

GST is a tax on consumption. Although Singapore's GST rate, even at 9%, is amongst the lowest in the world, an increase in GST will still impact all Singaporeans and all Singaporean households, regardless of income levels. Hence, this is adding to the anxiety of many of our residents over the cost of living.

While none of us likes an increase in GST, it is reassuring to know that with the Assurance Package, the majority of Singaporean households will not feel the impact of the GST increase for at least five years. For lower-income families, the Assurance Package will delay the impact of the GST increase by about 10 years.

I thank Deputy Prime Minister Lawrence Wong for recognising the challenges and the inflationary pressures that Singaporeans are facing and for his reassurance that the adequacy of the Assurance Package will be assessed and, if the situation requires, more support will be provided – as what he has announced today, the increase of the $1.4 billion in the Assurance Package to stand at $8 billion today.

So, if the situation arises, with the sustained trend of rising prices and inflation, I do hope that there will be timely reviews and adjustments to rising cost of living with the Assurance Package as it is dispersed over five years. This is to ensure that the support given does, indeed, provide the extent of the support, as it is intended to offset the increase in the additional GST.

In my Budget debate speech earlier this year, I had highlighted the point about the eligibility criteria for the support, which I wish to reiterate. The annual value (AV) of residence or your home address is used as the main criterion for means testing and eligibility for many of our support schemes. I agree that we need to do means testing and that those who are less well-off and vulnerable must get more support.

In the cash payout component of the Assurance Package, there is a change in the eligibility criteria where eligibility and the amount of the cash payout component of the Assurance Package are based on annual income and property ownership, instead of the annual value of residence. What this means is that with the cash payout of the Assurance Package, every adult Singaporean aged 21 and above, depending on assessable annual income and home ownership, will get a total cash payout of between $700 and $1,600 over five years from December this year to 2026 to offset the additional GST expenses.

This means that retirees who do not have an income and those who are not well-off and live with well-meaning relatives or friends in private condominiums or houses, who usually would not be eligible for such payouts, will now be getting the cash payouts to offset the additional GST increase.

I was looking at the $700 – the lowest of the categories in these payouts – just to get a sense of what that means for the individual. Let me just give you a back-of-the-hand calculation – not absolutely accurate but it gives you a sense of what it translates to.

What it means, really, is, if someone falls into the category of getting $700 over the five years, what it means is that, for each year, that person will receive a $140 offset. That means that $140 a year will offset 2% of the GST increase over the five years, which, effectively, means that for a spending of $580 a month for each individual – this is just the cash payout component – you will not be paying GST. So, it is not insignificant. It may not cover everything, but it is not insignificant. And it is also just one of the components.

While I do not disagree that the value of the property reflects one's means, I have seen the need for support amongst some of our residents who live in properties that are above the annual value threshold criterion.

A point that I have raised several times in this House is the application of the annual value criterion for those who live with their extended families in properties with annual values above the eligibility criterion of $21,000. These persons could be elderly parents or siblings who live with relatives as they need care or cannot afford housing. In several of these cases, they do not have means. But because of their residential address, they do not qualify for the various support schemes.

With the trend of smaller families as well, people marrying later, there are also many more couples who have to provide for both their young children and senior parents and relatives. Some call this the sandwich generation. I do have such families in my constituency who live in private properties with an annual value of between $21,000 and $30,000.

I would like to repeat my ask for a refinement of the use of the annual value criterion for eligibility for support schemes. For example, take the GST Voucher – Cash (Seniors' Bonus) in the Assurance Package. Seniors or retirees living in properties of annual values above $21,000 will not be eligible.

I am not asking that means testing or the annual value be removed. Do not get me wrong. What I am asking is whether it can be calibrated to allow eligibility for those living with extended family members but do not own the property or can there be a higher AV threshold with a lower cash bonus for retirees that own the property but require support.

For the sandwich generation, can there also be calibration to allow for higher AV thresholds to allow eligibility for the support schemes if they do meet the annual income criterion? For the sandwich generation who live in private properties, if the seniors who live with them or who they support are eligible for support schemes, this will help cushion some of the rising cost of care and the rising cost of living that many have expressed today.

Although not directly related to the GST increase, ECDA's recent announcement of the lower fee caps for preschool from January next year at anchor operators and partner operators is, indeed, welcomed as it will help parents in the sandwich group manage cost.

So, I hope that the Government will also continue to review and provide relevant relief in areas that can help the sandwich generation manage rising cost. We can expect that businesses, too, will be impacted by the increase in GST and will, inevitably, increase the cost of their products and services; and the consumer will, ultimately, bear the cost increase.

Mr Speaker, taking into consideration the Assurance Package and how it will delay the impact of the proposed GST increase for most Singaporeans, I support the Bill. Together with the other tax measures in Budget 2022, it will give the revenue required to fund rising expenditures needed for social spending.

The Government's approach ensures that we start building the funding required today, now, while delaying the impact of the GST for most Singaporeans.

I have heard quite a bit of the speeches and there were quite a lot of asks to delay the GST increase. Effectively, if we look at not just the GST increase on its own, but the GST increase together with the other reliefs – both the Assurance Package as well as the cost of living and all the other packages – taken in totality, it does, in fact, delay and, in some cases, actually, for the lower-income, completely remove the impact of the GST increase.

So, let us not miss the bigger picture. The bigger picture is we need that funding. We can say, delay the impact, but what about the funding? If we delay the GST, we delay the building up of the funding. So, what do we do when we need it? Scramble and figure out something at that point in time? It is going to be quite tough.

In my speech, I have given focus to the "sandwiched generation", as they have to care for both their young children and aged parents and relatives and will bear greater financial strain with rising cost. While many do live in HDB flats and qualify for most of the components of the Assurance Package, there are those that live in private property that are above the Annual Value (AV) threshold for eligibility. I have also highlighted seniors living with relatives in private property, but do not own these properties. These seniors are not eligible for the GST Voucher (Senior Bonus) but may be less well-off than a senior living in an HDB flat that they own but eligible for the GST Cash Voucher (Senior Bonus).

With rising prices and higher cost of living, I ask that we review and calibrate the AV eligibility criterion for appropriate support schemes for these segments.

All said and done, while we are debating the need to increase GST and to provide support for those who need support, let us not lose focus on the need to continue to keep our economy strong and to provide quality jobs for Singaporeans. This, together with the right support for those who are disadvantaged, will ensure good opportunities for all to do well. And I think that is what we are all debating today; not just the GST increase.

Mr Speaker: Ms Foo Mee Har.

4.32 pm

Ms Foo Mee Har (West Coast): Mr Speaker, the topic of raising Goods and Services Tax or GST is difficult and unpopular. This is especially so, given the heightened inflation and concerns around cost of living. My residents are feeling the pinch, and the bad news is that inflation is expected to be prolonged this time.

The GST hike was first announced in 2018 and five years in the making. We have had many debates in Parliament, including today. And speaking on behalf of my residents, I have made repeated appeals asking the Government to consider alternative revenue sources, delay the increase and provide support to Singaporeans to cope with the impact. This year alone, I raised such questions on five separate occasions.

Sir, I thank both Deputy Prime Minister Heng Swee Keat, Finance Minister then, and Deputy Prime Minister Lawrence Wong, the Finance Minister now, for their patience and for going to great lengths to explain the rationale behind GST increase, as well as their commitment to cushion the impact to middle- and lower-income households.

Sir, it is undeniable that the Government's spending is set to increase on multiple fronts. There are many meritorious commitments made by the Government, including support for parents dealing with childcare and education. We just heard about HDB subsidies for young couples in the form of housing subsidies – the big deficit that HDB is recording. For our workers in the form of higher wages we have all been championing, for all the upskilling initiatives and for the significant investments in the Singapore Green Plan. And we all in this House, have said yes to all of these.

Take the case of healthcare spending. I feel for that a lot. Since I became a Member of Parliament in 2011, I have witnessed first-hand, the positive impact on our seniors and their families, of successive healthcare support schemes such as MediShield Life, CHAS and the enhanced CHAS, Pioneer Generation Package and the Merdeka Generation Package.

This step change I have seen that the Government has provided in healthcare provision affords great peace of mind to our seniors and their families and greatly reduces their financial burden. I must acknowledge that during this same period, we have seen healthcare costs more than triple and, given our rapidly ageing population, is projected to reach $59 billion in 2030 from $22 billion in 2018.

Furthermore, the pandemic experience reminds us how crucial it is to continue to invest in our healthcare system in order to be able to respond effectively to future pandemics and emergencies. The hard truth is that all these need to be paid for. The Government has singled out increasing healthcare costs as a primary driver for the need to increase GST.

We have had many debates in this House, like I have said, on how we should pay for these higher expenditures. I admit I was one of them. Members of the Opposition have repeated called for more of our reserves to be used to meet our rising expenditure.

On this, I disagree. It would be unfair to future generations if we were to raid our reserves and leave them with less. Contributions from our reserves to fund public expenditures has already doubled in 10 years, ballooning from about $8 billion in 2011 to $20 billion in 2021.

Indeed, since 2016, I have observed that our reserves had already become the single largest contributor to the Budget. The fiscal strength of Singapore is built upon a diversity of revenue streams. Increasing our dependency on the reserves to fund expenditures will further tilt the balance towards unhealthy concentration risk.

Our reserves also served as a precious war chest that saw us through the crisis of a generation. We drew about $37 billion to fight the COVID-19 pandemic, and we are unlikely to be able to put back what we have drawn down, anytime soon.

It would be wrong for us to contemplate taking more and leaving less for the next generation. This is particularly at a time when the world is getting more divided and more dangerous, because of contentious geopolitics, disrupted supply chains and existential climate change challenges. Those coming after us would need more, not less, of a buffer of financial resources, to secure their future.

Mr Speaker, in his 2022 Budget round-up speech, Deputy Prime Minister Lawrence Wong had provided a detailed account of why a GST hike is needed, alongside hikes to personal income tax, property tax and vehicle tax. The choices, unfortunately, that he laid out point to the inevitable increase, however reluctant we may be to support it.

But the Government has committed to cushion the impact of GST increase with the Assurance Package, covering at least five years of additional GST expenses for majority of Singaporeans households and about 10 years for lower-income households.

We have also seen there are also enhancements to the Permanent GST Voucher scheme, to provide continuing offsets for GST expenses of lower- to middle-income households and most retiree households, therefore providing beyond the transitional period covered by the Assurance Package.

And also, in response to our numerous queries on support for cost of living, the Government has consistently responded that it would do more should the need arise.

I am therefore, reassured to see the Government make good on this commitment with the successive rounds of household support packages, including the latest $1.5 billion announced in October, adding up to a total of $3.5 billion this year alone. Such actions by the Government go some way to assure fellow Singaporeans that our Government has our back.

I note that these support measures are funded from better-than-expected fiscal outcomes in the first half of FY2022, with no draw on Past Reserves. I would like to ask, what would happen if we encountered the need for a similar response, at the time when our fiscal outcome is less favourable?

Sir, with the Government support measures shielding lower- and middle-income households from the impact of the GST increase, the question is, "Who then bears the burden of the GST increase?"

As GST is a consumption tax, those who consume more, naturally pay more. Over 60% of net GST is paid by the top 20% of Singaporean households, foreigners living in Singapore and tourists-net of refunds. Then the next question usually comes, "Is Singapore getting too expensive and therefore less competitive?"

After all, the wealthy are globally mobile – and with so many schemes from around the world wooing them, will they still choose Singapore in which to invest, build their business and bring good jobs?

Keep in mind that GST is not the only tax they face – for example, the foreigners are subjected to 30% additional buyers stamp duty to purchase property, over five times more for hospital ward and up to 70 times more to attend Singapore Secondary school.

I have spoken on numerous occasions in the past about the premium that Singapore commands in a volatile and uncertain world, because we enjoy the rule of law, stability, safety and international connectivity.

This has not been lost on investors and wealthy families who choose to base themselves out of Singapore and they will continue to do their calculations. We must therefore continue to ensure that Singapore remains their destination of choice, even if we cannot be the most price-competitive location.

Mr Speaker, whilst I agree that the GST and cost of living support measures should be targeted at providing the most support to shield lower-income and retiree households, increases in the cost of living has put the squeeze on middle-income families, especially those whose income growth have stagnated.

I often hear middle-income residents share the challenge they face to sustain their financial commitments and the frustrations of not being able to maintain their way of life. They worry about the adequacy of their safety nets, should they lose their jobs or suffer a life-changing event. We must do more to support this group and give them greater assurance.

Sir, with so many support schemes being announced, the Government should make it easy for people to understand how the various schemes apply to them and how they will be paid out. Currently, not all eligible beneficiaries can understand how the slew of support schemes will benefit them, as they vary in eligibility cut-offs, payment modes, flat type, household size and so on.

Finally, there are genuine concerns on the ground that businesses could use GST as a cover to raise prices. So, I would to call on the Government to monitor this space closely, through the Committee Against Profiteering and to check inflation fuelled by opportunistic price increases.

Mr Speaker, this is a difficult Bill coming at the challenging time. We have a long list of deserving initiatives that warrant Government funding, especially those towards supporting our healthcare and social expenditures to take care of our seniors and retirees, given our rapidly ageing society.

We must, with courage and wisdom, confront the question of how to pay for them today, whilst safeguarding Singapore's tomorrow. I support the Bill.

Mr Speaker: Ms Yeo Wan Ling.

4.44 pm

Ms Yeo Wan Ling (Pasir Ris-Punggol): Mr Speaker, Sir, as Singapore braces itself for GST increments in 2023 and 2024, many Singaporeans are already starting to feel the pressure with the rising cost of living. For those who have seen the award-winning film, Parasite, we would be familiar with the basement apartments in South Korea. When the floodwaters rush in, people living in these humble dwellings get their homes destroyed and, worse, lose their lives. Thankfully, the South Korean government has recently vowed to move people out of these homes.

What rising floodwaters are to subterranean South Korean homes, the rising costs of living are to Singaporeans at the bottom of the socioeconomic ladder. When it hits, the lives and livelihoods of those at the bottom are the first to be put to the sword – all the way up to the middle of the ladder, we have Singaporeans up to their necks with surging prices on living necessities. Of course, I could have spared the analogy, for this is basic economic theory. Yes, basic, but, for many of us, it merely remains in theory. For lower- to middle-income working Singaporeans, rising GST rates will be felt in the flesh.

Mr Speaker, relief measures like the $1.5 billion inflation-relief package announced by MOF, including special payments, CDC vouchers, U-Save Vouchers and other assistance, are very much welcomed by Singaporeans. These measures will tide Singaporeans over fiscal challenges as they navigate the rising cost of living in the near-term, and the Union brothers and sisters I have spoken with are grateful for this support on behalf of our Singaporean workers. However, while such assistance provides relief, we must continue to look to policies that imbue resilience. Rising costs are, undoubtedly, a perennial issue – every generation reminisces about the prices of their kopi, a bowl of noodles back in their day. We can choose to look on and rue rising prices like sitting ducks or match the rising cost of living with increased productivity and fortified wages undergirded by the equitable and sustainable gains sharing.

That is exactly why the Union has thrown its weight behind the rollout and expansion of the Progressive Wage Model, deepening its reach in the cleaning, security and landscape sectors, as well as being newly implemented in the retail sector in September this year, with the Food Services sector following very closely in six months' time and more sectors to come in the months ahead. We are encouraged by the Government’s commitment to resilience-building on top of mere relief-provisions as seen in the Progressive Wage Credit Scheme (PWCS) introduced during Budget 2022. PWCS served to encourage salary increments for lower-wage workers despite the poor macroeconomic climate, incentivising, therefore, lower-wage workers’ investment in the development of their craft. As the cost of living rises, we are confident that Singaporeans will be well-resourced to match its demands for greater productivity in a sustainable gain-sharing ecosystem.

Mr Speaker, even as we recognise the surging benefits for lower-wage workers through PWM, the Union is aware that, for older workers in the sunset lap of their productive years, the returns on investments in self-development for productivity gains are dampened. These concerns are exacerbated, especially after their productive years, with fears rising of nest eggs being eroded by the rising costs of living, and, indeed, the aftermath of COVID-19. Therefore, I call on the Government to strengthen and continue support for our older workers through grants and other funding support.

Indeed, the Labour Movement will continue to play its part to help seniors and other Singaporeans to "stretch their dollar" through its social enterprises. This includes special discounts on basic necessities, such as groceries at our Fairprice outlets, tailored insurance policies with NTUC Income, and meals at Kopitiam. I note that there are now $3 options nestled in most Kopitiam stalls in my Division, and there are many popular food items enjoyed by many, such as cai png, carrot cake, fishball noodles, mee goreng and chicken macaroni soup.

Aside from these wage workers, there is also a slice of business owners and the self-employed who may be adversely impacted by the rising rates of GST. While established corporations have elaborate pricing models to capture profits amidst the volatile economic climate, small business owners in Singapore feel a special affinity for their customer base and have an often overlooked obligation to their regulars to keep prices down. It is not uncommon to hear residents name their favourite food after their associated prices. Think the “$2.50 chicken rice” or the “$1 banana leaf nasi lemak”. Those dishes just have a special ring to it. In our communities, small business owners who have fought to keep their prices down to keep serving their loyal customers are celebrated as community stalwarts, and treasure this trust more than just gouging profits. Many of these small businesses, Mr Speaker, also happen to be not GST-registered, meaning that they are unable to charge GST and claim GST costs. As their suppliers pass the increasing costs of goods down to these small business owners in light of the rising GST rates, small business owners can, at best, apologetically raise their prices, or, at worst, absorb these costs out of their pockets to their own personal detriment. This dilemma is one unique to small business owners in Singapore and need not be the one that we put them through if we pull the right policy levers.

In the same vein, our self-employed persons in Singapore, including taxi drivers, private hire drivers, who are generally unable to set their own prices, are also not GST-registered. Our drivers from the National Taxi Association and the National Private Hire Vehicles Association have told me that they are worried about the impending GST increments and thus affecting their daily takings and livelihoods. The costs of doing business would go up, from larger dollar items, such as fuel, car rentals, insurance, to the smallest of purchases essential to their businesses, such as masks and even sanitation wipes. Our drivers, being price takers, and individually not earning enough to be GST-registered, what more can we do to cushion the impact of rising costs handed down to them from upstream stakeholders? While short-term measures, such as support vouchers, are welcomed, what other policy levers can we pull for the longer term?

Mr Speaker, would it be worthwhile then to examine the impact of allowing non-GST-registered SMEs and the self-employed perhaps an annual allowance for the purchase of goods necessary for their businesses? Perhaps this allowance can be extended to a basket of low-value goods and can be considered and reset on an annual basis. This discernment in the application of GST will go a long way to supporting our SMEs and the self-employed who might feel cornered by the GST increase. In Mandarin please, Mr Speaker.

(In Mandarin): [Please refer to Vernacular Speech.] I believe that many members of the public can feel the impact of the recent price adjustments. With the gradual increase in the cost of living, every household will face different pressures, with low-income households facing a more severe impact. Similarly, SMEs will find it more difficult to balance their revenue and expenditure than large enterprises.

Of course, the biggest challenge is probably faced by self-employed workers such as our taxi and private hire car uncles and aunties. These elderly and frail drivers are hardworking, but do not have the protection of a GST registration, but they have to bear the pressure of inflation on their own, just like big companies.

With rising prices, I believe we have seen a reduction in the number of times we take a cab and in our financial capability. This may bring us some inconvenience, but to taxi drivers, what is affected is their ability to afford food, medical fees and rent. Businesses that are unable to raise prices will have to use their own money to absorb these costs. This is a reality that every elderly taxi driver must face.

Are we not raising taxes for the common prosperity of all? Then protecting the rice bowls of the self-employed and the SMEs should be our duty.

(In English): Ensuring a fair system of raising revenue to meet our society’s needs is a responsible way of easing the burden of our younger generation of workers who have to support a larger population of older residents in the years to come. The Labour Movement continues to be committed to working with the Government to ensure that making this investment into our common Singaporean future does not disproportionately aggrieve overlooked slices of Singaporeans as I have outlined. These concerns notwithstanding, I support the Bill.

Mr Speaker: Mr Louis Ng.

4.55 pm

Mr Louis Ng Kok Kwang (Nee Soon): Sir, I appreciate the need to increase the revenue raised through GST. It is without a doubt that Singaporeans will have greater social spending needs in the coming years. GST helps pay for those needs. But we also have to ensure this tax hike does not lead to fraud and profiteering.

I have two sets of clarifications. The first set of clarifications has to do with missing trader fraud. Under the new section 62C, it is an offence to participate in a specified arrangement knowing that it is for a fraudulent purpose. The person does not need to know of the specified arrangement or any details of the plan. In other words, this offence seems to require knowledge of a fraudulent purpose only in the abstract. Can the Minister explain how knowledge of fraudulent purpose should be established if it cannot be shown that the individual knew of the specified arrangement or any details of the plan at all?

Section 62C also makes a sole proprietor, partner or director strictly liable if their entity is used to commit missing trader fraud. The culpability for this strict-liability offence is lower and this offence attracts lower penalties than the one for participation. Arguably, the actions of a sole proprietor, partner or director in allowing their entity to be used for missing trader fraud may amount to assisting or receiving instructions to carry out the fraud. Can the Minister explain what the Ministry will consider in deciding which offence to proceed on? This is significant because the maximum fine and prison term for participation is 10 times as much as that for the strict-liability offence.

Finally, I hope to understand how IRAS will support compliance with the new section 62C. Will IRAS publish guidelines, similar to the UK tax agency’s document on “How to spot missing trader VAT fraud”?

Will IRAS offer rewards upon request for those reporting missing trader fraud as part of its existing whistleblower programme? These guidelines and assurances will make it easier for businesses to comply in good faith and for whistleblowers to do the right thing.

My second set of clarifications relates to the Committee Against Profiteering (CAP). Many residents are concerned that businesses will use the GST hike as an excuse to raise prices further and result in an even higher increase in the cost of living.

CAP investigates complaints about businesses that use the GST hike as an excuse to raise prices of essential products and services. It has said that it may “make public” businesses that profiteer by using the GST hike as a pretext. The last time that CAP convened in 2007, it received 200 pieces of feedback and ended up making public only a single case – a childcare centre. Even then, the business was not named. Can the Minister explain whether CAP has the power to publicly name businesses that were found to have profiteered? If so, when describing the cases of profiteering, when should CAP name the businesses involved and when should it not?

Profiteers should face the strong deterrent of public scrutiny. Naming these businesses also gives the public the confidence that profiteers will face consequences and encourages good-faith reports, which strengthens CAP’s goal of increasing transparency.

Will we consider making it a default practice to publicly name businesses that are found to have profiteered? This should cover not only reports that CAP has already received but also those it will receive in the coming months, as the GST hike takes effect. Sir, notwithstanding these clarifications, I stand in support of the Bill.

Mr Speaker: Mr Derrick Goh.

4.58 pm

Mr Derrick Goh (Nee Soon): Mr Speaker, Sir, a cornerstone of Singapore’s progress from Third World to First World has been our fiscal strength. This has enabled us to overcome challenges and pursue opportunities with confidence.

Much has been said of our fight with the COVID-19 pandemic. It was a similar case with the financial pandemic in 2009 during the Global Financial Crisis where we were able to muster financial resources to protect lives and livelihoods through the $4.5 billion Jobs Credit Scheme and skills upgrading programme. In both situations, Singapore was able to land safely due to our Government’s fiscal prudence and decisive actions.

While we have emerged from COVID-19 better than many countries, many challenges lie ahead. Our nation’s expenditures are projected to grow to meet rising needs. These must be financed by tax receipts which are impacted by an increasingly gloomy economic outlook.

The Net Investment Returns Contribution (NIRC) framework is being debated in this House. I want to add my piece to say that I caution against the seemingly attractive suggestion to spend more from our investment returns and save less. This easy way out is not a solution to this GST Bill proposed.

The real economy is slowing globally. Investment experts have highlighted the declining trade liberalisation, increasing geopolitical uncertainties, along with the unwinding of a decade-long quantitative easing. The era of cheap money for borrowing is over. If one borrows to invest, one also needs to price in the higher risks. In other words, businesses and investors are faced potentially with lower returns, on average, on a risk-adjusted basis.

The world has changed dramatically in the recent past. As such, we need to take heed that “past returns are not a guarantee of future performance”. This context is relevant when we apply our minds and talk about the NIRC framework.

As this framework allows the Government to spend up to half of the long-term expected real returns on invested net assets, can the Deputy Prime Minister clarify if MOF has factored the known macroeconomic headwinds into the long-run expected returns and, if so, does MOF expect lower funding available for our upcoming Budget?

Also, given the challenging investment environment, what are the plans to steadily grow our reserves, to increase the dollar returns available for higher expenditures in the longer term?

The backdrop of the current investment climate calls for the need to uphold prudence and discipline in NIRC, so that the returns from our reserves can continue to be a key source of funding proportionate to the higher expected expenditures that are to come.

Sir, no one aspires to pay more taxes. While I am convinced that the GST increase is required to support higher expenditure, I am also concerned about its impact on my residents and fellow Singaporeans, given inflationary pressures which are driving up higher costs of living. On this basis, I reflected on the GST implementation and design.

A simplistic GST system is, by nature, regressive. However, factoring the GST Assurance Package and the Permanent GST Voucher scheme that have been in place since 2012, the net effect is one where the impact of the GST increase is different across the different income segments of our population.

What is salient and is key is that, taken holistically, the support packages transform the GST scheme into a tiered consumption tax system.

In the prospective regime, the lower-income, including retirees, continue to pay an effective GST rate of zero to 3%, the middle segment or those with per capita household income from $2,000 to $4,000 will pay around four to 7%, of which 7% is already the existing GST rate. It is actually the higher income who will pay closer to the new headline rate of 9%.

There were suggestions in this House to consider further increasing taxes paid by those in the higher income segment, in place of this proposed GST Bill. However, this proposed GST system, when taken holistically, in fact, taxes those in the higher income significantly more, not only at a higher effective rate, but also because of their relatively higher consumption and, therefore, significantly more spending on luxury goods.

As mentioned, what weighed on my mind was my residents’ and the broader population’s concerns on the GST hike coming at a time of high global inflation, geopolitical tensions and a deteriorating global economic landscape, which all seem like a perfect storm.

Most recently, MOM reported that Singapore’s job market showed signs of slowing momentum, with an uptick in retrenchments. Amidst rising cost of living, job loss worries will weigh on the minds of residents.

Relating to the high inflation and the cost of living, I am heartened that the Government has responded decisively in addressing cost of living concerns, with two $1.5 billion Cost of Living packages that were first announced in June and then in October this year, which is on top of the Household Support Package.

I also welcome the Deputy Prime Minister's announcement today on updating the GST Assurance Package and his continued assurance on further updates to account for further hikes in expected inflation when it happens.

Shifting to the focus on businesses, I understand through the Association of Trade and Commerce the concerns expressed by smaller SMEs. They, generally, worry about cost increases. In particular, those who are non-GST-registered cannot claim GST expenses paid to GST-registered suppliers. Some considered voluntary GST registration but find it difficult to comply with the requirements due to limited resources. Against this, can the Deputy Prime Minister share if there will be further support for smaller SMEs to better navigate the GST rate change?

In the longer term, should economic uncertainties persist and result in lower tax receipts even after the GST increase, can the Deputy Prime Minister share what are other potential levers to ensure we can keep up with our long-term expenditure needs? Can the Government assure us that the GST rate will not increase beyond 9% in the near term? Mr Speaker, Sir, in Mandarin.

(In Mandarin): [Please refer to Vernacular Speech.] Mr Speaker, as our society spends more and more, it is necessary to raise the GST. However, with inflation and cost of living rising, I am worried that residents will not be able to bear the cost. Therefore, I have examined our GST system very carefully. If we include the GST and the various assistance packages such as the $6.6 billion Assurance Package and the annual GST Vouchers, it is estimated that the actual GST paid by the low-income and retirees is between 0% to 3% and that for the middle-income is 4% to 7%. Only those high-income earners will have to pay 7% to 9% GST. I believe that Singapore's GST system, with its unique design, is more in depth and layered. It can help to address the challenges faced by Singapore in a more practical manner while taking care of the needs of Singaporeans at the same time.

Nevertheless, to Singaporeans, the burden of the cost of living is already very heavy now. I can understand their concerns about raising GST at this juncture. I am very glad that the Government has done its part to help Singaporeans when it is needed as they have promised to do so. For example, the two additional Assistance Packages announced in June and October this year will help Singaporeans cope with the rising cost of living.

The Deputy Prime Minister has also just announced that the Government will announce the updated Assurance Package next year. I hope that the Deputy Prime Minister will provide more details so that residents can have a greater peace of mind and that Singaporeans will know that the Government will continue to do its utmost to help them, especially those who need help most.

Lastly, I hope that the Government can further help local SMEs. Some small business operators will also face pressures because of the increase in GST as their costs will go up. However, they are also worried that if they raise their prices, they will be seen as profiteering and that their old customers will not accept the new prices. I believe that the Government will not forget our SMEs.

(In English): Sir, in conclusion, I support this GST Bill because of the holistic nature of how it is being executed.

While I have some queries, I am also glad that the Government has tabled this Bill to discuss openly this inconvenient truth about funding for Singapore’s future. It is an easy thing to speak about spending more but a lot harder to find the means to fund the spend.

At the heart of the GST Bill is the broader theme about caring for our people, for not just the short but also, importantly, to fund the long-term needs of Singapore and Singaporeans.

Taken in totality, the GST system, with targeted support packages, is part of an inclusive and resilient fiscal structure. It funds our expenditures while providing support for the lower- and middle-income segment at the same time.

The challenges ahead require us to make this difficult but responsible decision to secure the well-being of all Singaporeans for the longer term.

Mr Speaker: Senior Minister of State Chee Hong Tat.

5.11 pm

The Senior Minister of State for Finance (Mr Chee Hong Tat): Mr Speaker, thank you for allowing me to speak. I would like to respond to the speech that Mr Leong Mun Wai gave earlier. In Mandarin, please.

(In Mandarin): [Please refer to Vernacular Speech.] Mr Speaker, just now, Mr Leong quoted a story that was told by former Member of Parliament Lee Bee Wah, and wrote his own version of the story. Firstly, I suggest for Mr Leong not to take words out of context. And I want to offer some constructive suggestions to Mr Leong so that the next time he tells this story, it can be more accurate and more complete.

Mr Speaker, Mr Leong mentioned the story of Ah Gong and Ah Seng. We know that in Singapore society, it is more accurate to say that the money Ah Seng gives to Ah Gong is less than the money Ah Gong gives to Ah Seng. As my Parliament colleague Mr Shawn Huang mentioned just now, if Ah Seng is from the lower-income group, for every one dollar of tax that he pays to Ah Gong, he will receive $4 in benefits. If Ah Seng is middle-income, every dollar that he pays to Ah Gong, he will receive $2 in benefits.

So, Ah Gong actually gives more to Ah Seng compared to what Ah Seng gives to Ah Gong.

Secondly, Ah Gong and Ah Ma have worked very hard for many years to save some money, not for them to spend frivolously, but for Ah Seng and Ah Seng's children and their future generations. In fact, part of Ah Seng’s expenditure every year comes from the returns of the invested savings that Ah Gong and Ah Ma have accumulated. 50% of the returns are spent on Ah Seng and his family, while the other half is put back into the savings, so that the savings can grow and achieve more returns in future. For every $5 Ah Seng needs every year, $1 comes from the 50% of the returns of Ah Gong's investment.

Thirdly, Mr Leong mentioned that Ah Ma is already old. She is not so healthy. Healthcare costs have increased, and Ah Ma needs someone to take care of her. I feel that Ah Gong and Ah Ma have worked so hard to take care of Ah Seng and bring him up, now that Ah Gong and Ah Ma have aged, it is time that Ah Seng takes care of them. This is the right way as filial piety is a virtue in Asian societies.

For Ah Gong, he has been very understanding of the difficulties that Ah Seng is facing. He does not ask Ah Seng to pay for these extra expenses immediately. Instead, he gave Ah Seng a buffer of five years or even 10 years to help him tide through the challenges.

Mr Speaker, I mentioned that Ah Gong and Ah Ma have worked so hard for many years, and whom are they working for? Not for themselves, but for Ah Seng and his children and their future generations. So, if Ah Seng asks Ah Gong, why are you saving so much money? I think Ah Gong may tell him, it is like what the Hokkien song says, "this is all for you".

Mr Speaker: Mr Murai Pillai.

5.16 pm

Mr Murali Pillai (Bukit Batok): Mr Speaker, Sir, for the Second Reading of this Bill, we are in a unique situation. This is because the principal issue that arises for consideration in this Bill, that is, the GST hike, has already been discussed not just during this year's annual Budget debate, but in the speeches made since 2018, after the Government's decision to increase GST was announced.

This long foreshadowing has already led to the Workers' Party (WP) deciding to vote against the GST increase. Voting, however, is a blunt knife. It does not cut well because there are, in fact, points of consensus between hon Members of the PAP and WP on several important things.

As stated by my Parliamentary colleague, Mr Liang Eng Hwa, broadly, both parties agreed to higher levels of social spending for the future and acknowledged the need to raise revenue to meet the expenditure; especially against the spectre of an economy that is likely to grow more slowly.

Where we come apart, clearly, is whether GST should, and can be, a source of revenue. Globally, such value added taxes have been used at higher rates than Singapore – Sweden at 25%, UK at 20% and Japan at 10%.

Mr Speaker, Sir, no political party in this House has a monopoly on care and concern for the welfare of Singaporeans, especially the low- and middle-income groups, the sandwich class, the elderly who need heavily subsidised healthcare, as well as the young Singaporeans who need to see a future and opportunities in Singapore.

But how to get there? That is the nub. And, in this, we appearing to be arguing from exact opposite sides of each other. So, how is it that two parties, which are aligned on all the main objectives, can be so far apart in the assessment of whether or not a GST hike is the proper thing to do for our people?

Let me try and answer this by offering a historical perspective. In 1993, the GST Bill was introduced in this House. Then, as now, it was an unpopular move. Then, as now, there were good reasons to do so – we needed to strengthen our tax base to ensure that our tax structure was resilient and promote enterprise and growth.

In 1993, direct taxes made up about 60% of our tax revenue, of which 73% was income and corporate tax. Introducing a consumption tax would keep Singapore competitive and also allow us a stable and diversified stream of tax revenues and allow us to invest more heavily in growth. The WP raised strenuous objections to its passing.

The hon Member then, Mr Low Thia Khiang, in his speech, felt that there was no basis to suggest that high income and corporate taxes had the effect of driving talent and entrepreneurism away. He was concerned about the regressive nature of the tax, especially on low-income people.

The PAP's response was to recognise the possible shortcomings and work in policy fixes, such as GST offsets for low-income households. GST was introduced on 1 April 1994 and what happened thereafter? Historically, the rate of corporate and personal income taxes was at 40% before 1985; this came down to 33% after the recession in 1985. After GST was enacted, it came down further, to 28%, now it is up to 24% for personal income tax and 17% for corporate tax.

In fact, the majority of Singaporeans do not pay income tax. In the meantime, our Government grew our economy by leaps and bounds. We attracted investments and talent, we had Government transfers to our people, median salaries increased.

In other words, whatever the hon Ministers then, Dr Richard Hu and Mr S Dhanabalan, said on behalf of the Government on that occasion in 1993 would happen, happened. Our tax rates went down, our tax revenues did not. Our social spending went up – benefiting the poorest amongst us the most. The doomsday prediction that the poor and the lower-income people would be left behind did not materialise.

On the issue of timing, it should be borne in mind that, in 1993, there were strong economic growth and budgetary surpluses. It could have been argued that there was no pressing need to pass the GST Act. But when you cast your eyes into the long-term, your perspective changes. In 1993, when our economy was strong and our people were young, it was already felt that GST was needed for the long term. Today, when we are older and the economy is struggling, it turns out that our 1993 decision was correct.

I then fast forward to 2003. Those were tough times, more like 2022. Then, we were recovering from the Asian Financial Crisis of 1997 and the recession in 2001. We also had SARS. Our fiscal situation was very tight, the Singapore economy was struggling, revenue needed to be increased to fund expenses.

The Government decided to stagger the GST increase much like this time; 1% in 2003 and 1% in 2004. Then, like now, some voices had suggested to defer, but that will heighten the risk of leaving the Government with insufficient funds for healthcare, education and defence. Singapore would then be in a structural deficit. In a small open economy, this would have had serious consequences for our exchange rate, for the stability of the Singapore dollar.

If we continually run a deficit, the Singapore dollar would go down, inflation up and everything in Singapore, including our CPF savings, would be worthless. Therefore, we decided to do the difficult thing and proceed.

Again, the WP was against it. Mr Low Thia Khiang argued for the increase of the Net Investment Income (NII) ceiling, not unlike what the WP is asking for now. He also suggested an increase in property tax and sin taxes, too. He was, again, concerned about the impact of GST on inflation.

Deputy Prime Minister Lee Hsien Loong, as he then was, explained why we were unable to avoid a GST hike, much like how Deputy Prime Minister Lawrence Wong explained during the Budget debate this year. What happened after that? In 2002, we dreamt big. The Budget, which included raising of the GST, also contained the new thinking of the Economic Review Committee (ERC), which brought about fundamental changes to our economic policies.

It aimed to develop a vibrant sector driven by entrepreneurial energies, fuelled by regional and global competition, all seeking the best return on their ideas. It aimed to attract more global talent, even as we improved and nurtured our own people. It wanted to make our economy more resilient and dynamic through investing in human capital.

But one thing remained the same as in 1993 – the Government saw its role as creating a pro-business, stable environment for the market to operate. Part of this requires the implementation of sound fiscal and monetary policies. As a result of the GST hike, we kept fiscal discipline, turned in positive economic growth and improved the livelihoods of Singaporeans.

I now come to 2007. That year, Deputy Prime Minister Tharman Shanmugaratnam, as he then was, announced the GST hike to 7%. At that point, there, too, were questions about the need to reduce direct taxes, the landscape was even more competitive. Everyone was waiting to grab our lunch. Taxes, then, had to be reduced. He announced the decision to tweak the NII, which was something Mr Low Thia Khiang advocated, to what it is today.

Mr Low Thia Khiang and Ms Sylvia Lim argued against the GST hike and suggested instead that the Government use even more NII, get revenue from land sales, corporate tax, stamp duties and so on, much like what is being sought today.

Senior Minister Tharman Shanmugaratnam demurred. He pointed out that it was dangerous to rely on sentiment-driven transactions for Budget purposes and he said, and I quote: "We have no idea whether these improvements would be sustainable and it would be very poor fiscal policy to commit to future expenditure in the hope that short-term spikes in revenue would be sustained" – exactly as what Deputy Prime Minister Lawrence Wong said this year.

When Mr Low Thia Khiang and Ms Sylvia Lim suggested that GST should only be considered after we have run out of revenue streams, Senior Minister Tharman stated, and I quote: "This is not the way a responsible Government conducts its fiscal policies".

As hon Member Ms Jessica Tan just said, it is dangerous for the Government to start scrambling to plug revenue gaps when there is an urgent need to do so.

So, what has happened since 2007? We had a recession in 2008 due to the Global Financial Crisis. Core inflation, at its highest, was at 6.5%. But we powered through with the GST hike and helped Singaporeans affected by inflation. We focused on creating a more inclusive Singapore with heavy investments in our people, especially the vulnerable, with programmes, such as KidStart, WIS, Silver Support Schemes and so on. We recovered from the recession quickly.

In 2012, the GST Voucher scheme was made permanent. This hardwired the GST to a larger redistributive regime and it is fair and progressive. Today, our economic landscape has been transformed through ITMs. We achieved a remarkable rise in GDP per capita with a larger private sector and a high-value workforce.

But more importantly, quoting Senior Minister Tharman Shanmugaratnam in his speech delivered on 14 August 2015 to the Economic Society of Singapore, he said, and I quote: "We achieved broad-based social upliftment, jobs for all, rising incomes for all, homes for all, quality schools and public healthcare for all, and neighbourhoods and parks shared by all".

It is not my intention to create a rosy picture of the past. The Government is not perfect. But by and large, the doomsday predictions of the poor becoming poorer owing to GST hikes simply did not happen.

Returning to 2022, actually, set against the historical context, there is nothing significantly new in what the WP has suggested for this House's consideration. This leads me to a paragraph in the Hammer article co-written by the hon Members Assoc Prof Jamus Lim and Mr Leon Perera entitled "Why the GST Hike is Not Necessary" that was published on 1 July 2022.

They said, and I quote: "Political courage means recognising that the facts and assumptions that supported an earlier decision have changed... Political courage means being able to recognise that contrary arguments have merit, even though those arguments come from one's political opponents. Political courage means not opposing for the sake of opposing."

I have no trouble with the statements, but, surely, this applies both ways. History reveals that the WP has always been taking a conscientious objection to GST, regardless of the effects it has brought about. Assoc Prof Jamus Lim quoted about the Japanese experience of over 25 years to justify his proposition that GST will lead to runaway inflation.

I thought it was noteworthy that he did not analyse the Singapore experience instead. Rhetoric, for effect, seldom helps. Political courage commands a price, but mere talk of political courage is cheap.

I now come the crux of my decision. Objectively, what has happened in history favoured the PAP. What we are doing now, as a matter of approach, is no different. It is not just theory; it is almost 30 years of practice. It is clear to me that we will continue to have fiscal pressures. We will have to deal with it, failing which, we will pay a serious price. We also need to get the balance right, so as not to affect our attraction as a hub for talent and investments.

We just increased our personal income tax, property tax and vehicle tax. To be fair, this was something that the Workers' Party has broadly advocated for. To further increase these tax bases will upset this balance.

I therefore support the increase in GST with the features and schemes addressed to help the less well-off. I also support the judgement call at this point not to deplete income from reserves through land sales and increasing the NIRC ceiling.

It is asked how much is enough when it comes to our reserves. No one knows. And I join Mr Sitoh Yih Pin in expressing his view on the same matter. I remember this question came up in the last session of Parliament and I ventured to suggest – think of the Indian Ocean tsunami. Nobody expected it to happen, but it happened, and we had to deal with it.

There could be a collapse of an Antartica ice shelf and we will have to deal with the ramifications of it. We may have to accelerate the poder construction. All these cost money.

The point is – no one knows – and if somebody says he knows, he is probably a snake oil salesman.

The 50-50 NIRC ratio is equitable because it balances current needs with future needs, putting it on an equal platform. Tilting it in favour of current needs is, I think, selling our children too short.

In building the Singapore of today, our founding fathers carried us on their shoulders. Through sheer grit and determination, they persevered even though at times, their knees were buckling and they could have easily given up. We should do the same thing for our children.

This is not to say current needs are unimportant. The Government is on record to say that no one will be left behind. For cost-of-living issues alone, $3.5 billion has been allocated for Singaporeans. This twin approach must carry on at the same time – fiscal responsibility with inclusivity.

To argue that Government should sequence its actions is to ignore the reality that our Government has to just develop the tentacles to deal with all the multiple existential issues happening at the same time to steer our country out of stormy waters. We have no choice. For this reason, I support the Bill.

Mr Speaker, Sir, I asked how is it that the PAP and the WP, which are aligned on many points relating to the need for tax revenues, can be so far apart in assessment of whether or not a GST hike is the proper thing to do for our people.

The answer lies partly in political principle and partly in a difference of political judgement.

On political principle, we part ways on many counts, but just on the point of political courage, the WP sees it as courageous for the PAP to accept good ideas from the WP.

The PAP does not. We see it as good sense. The PAP has pledged to do our best for Singaporeans and being in a small country, we must not care about the pedigree of ideas, merely about their quality. The Hansard is replete with illustrations where suggestions made across the aisle were accepted by the Government. One vivid example is WP's call to level the playing field for accused persons in 2020, which led to the passing of the Public Defenders Act this year.

On the other hand, what we see as true political courage in the context of a GST hike, the WP dismisses as being unnecessary or bad timing.

We are not so naive as to think that the GST will gain us political favour. We know that it will be a tough pill. But yet, we still ask this of the Singaporean people. We ask this because there are hard, immovable economic and fiscal realities in public life that can be either sugarcoated beyond recognition or presented in their true form.

The PAP's choice, from 1993 till 2022, has always been the latter. We do so as a matter of principle and also because of our deep and abiding faith in the Singaporean people to understand the need for these hard choices and why we have to make them. This is not mere theoretical conviction, but a judgement call born of years of experience in running the government and understanding the global marketplace.

We ask this at this difficult time because we truly believe that it will give us a fairer and more progressive way of financing our government and build a stronger foundation for our nation. That is political courage. [Applause.]

Mr Speaker: Deputy Prime Minister Lawrence Wong.

5.35 pm

Mr Lawrence Wong: Mr Speaker, I thank all Members who have spoken on the Bill. There were broadly two categories of questions. The first relates to the technical and operational aspects of the GST regime – I think not so many people spoke about that – but the other set of questions relates to the GST increase itself, which many more Members spoke about.

Let me first address the technical and operational clarifications.

Mr Derrick Goh suggested that we do more to help small businesses register for GST voluntarily. I completely agree and we will do more. Today, seven in 10 businesses that newly register for GST already do so voluntarily. We will continue to help businesses who wish to register for GST to do so. There are support schemes under Enterprise Singapore. We will do more to engage SMEs on this.

On the GST transitional rules, Mr Saktiandi Supaat was concerned that smaller businesses might find it difficult to understand these rules.

Again, we likewise share the concerns. We have been very mindful of their needs. That is why since early this year, IRAS has been helping businesses prepare for the GST rate change by conducting monthly live webinars, publishing e-tax guides and FAQs on its website, as well as launching a YouTube video. Businesses that require more clarifications on the transitional rules can approach IRAS for more assistance.

Mr Saktiandi Supaat also asked how offenders will be prosecuted differently under the new Missing Trader Fraud section 62C.

Currently, perpetrators of Missing Trader Fraud can only be prosecuted under non-tax Acts like the Companies Act, but as I mentioned just now, these provisions may not be able to cater to the specificities of Missing Trader Fraud, which is a very complex tax crime.

Therefore, section 62C addresses this by introducing a new two-tiered approach to prosecute offenders based on their level of culpability and through enhanced penalties. Providing for this under the GST Act will also empower IRAS to investigate and prosecute these offences more effectively.

As Mr Louis Ng highlighted, there is a clear distinction in the penalties between tiers one and two. The distinction between tiers is based on the presence of criminal intent. Where a person knows or has reasonable grounds to believe that his participation is for a fraudulent purpose, he will be prosecuted under tier one, regardless of whether he has full oversight of the entire operation.

Where there is no such criminal intent, and yet a person's business entity is eventually used in a specified arrangement, he will face the lesser, strict liability charge under tier two. This will apply when business owners do not exercise the reasonable care and due diligence expected of them.

Establishing criminal intent, like for all criminal offences, is a question of fact that will need to be proven in Court. The eventual sentencing of cases will be determined by the Courts.

IRAS has provided guidance on its website and through an e-tax guide on how businesses can avoid being drawn into a Missing Trader Fraud arrangement. Whistle-blowers who report such fraud to IRAS may also receive rewards under IRAS' whistle-blower programme if conditions are met.

These are the technical and operational issues, which I hope I have clarified.

Next, let me move on to the questions on the GST rate increase itself. Members – from the speeches I have heard – broadly agreed that our structural needs are rising and we do need to raise the revenues to fund them. The key issues are how we go about doing so and these issues can be summarised into two broad questions.

First, why raise the GST now; and second, why not alternatives to the GST? Let me take them in turn.

First, why raise the GST now? I fully understand and appreciate Members' concerns about doing so in such a challenging economic environment. This was a very difficult decision for me and the MOF team. We had considered this very carefully, leading up to the Budget, as I explained in the Budget speech and in our Budget debate and subsequently, even after the Budget when we saw conditions deteriorating. But eventually, we decided that it was still necessary to move.

For now, our economy and labour market are still holding steady. Our GDP growth is projected to come in at 3% to 4% this year. Our resident unemployment rate has also recovered to pre-pandemic levels. Sectors such as aviation and tourism that were badly affected by the pandemic are continuing to recover. There are some indications of weaker growth in some sectors and we are monitoring this closely.

More importantly, the economic challenges we face are not just near-term or cyclical in nature. The ongoing war in Ukraine, disruptions to energy and food supplies as well as rising geopolitical tensions and more fragmented supply chains – these are the realities that we have to deal with not just in the near-term but very possibly for a more prolonged period.

In other words, international economic conditions have fundamentally changed. While we expect inflationary pressures in Singapore to ease in the second half of next year, according to MAS' latest forecast, inflation rates are unlikely to go back to what they were over the past decade. Both globally and in Singapore, the "new normal" may well be a higher rate of inflation than what we were used to.

That is why where inflation is concerned, the Government has extended comprehensive support to Singaporeans, especially lower- and middle-income families, through three packages this year totalling more than $3.5 billion.

On average, as I have explained, these measures will fully offset the inflation-driven increases in spending for lower-income and retiree households – fully offset the increase in spending for lower-income and retiree households due to inflation.

For the typical middle-income household, the Government support provided will offset more than half of the inflation-driven increases in cost of living this year.

If you take the example of a middle-income family – which I think Mr Louis Chua highlighted just now in his speech – inflation is coming in at 6% this year, their annual expenditure will go up by – Mr Louis Chua estimated – around $2.700. Our estimates are not very different. So, yes, there is an increase in spending because of inflation, but the support they are getting this year is around $1,500. So, it will, again, keep to our commitment to offset more than half of the inflation-driven increase in cost of living this year for middle-income households. This does not take into account wage increases for individuals, which many of whom are very likely to enjoy.

This is what we are doing this year. Next year, we will continue to monitor closely the inflation situation and we will assess what additional support measures might be needed. At the same time, we will press ahead with our economic restructuring and transformation plans because when we make ourselves more productive and competitive, our workers will be able to earn more and this can more than make up for the higher prices and ensure that we are better off in real terms.

Mr Saktiandi Supaat asked if the GST rate increase is the right macroeconomic stance to adopt in the face of higher inflation and a slowing economy.

Sir, in calendar year 2023, the additional GST support going to households is expected to be comparable to the additional GST revenue we receive. We have designed our assistance packages to start flowing support early, ahead of the GST rate increase.

As a result, the combined impact of the GST increase and the offset schemes we have put in place is broadly fiscally neutral. Furthermore, we are targeting our support at the lower- to middle-income households rather than doing it in a broad-based manner. This will minimise any additional inflationary pressures.

In sum, we have designed the overall package to ensure we neither stoke inflation inadvertently nor choke aggregate demand. This is an appropriate macroeconomic stance to adopt at this juncture.

Assoc Prof Jamus Lim cited what happened in Japan when they increased the GST rate as a warning of what might happen. But surely as a professional economist, Assoc Prof Lim must know better. Context matters. Japan was in a low inflation environment. They raised GST and their inflation doubled, yes, but from a chronically low 1% to 2% and, even then, temporarily. So, let us avoid raising these alarmist examples that may not be so relevant to our context.

Does that mean there is nothing to learn from overseas? No, we must continue to learn from countries' experience, but let us make sure we get the right lessons.

In fact, there are no end of international examples, including recent ones, where governments have weakened their foundations of their fiscal systems and they have ended up paying a very major price. So, let us never, ever be tempted to go down that route.

While there are considerable uncertainties in the economic outlook, there is certainly nothing uncertain about Government expenditures, especially in the area of healthcare, which many Members have cited, including Mr Liang Eng Hwa, Mr Sharael Taha and Ms Joan Pereira.

Our population is ageing with every passing year. Government support and spending on healthcare has been rising over the past decade, tripling from $3.7 billion in FY2010 to $11.3 billion in FY2019. Since then, we have continued to age, and our healthcare needs have become only more acute. I have said this before, we expect the Government's healthcare spending to go up, from 2.2% of GDP to 3.5% of GDP. That is 1.3 percentage points of GDP, much more than the revenues we get from the GST increase.

And this is on healthcare alone. So, even as we deal with healthcare spending, we have to resource many other spending needs. For example, we want to invest more in early childhood education, to give every child the best start in life. Annual spending there is expected to double to over $2 billion in the next few years.

We also want to do more to uplift our lower-wage workers. Surely, there is unanimous agreement in this House to do more here. Mr Desmond Choo and Ms Yeo Wan Ling spoke passionately about this, and I assure them this is also a key priority for the Government. This is why I had announced in the Budget that we will be spending over $9 billion over the next five years, on the enhanced Workfare and the Progressive Wage Credit Scheme, and I announced further enhancements to the Progressive Wage Credit Scheme earlier this year. We will continue to closely monitor the progress of our efforts to uplift the wages of lower-wage workers and we stand ready to do more if needed.

Ms Yeo Wan Ling also highlighted concerns about SMEs and self-employed persons and we are also looking at how we can do more to help them.

Today, public housing is a key concern for many and we are ramping up our BTO supply to ensure accessibility and affordability of public housing and to address the backlogs due to COVID-19 amid higher construction costs, and all that will, again, cost more.

We also need to spend more to strengthen our social compact. This is an exercise we are undertaking now through the Forward Singapore conversations, and we are considering further policy shifts to do more for disadvantaged and vulnerable groups. These moves will certainly require additional resources.

So, healthcare already, you can see where the spending needs are going to be, it is very clear, because of the ageing population. Then, you add up all of these other needs. It is a few billion here and a few billion there – they all add up. None of these needs have become less urgent because of the global economic situation. On the contrary, we must do more, especially in an uncertain and volatile environment.

If we do not deal with this huge spending gap now and decisively, the problem will only snowball and very soon we will ourselves be unable to fund programmes that Singaporeans need.

That is why, having considered this so carefully before the Budget and after the Budget, even in the last few months when the global economic environment had deteriorated, we felt that there was no possibility for us to delay the GST increase any further.

But what we can and what we will do is to delay the impact of the GST increase. That is done through the Assurance Package for the majority of Singaporean households for at least five years. In the meantime, as Members noted, we can then start to benefit from the recovery in tourism and collect more GST from tourists, foreigners and those who are better-off. That is the reason why we are doing it like that, because people say, forget your Assurance Package. I do not do the Assurance Package, do not do GST, we square off and we will just do GST later. But do not forget, when we do it the way we have designed, revenues start flowing in. From who? From foreigners, from the better off people, from tourists. So, we are already getting benefits from revenue sources from these groups through the way we have designed the system.

Mr Saktiandi Supaat also asked whether we would proceed with the second step of the GST rate increase if there were a sharp deterioration in the economic conditions next year, like a major global downturn. If indeed such downside risks were to materialise and our economy is severely impacted, we will need to take a careful review and we will consider whether to proceed with the second step of the increase in 2024.

For now, this is not our baseline expectation. Barring a severe downturn in global economic circumstances, we will proceed with the second step of the increase to put our public finances on a much stronger footing and we will ensure that households are well-supported through the transition.

Next, let me talk on the second set of questions around why not consider alternatives to the GST? Here, several alternatives were offered. Assoc Prof Jamus Jerome Lim and Mr Louis Chua suggested that there was fiscal surplus or fiscal slack, which would enable us to delay the GST. I wish that were so. I wish that were so, but unfortunately, we do not have any surplus.

Assoc Prof Jamus Lim said that the Government is shielded from inflation because when inflation goes up and prices are higher, we will automatically collect more revenues in nominal terms. He is right. But do not forget, and he did not mention this, Government spending must also go up correspondingly. Public servant salaries must go up surely. Are we going to deny them wage increases?

Support schemes must go up surely, to keep pace with inflation. So, on both sides, yes, we may collect more in nominal terms, but we will also have to spend more. In FY2021, we did enjoy higher than expected revenue and we had a surplus of $1.9 billion in FY2021. But we have already used this surplus, as well as the better-than-expected fiscal outturn for the first half of FY2022 to fund the June and October support packages this year.

At this stage, it is still too early to determine the eventual fiscal outturn for the second half of FY2022. But for now, we are not expecting a surplus for the year and we will provide a firmer update, of course, at next year's Budget. But the bottom line is, any surpluses that you can think of are imaginary. They are not there and will not allow us to delay the GST.

The second set of suggestions of alternatives are largely to use more from the past reserves. And there, you have different variants, including tweaking the formula for NIRC from 50% to 60% or changing the definition of land sales revenues so that all the revenue from land sold attributable to the first 10 years of lease goes into current reserves as opposed to past reserves.

Basically, whichever the suggestion, the point is, these suggestions are asking the Government to use more from the past reserves. That is what it comes down to. The Workers' Party have said that what they are suggesting is not to raid the past reserves, but it is really just to slow down the accumulation in reserves. It sounds very attractive, but it essentially means that we are leaving our next generation with fewer resources.

This will just make it harder for them to meet future needs at a time when things are going to be more challenging, as Ms Foo Mee Har and many others have highlighted. At a time when our economy will be maturing, our population will be ageing rapidly and the uncertainties in the world are only becoming greater and greater. Surely, this cannot be the responsible thing to do.

So, let us not succumb to the temptation of taking this easy way out and making things worse for our children and grandchildren. In any case, as Mr Derrick Goh has highlighted, the growth of the reserves is already expected to slow, given the significant headwinds in the global investment environment, long-term structural changes that we can see happening in the world, including the rise in geopolitical tensions, climate change, ageing populations, lower productivity growth. All this will affect future long-term returns. Geopolitical tensions, in particular, might not only reduce investment returns but could even result in conflict or war, which can impact the value of our investments.

Mr Derrick Goh had asked about the process to determine the long-term expected real rate of return, given these structural trends, and I assure him that we have a robust process in place. Basically, before the start of each financial year, the investment entities – MAS, GIC and Temasek – will calculate the expected long-term real rate of return for the assets they each manage. This has to be certified by their respective boards and then they will submit it to the Government. The Government would take these inputs to propose the overall long-term expected real rate of return to the President. The President will consult with the Council of Presidential Advisors before deciding whether to agree with the Government's proposal. So, it is a very robust system with a few layers of checks in place.

Given the trends that we expect over the coming years, it may well be that the expected long-term returns will have to come down – just based on these professional inputs and the assessment of these structural challenges we face. And if so, the right approach and certainly the approach that the Government will take, is to accept the lower NIRC and either adjust our spending accordingly or we will have to find other forms of revenue.

So, that is the second broad range of suggestions – to use more from the past reserves. I heard just now from Assoc Prof Jamus Lim, the third area of suggestion which is to fine-tune the GST system to have exemptions for essentials. That is something that Ms He Ting Ru had suggested during the Budget debate as well and Assoc Prof Jamus Lim has reiterated that proposal.

It is, again, one of those things that sounds like a wonderful idea.

But the road to perdition is paved with many good intentions. And this is not just from our analysis. You look around the world, multi-tier GST systems have lots of problems, huge difficulties trying to distinguish between the products. The system is so costly, it is onerous to implement and it becomes very, very cumbersome.

This is not talking in the abstract. More recently, I saw a BBC article about the Indian system. Pizza toppings are now deemed not to be classified as cheese. Why? A fifth of the toppings are made by vegetable oil and vegetable oil is not considered cheese. So, they charge GST at a higher rate of 18% for what they deem as "edible preparations" rather than at 12%, which is the rate for cheese. And this had to go through the Courts and it was determined by the Courts.

No end to this sort of challenges. That is what we have seen everywhere and the bigger problem behind this is just that besides the administration, the cumbersomeness, the complication, it is just not effective. It sounds good on paper but it is not effective because when you exempt a basket of goods like essential items, in the end, you benefit the well-to-do because the well-to-do will spend more on everything, not just luxury items, but basic necessities as well. And this is a conclusion not just made by us. It is a conclusion reached by studies, based on studies by numerous governments as well as organisations like the OECD. So, we have more than enough evidence to show that this multi-tier system does not work effectively.

In fact, according to the BBC report I read, 80% of countries which introduced GST after 1995, have opted for a single-rate system – like us, for good reason.

So, let us not try to come up with ideas that sound good on paper, sound attractive, but in the end, we know, not just because we do not like the idea, not just because we are not open to new ideas, but we know from independent analyses done by other countries, done by the OECD, that these ideas, these alternatives, do not work. They are not effective.

In fact, we have designed a different system in Singapore, which is, as I described in my first speech just now, also multi-tier, but it is multi-tiered by income and it is a far more effective system.

Assoc Prof Jamus Lim said it was a patchwork of offsets. Well, I think he does not give Singapore enough credit. If you look around the world at any GST system, I dare say we are one of the few, if not the only country with such an effective system of GST that has taxed consumption fairly and effectively. Certainly, not a patchwork, but a thorough, deliberate design of the GST system to make it fair and effective.

The fourth idea to why not alternatives to GST is, let us look at other revenue alternatives. Whether it is property tax, personal income tax, corporate income tax. Look at sin taxes. Let us look at all these other revenue alternatives.

Sir, we have been through these arguments. We went through them in great detail at the Budget debate. I will go through them again.

The problem with these ideas, not because we are not open to them. We have considered all of them carefully and, in fact, in the Budget, we did raise property tax, we did raise personal income tax as well. But the problem with these ideas, as a substitute for the GST, is that simply the sums do not add up. Why?

Let me explain. Again, if I may say. Property tax on residential property yields only $1 billion in annual revenue, today. How much more do you want to get from property tax? We have already raised it significantly this Budget for the high-end properties. You want to get more revenues from property tax, you will inevitably have to cover a wider group of property owners, including the middle-income.

Personal income tax – we have raised it in the Budget but if you want to raise more – for example, as I mentioned in the Budget debate – if you want to load all of the GST revenue on personal income tax and push it only for the top marginal rates, the top marginal rates will go up from 22% to 42%. Why would the top earners stay in Singapore and pay 42% tax?

So, again, inevitably when you talk about personal income tax, any way to get more revenue, will inevitably mean higher rates for a broader group of income earners.

Or corporate income tax for that matter. Yes, there is BEPS 2.0 which may yield more revenue, according to some estimates . But it is really too early to determine how much we will get from the changes in BEPS 2.0 because as I keep saying, there are two pillars in BEPS 2.0 – Pillar One, Pillar Two. Pillar One would definitely impact us. Pillar Two is where you talk about minimum corporate tax globally of 15%. We may get some revenue there, but we have to look at the combined effects of Pillars One and Two. And even after looking at all that, even if we do get additional revenues, the reality is that global competition for investments will only get more intense in this new environment.

With geopolitical tensions going up, countries are talking about reshoring, friend-shoring, onshoring. What does that mean? "Investments come back to my country." And governments are offering very generous subsidies and grants to attract these investments back. Never mind BEPS 2.0 and corporate minimum tax rates of 15%. They are offering very attractive packages to attract these investments back to their home countries. Surely, our jobs and investments will be at risk if we are not able to keep pace and offer equally attractive value propositions in Singapore.

So, I have gone through these four different buckets of ideas: fiscal surpluses, use more from past reserves, zero-rating, multi-tiered GST, tap on other revenue alternatives. And I have explained why actually it is very hard to for any of them to replace the GST increase.

In fact, as I said just now, the GST revenues alone are not even enough to meet our healthcare funding gap – 1.3 percentage points of GDP is the gap by 2030 but our GST increase only yields 0.7% of GDP. This is healthcare alone. We have not talked about social spending. We have not talked about lower-wage workers, early childhood, all the other meritorious things we want to do.

So, really, the question is not GST or these other alternatives. But we need GST and other alternatives. That is why from MOF's point of view, we will continue to study all other fiscal options, all other revenue options and consider how best over time to ensure more resilient and more sustainable revenues for the future.

Having explained my position and also gone through all these different alternative ideas, I should say one thing, which is, I also take issue with the way that Opposition Members and especially Members of the Workers' Party have characterised the Government's position.

Essentially, they have painted a very simplistic narrative. That Government has not considered these alternatives, that we are on autopilot, we are not open to ideas, we are just stubbornly pushing away at something we decided to do anyway. But that is completely false. It is completely false because we have gone through this already in the Budget debate. I have explained repeatedly in the Budget debate that we had thought about all the options very carefully, explained why many of these alternatives are not substitutes for GST. I have gone through them again today. In fact, I have said it is not just GST or these alternatives. We have to consider so many different options together given our huge funding gap and I have also explained that we have studied this carefully before we made the decision, the very difficult decision to proceed, both in the Budget and after the Budget.

So, this false and simplistic narrative painted by the Workers' Party which, as Mr Murali Pillai has kindly reminded us, is not the first time. A pattern of repeating the same arguments against the GST, time and again. Really, it does not do justice to the commitment and professionalism of the entire team in MOF, including the public officials who are trying so hard to do what is right and to pursue a strategy of fiscal responsibility and discipline for the benefit of Singapore and Singaporeans.

To be clear, the Workers' Party is entitled to your own position. By all means oppose the GST, adopt a different position. Fine. But at least be honest and responsible – acknowledge that your alternatives will either end up requiring the middle-income to pay more or will use more of the past reserves therefore, less for the next generation. And at least have the decency to acknowledge that the Government had considered all of these alternatives carefully. We debated them in the Budget – thoroughly and rigorously – before we decided on this move.

I would have thought that is what a responsible political party would have done. Unfortunately, I am very disappointed that the Workers' Party has chosen to take a different path. And I wonder if this is because they feel that this approach is the best way to advance their political agenda as they have been over the years – to paint the PAP Government as uncaring and out of touch.

Sir, we have gone through this debate in great detail, in the Budget debate and now, I can assure you this that in terms of the process, in terms of thinking about the alternatives, thinking about how best to meet our funding needs, we have left no stone unturned. We have looked at each and every option very carefully and we have decided this is the best way to manage the fiscal gap that we face and make sure that we continue to keep Singapore's fiscal foundation strong and resilient, especially for the future.

There were many Members who had supported the increase in GST but had suggested ways to fine-tune our support schemes and I have listened to many of your suggestions. Mr Saktiandi Supaat and Ms Jessica Tan asked about the qualifying criteria and administration of the GSTV scheme. I assure them that we will review the qualifying criteria from time to time to ensure they stay relevant.

Ms Jessica Tan also highlighted a situation where individuals in genuine need miss out on the benefits due to the Annual Value of the property they live in. And as we have explained, aside from the regular reviews which we do, such individuals may write in, and we will consider appeals on a case-by-case basis.

Ms Foo Mee Har and Ms Joan Pereira suggested making it easier for people to understand our schemes and how they can benefit. Those who are not sure of their eligibility may refer to the GSTV website, as well as MOF’s website and the various press releases that we put out for more information. We will certainly continue to review to see how we can make information more easily accessible to Singaporeans.

I want to also assure Members that we keep a close eye on improving the administration of the GSTV scheme. Most eligible Singaporeans – about 98% of recipients – today get their cash payouts seamlessly through PayNow or direct bank crediting. Those who remain unbanked were previously paid via cheques which required encashment over bank counters, but we have since moved to using GovCash to make payments to these individuals and we expect the move to help reduce administrative costs and allow the unbanked to receive their payouts more quickly and conveniently.

Quite a number of Members had shared concerns about businesses profiteering from the GST rate increase and they raised the need for an effective deterrence. The Committee Against Profiteering (CAP), chaired by Minister of State Low Yen Ling, takes a serious view of unjustified price increases using the GST increase as an excuse. So, it actively monitors and reviews all feedback on such cases.

The Committee received around 140 feedback submissions between April and October this year, of which seven involved specific allegations of GST misrepresentation. They followed up swiftly and found that there were in fact legitimate reasons for the price increases, such as higher cost of raw materials. The businesses involved have committed to be transparent in their pricing and communications with consumers, and so far, there have not been any repeat complaints.

CAP will continue to monitor this closely, and they will be prepared to publicly name egregious businesses, and to take enforcement actions promptly.

Mr Speaker, I have heard many suggestions to delay the GST increase, to consider the different alternatives and I have explained why these alternatives do not all add up. The Workers' Party and the PSP’s stance is "anything but the GST". But the question is also to be asked "why not the GST", especially the GST in the way we have designed it in Singapore.

Mr Speaker: Order. Leader, would you like to move on the time limit on speeches?

Debate resumed.

Mr Speaker: Deputy Prime Minister.

6.15 pm

Mr Lawrence Wong: Sir, the common opposition to the GST rate increase is that this is a regressive move that disproportionately affects lower-income households.

I can fully understand the concerns such a move will have on lower-income households. But, again, this is not how we have implemented GST in Singapore. Not at all. I have already explained how after putting together the permanent GST Voucher scheme and GST absorption, we have an overall GST system that taxes consumption in a fair and effective manner.

Although we are raising the rate in 2023 and 2024, the majority of Singaporean households will only start to pay more GST nearer the end of this decade or even later. This is because of the Assurance Package. The Government, effectively, pays the additional GST on their behalf during this period.

A consumption tax, yes, it is regressive if implemented as a standalone measure. But this is not how we have done it in Singapore. We have worked hard to design a system where GST is implemented together with permanent offsets through the GST Vouchers to negate that disproportionate impact on lower-income households. We have also taken great pains to make sure that the middle-income households are looked after so that they only pay slightly more GST, but the full impact of the GST, the full burden, is borne largely by high-income households as well as foreigners based here and tourists.

This is how we get the benefits of the GST system, which is a broad-based consumption tax without its drawbacks. What we have is a much, much better alternative than taking more from future generations or significantly raising property or personal income taxes on the broad middle class. It is, certainly, a more responsible approach than planning on the basis of revenues or surpluses that may not materialise.

The unique way we have implemented GST in Singapore reflects the ethos of this Government and the way we have always worked. We do not just go for politically expedient measures that may very well end up being unviable or unsustainable. Instead, we focus our efforts on designing effective policies to benefit all Singaporeans. This may mean that the policies are a little bit more complicated. It may mean that we have to work harder to explain our schemes, but it is well worth the extra effort to get it right and do the right thing for Singapore and Singaporeans. Sir, in Mandarin.

(In Mandarin): [Please refer to Vernacular Speech.] Singapore is a rapidly ageing society and for our future healthcare and other needs, we need to raise the Goods and Services Tax (GST) rate.

The Government will raise GST in a fair manner and help all Singaporeans. With the help of the Assurance Package, the majority of Singaporean households will be able to offset at least five years of additional GST expenditure.

This means that while the GST rate will be raised next year and the year after, most households will only start paying more GST from around 2030.

Besides the Assurance Package, lower- and middle-income households can also receive permanent benefits from the GSTV scheme. At the same time, the Government will continue to absorb GST for publicly-subsidised healthcare and education.

Through these ways, lower-income households pay a much lower effective GST rate than higher-income households. In fact, on average, after Government support, the bottom 10% of households do not have to pay any GST at all. This includes many retiree households with no income.

Even with an increase in the GST rate, lower-income families will not be affected. In fact, GST will be borne mainly by higher-income households, tourists and foreigners in Singapore.

Singapore has implemented the GST in a unique way, taking care of lower- and middle-income households. This is the correct and fair approach.

I am deeply grateful for the strong trust between the Government and people. Over the years, this has enabled us to implement many policies to improve the lives of Singaporeans.

I assure everyone that the Government will uphold our principles and values and continue to do the right thing for Singaporeans. Let us uphold this trust in one another and chart our way forward together.

(In English): Sir, the interests of Singaporeans are at the centre of everything we do.

No government, no finance minister likes to talk about raising taxes, certainly not a tax like GST.

But if we have to raise taxes, we will always be honest, transparent and we will do so in a fair manner and we will always be accountable to Singaporeans that the resources will be put to good use for their benefit.

I am deeply grateful for the strong compact and trust between the Government and the people. Over the years, this has allowed us to develop and implement policies to improve the lives for all Singaporeans.

Singaporeans have benefited from inclusive growth, particularly through our moves to uplift lower-wage workers' incomes. Income inequality in Singapore has been on a steady downtrend.

We have strengthened social security through schemes like Silver Support. We have strengthened healthcare assurance for all by building five new polyclinics and doubling the number of community hospital beds in the last decade.

In times of need, such as during the pandemic and during the period of high inflation this year, we have stepped in decisively with measures to support Singaporeans. Now, as part of Forward Singapore, we are now working in partnership with Singaporeans to refresh and update our social compact for the next bound.

These are but some examples of how we have progressed together as one people and as a nation.

So, to all Singaporeans, I say you have my assurance that this Government will never compromise on our principles and our values, and we will always do what is right for Singapore and Singaporeans. Let us keep this trust in each other going as we chart our way forward together. Thank you, Sir. [Applause.]

Mr Speaker: Clarifications? Mr Louis Chua.

6.22 pm

Mr Chua Kheng Wee Louis: Thank you, Mr Speaker. If I can have three very short supplementary questions, please.

The first is with regard to this year's fiscal outturn. I think the Deputy Prime Minister shared that we do not have any surplus this year but, at the same time, it is too early to determine. But also, at the same time, whatever surplus we have is imaginary.

I recognise that I have limited information. But as I shared in my speech, just based on the first six months of the operating revenues that have been disclosed so far, we have a $5.8 billion increase in revenue, compared to the year before. So, even if we less off the $1.5 billion package in October and $1.4 billion announced today, would it be wrong to say that there is still some slack, at least based on what is disclosed so far?

Second, in terms of the NIRC contribution, is it wrong to say that increasing the NIRC contribution rate will not result in a decline in revenue? I think an example would be, as I shared in my Budget speech this year, where even if we put into context the drawdown of $43 billion in our reserves for the COVID-19 packages, our reserves today are still higher than they were five years ago.

Lastly, on GST exemption and all that, at this point in time, based on my understanding, there are already provisions of zero-rated GST for exports of goods and international services. At the same time, there are certain classes of goods and services that are exempted from GST, such as the sale of residential properties and the provision of financial services as well.

Mr Lawrence Wong: Sir, on the three questions, on the fiscal outturn, Mr Louis Chua only looked at the revenue side of the house. He has not looked at the spending side, which I mentioned just now.

Yes, revenues have gone up in the first half of fiscal year 2022 but spending has gone up as well. As I said just now, overall, the surplus in FY2021 and the better-than-expected outturn – revenue, net of expenditure – in the first half of 2022 have already been fully utilised for the packages this year.

What happens in the second half of FY2022 is still to be seen. Yes, there may well be some buoyant revenue sources. We will see. But our spending is also going to be higher in the second half and, net-net overall, as I mentioned just now, we do not expect a surplus in FY2022 at the end of the financial year. But we will, at the end, in the Budget next year, give a firmer estimate, as we always do.

On NIRC, I have also explained our position on NIRC. I have said that, going forward, we anticipate that NIRC, which contributes about 3.5% of GDP to our revenue today, we think that is likely, over the longer term, to keep pace with economic growth. NIRC will keep pace with economic growth, we think, but this has not taken into consideration the potential for our expected long-term real rate of return to be reduced because of all these structural challenges that we have just been talking about – climate change, ageing population, geopolitical tensions.

So, it remains to be seen. But we will continue to monitor and update where necessary.

On GST exemption, yes, there are certain classes of items which are exempt or zero-rated today but they are done for very good reasons, including difficulties in collection and we have kept it to a very, very, very tiny group of items. Very small. Look around at all the GST systems in the world, I think ours, we have kept it very, very limited.

By and large, most items are taxed on a single-rate GST and if we were to expand the exemption of zero rate to many more items, for that matter, to essential items, food, then we are talking about a large expansion of exmempting of zero-rating in our GST system. All the complications, all the downsides, all the problems, all the ineffectiveness that we have seen in other countries will be experienced in Singapore, too.

Mr Speaker: Assoc Prof Jamus Lim.

Assoc Prof Jamus Jerome Lim: Thank you, Mr Speaker, Sir.

The Deputy Prime Minister reiterated that he and his MOF colleagues do not believe that it is possible to delay the hike. If I could just confirm my first question that the estimates of impending healthcare needs over the next two years are, in fact, so urgent that they cannot be delayed even for the short run such that, in the absence of the hike, the Government will inevitably find itself in a deficit.

My second point is to clarify that I was not, in fact, being alarmist in my speech about potential inflationary consequences of the hike. In fact, I clearly explained that the Japanese environment was different but since the Deputy Prime Minister is so confident in his claim that there will not be an increase in inflation as a result, I wonder if the Government will, in fact, commit to a pause in GST increases to 9% if inflation does turn out to be higher than expected as a result of the hike.

Finally, the point about the multi-tiered system. I think the whole point was that we should use the current circumstances as a way to pilot the idea. I think we have never shied away from talking about how policies need to work for us. I wonder if he would agree that the postponement of GST on essential items actually affords us this opportunity to testbed this idea.

Mr Lawrence Wong: Sir, on delaying GST, say, for one or two years, we are doing much better than that. We are delaying for more than five years with the Assurance Package. So, I am not sure why I would want to delay only for one to two years because I can delay for much longer.

And with the design of the scheme that we have done, as I have mentioned just now, delaying for the vast majority of Singaporeans but getting those who can pay to pay first. Is that not better? [Applause.]

Second, on pausing the second step of GST increase, should there be much higher than expected inflation. I mentioned just now the circumstances under which we might reconsider the second step. And that is really in the event of a very significant change in the external environment, globally and then impacting Singapore. This has to do not just with inflation, but with the economy, with labour markets, for example, if we were to go into a deep recession next year. It is 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.

Third, on the multi-tier and the pilots. Do not get me wrong. It is not as though we are reluctant to take in new ideas and to consider pilot schemes. We always do and we are always open to experimentation and policy reviews, but on this particular case, it is not for lack of studies. There has been considerable amount of work done to look at the effectiveness of multi-tiered systems all over the world by governments, by independent organisations. We have looked at all of these studies. And when the studies are overwhelmingly negative, it ought to give us pause to consider, is it even necessary to pursue a pilot for Singapore's circumstances, or should we think of alternative solutions? And that is exactly what we have done. We have developed a different system in Singapore. Also, a multi-tiered system, but I dare say, a more effective multi-tiered system, because the GST is tiered by income and we ensure that we can tax consumption in a way that is fair and effective.

Mr Speaker: Mr Leong Mun Wai.

Mr Leong Mun Wai: Thank you, Speaker. First of all, allow me to thank the Minister for a very engaging and useful debate today. Maybe this is the second time we are debating on GST in this Chamber.

Allow me a little bit of preamble, just one minute. I think, however —

Mr Speaker: It is clarifications, if you can.

Mr Leong Mun Wai: Yes, two clarifications. But before that, let me say one thing, is that the basic differences between the position, at least for PSP and the Government, is that we think that the Government still did not appreciate enough the financial position that the Singaporeans are in. They are not just paying taxes, there are many kinds of indirect taxes. As a result, let me quote one thing —

Mr Speaker: Mr Leong, Mr Leong, please proceed to your clarifications. It is not an opportunity to repeat your speech again.

Mr Leong Mun Wai: Yes, I am coming to that. Let me quote one thing. Even when we talk about the NIRC, we are trying to fanthom up this whole money scheme, the fiscal system that the Government has on the people. So, let me just talk about the NIRC. Two questions to Deputy Prime Minister Lawrence Wong, please.

One, what is the share of NIRC? We give 50% of the NIR to the Budget, right? So, NIRC is the 50%. But what is the share of NIRC that is not spent in the Budget year?

Two, there are operating expenditures in the Budget and recently we have discovered, you have HDB grants which cost the Budget money, deficit to the Budget, and this in turn, will eat into the NIRC that you contributed, right? So, I ask you the second question: did the NIRC contributed by the past land sales cover the deficit of the HDB grant?

Two questions, thank you.

Mr Lawrence Wong: Sir, there is no unspent NIRC because the Government does not run a surplus anymore. Maybe in the past but nowadays, what surplus are we talking about? We literally are running balanced Budgets, if not deficit Budgets, so there is no unspent revenue. Every revenue we collect, including through the NIRC, is spent.

Second, on the HDB grant and Mr Leong Mun Wai says, "We have just discovered". I am not sure how he just discovered this. This has been going on for years since I was a young officer in MOF. We have always financed HDB on its deficit, it is called deficit financing, which means when HDB has a deficit because it has a shortfall, it has to sell the flats at a subsidised price, the selling price is less than the development cost, deficit. And therefore, there is a Government funding to HDB. This has always been the basis of our system, because we want to assure Singaporeans that they will always be able to afford HDB flats in Singapore.

Mr Speaker: Mr Leong.

Mr Leong Mun Wai: Mr Speaker, thank you. I have expected the Deputy Prime Minister to answer like that. First, on the NIRC. There is a large share of the NIRC being apportioned to funds, right? Just like a few years back, you took $6 billion out of the NIRC and put it in the GST Voucher. So, that means, for that particular year, I think it was 2018, we do not have $6 billion benefit from NIRC. So, one would think that we have been discussing a lot today – would the Deputy Prime Minister commit that in the future, all NIRC will be spent in the current year?

Secondly, on the HDB grant, you did not answer my question. I asked, the HDB grant, like this year, the grant may be close to $4.5 billion, $4.8 billion to cover the deficit of the HDB. So, the amount of NIRC will be reduced by that amount, right? Because you have to pay for the HDB grant. And besides that, there are other expenditures, which two of them I have mentioned in my last Adjournment Motion speech. So, can you answer the question, please?

Mr Lawrence Wong: Sir, I have already answered the question on the second point. The basic point is all Government sources of funding, whether from NIRC or from revenue, come into a consolidated fund. We do not hypothecate, which is something that Mr Leong is saying – identify this revenue source, link to this particular spending item. That is not what we do in Singapore. All the revenue sources come in; because monies are fungible, this is a general pot of funding. And then, we spend according to our priorities and therefore there is no point going through and identifying these sorts of linkages.

On the first point of whether or not there will be unspent funding, it is the same point. Generally, we do not believe that there will be surpluses, because we are running such a tight ship now, these days. But should it happen, for example, that we have an unexpected windfall, a good year, maybe because of property sentiments, cyclical reasons why revenue has some upside, can it happen? Maybe, from time to time, it can happen. Then, what is the right response for us to do? Well, if there is that surplus, we might very well consider whether there are longer-term needs in the future that would be prudent for us to set aside some of that surplus into these so-called funds.

For example, climate change adaptation. We have set aside, I think, $5 billion. Do you think we would only need $5 billion for climate change adaptation? To build sea walls and all? Of course not. So, in a good year, for example, if we have that extra money, we will look at longer-term needs and we will set aside these funds prudently, as we have always done to manage our fiscal and finances in a responsible manner.

Mr Speaker: Leader. Exempted Business, please.

Debate resumed.

Mr Speaker: Mr Leon Perera.

Mr Leon Perera: Thank you, Mr Speaker, Sir. I just have a few points of clarification and firstly, I thank the Deputy Prime Minister for his replies and to respond to the hon Member Mr Murali Pillai, I think there are points of agreement between the PAP and the Workers' Party in this debate.

We are not advocating going to debt markets, for example, to finance a deficit, to make the constitutional changes necessary to do that, we are not advocating that. So, there are points of agreement, but I think the disagreement is philosophic and it has to do principally, I think, with the slope of the reserves growth and we advocate for certain measures that would slow the slope of the reserves growth and PAP disagrees with that. We may have to agree to disagree.

But my clarification is really on whether the Deputy Prime Minister would acknowledge that as countries evolve, societies evolve, and also as the size, the absolute size of the financial reserves increase, different policies, are necessary and advisable, compared to when the reserves was $100 billion versus what it is now.

And on this point, in this context, I would like to bring Members back to the point my colleague, Mr Louis Chua, made that in the crisis of a generation, during COVID-19, many Members of this House, used the term "the crisis of our generation", "the crisis of our generation", we drew down about $50 billion. How large is that as a proportion of the reserves, I am not asking that as a question, I know the Government's position on that. But by most estimates that have been in circulation, it is a very, very small fraction. So, it begs the question, how much is enough? And we are at this stage as a society. When we are at this level, this quantitative level of financial reserves. And given that it was 15 years since the framework was last revised, does the Minister and the Government not acknowledge that it behooves us to work on these options at this point in time? So that is my first point of clarification.

My second point of clarification is I wonder if the Deputy Prime Minister underestimates the risk of inflation specifically regards to this point. When the GST hike comes into effect in January next year, we have all acknowledged that may be an issue of some merchants using that as an excuse to increase prices more than necessary, and this is common everywhere in the world. We have a Committee Against Profiteering, but I think we should also acknowledge it is very difficult for any Committee in a time when inflation is running at very high levels to sort of effectively address and disentangle legitimate price hikes from profiteering-related price hikes. And in fact, many members of the public may not even raise feedback to the Committee because they may think that if certain prices by certain merchants are going up, well, that is just because of inflation, it is not because of profiteering.

So, from a point of view of practical execution, will the Deputy Prime Minister agree that it is very difficult to clamp down on this potential for profiteering and therefore, there is a macroeconomic inflation risk from introducing GST in the calendar year next year. I take the Deputy Prime Minister's point that fiscally it is neutral but there is this other risk of macroeconomic inflation.

And my last point of clarification —

Mr Speaker: If you can keep the third clarification shorter than the first two.

Mr Leon Perera: Yes, it is very short. I did not hear the Deputy Prime Minister responding to my colleague, Assoc Prof Jamus Lim on this. Assoc Prof Lim was asking the Deputy Prime Minister whether healthcare expenditure, which is usually given as the main reason for increasing the GST, and that has seen a secular increase. How much is that going to be increasing in the next few years and does the rate of healthcare expenditure increase in the next few years, the projected rate, does that require urgency about hiking the GST next year or the year after?

Mr Lawrence Wong: Sir, let me take these three questions in turn.

First, Mr Leon Perera says there is a disagreement with philosophy and the main disagreement is on the slope of the growth in reserves. I would say the main disagreement is this: the Workers' Party basically wants to use more past reserves and leave behind less for our children and grandchildren – just state it honestly. There is no need to have fancy words. "Slow down the rate of growth of reserves". Basically, you are asking to use more of the past reserves and leaving behind less for the next generation. Fine, that is a legitimate position to have, but is this a wise thing to do? Is it a responsible thing to do, considering the new 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?

And if you think about it, if our forefathers had taken that same approach, I said in my Budget speech or in my round-up speech during the debate, if our forefathers had thought exactly the same line of thought, take 20% more of NIRC for themselves, today, we will be not just talking about a 9% GST, we will be talking about an 11% GST.

So, if we were to do the same, then the next generation – because fiscal needs will continue to grow – they will have to face a greater tax burden, not to mention having fewer resources to cope with crisis, emergencies or anything that can emerge in this uncertain world. And not to mention that we have not even talked about the more than $50 billion which we have drawn from past reserves so far, for which we are very unlikely for now, to be able to pay back. [Please refer to "Clarification by Deputy Prime Minister and Minister for Finance", Official Report, 7 November 2022, Vol 95, Issue No 73, Correction by Written Statement section.]

How can one tell whether or not in the coming years there will not be similar emergencies, pandemics, crises for which we may very well legitimately have to go to the President and ask for permission to use the past reserves.

So, in light of all of these considerations, I would say, the Government's position is very much to say today's system, do not change the parameters now. If we need revenues, we find revenues in other ways that we can do, whether through the GST increase or through other revenue raising sources.

The second point I would say is in fact, the disagreement on philosophy, is not just on reserves. Because as Mr Murali Pillai has highlighted, WP has consistently, time and again, throughout Singapore's history, basically, opposed the GST increase.

So, it is not just a philosophical matter about the reserves. It is also a philosophical matter about the GST. You fundamentally oppose the GST increase, for whatever reasons, I cannot quite fathom, because the way that we have designed the GST in Singapore is very different. I have explained this repeatedly, it does not hurt the poor, it is fair, it is effective, it is a unique system. And yet, WP continues to oppose GST and the GST increase. And that is why I surmise, the only reason you might do so, is because of a political reason, because you know this is unpopular, and therefore, it serves your political interests to oppose GST.

Third, on the macro inflation risk and the practicalities on tackling profiteering, this is not something we talk about in theory, because we have had experience doing this, through repeated rounds of doing GST increases in previous years. And the Committee Against Profiteering, each time we stand it up, has proven to be effective, has proven to be able to effectively deter any businesses from profiteering and when we catch someone, we have been able to take very quick action.

So, we have confidence in doing these sorts of things, not because of theory, but because of practical experience gained from past rounds of GST increases.

Mr Speaker: Mr Leon Perera.

Mr Leon Perera: I would just like to ask the Deputy Prime Minister if he could respond to my third clarification on healthcare expenses and the urgency of introducing GST to meet healthcare expenditure in the next few years.

Mr Lawrence Wong: I forgot to talk about healthcare. I have already talked about the projections for healthcare in 2010. That is a projection that we are able to make on account of our ageing population. [Please refer to "Clarification by Deputy Prime Minister and Minister for Finance", Official Report, 7 November 2022, Vol 95, Issue No 73, Correction by Written Statement section.]

Because, remember, the elderly on a per capita spend basis incurs more healthcare spending than the young. Most of our healthcare spending is incurred when we get older, not when we are young.

Just the simple mathematics of it, as our population pyramid shifts to an older population, on that simple mathematics, healthcare spending must surely go up. That is why, we have good basis and good confidence to project in the longer term, where the trends are. The only way in which we can avoid that, is somehow magically, we have older folks spending less on healthcare. I do not know how that might even happen. I hope Healthier SG will pay some dividends but let us be realistic. Even if it helps to slow things down, I think the fact that older folks will incur more healthcare spending, I think that is not going to go away. So, the trend is very clear. The upslope is very clear.

The only other way to address this again, is, again, if we are honest, let us not spend so much for the elderly. And I am sure, no one in this House wants to take such a position. That structural increase is very clear, but on a year-to-year basis, next year, two years' time, how much more will healthcare spending go up, it is not so clear. Because there will be some lumpy investments, there may be a new hospital here; maybe for pandemic reasons, we need to enhance our infection controls.

So, these are nearer-term projections which may be slightly lumpy, a little bit more unpredictable. But the broader trend of increase is very clear and we have start preparing now for that increase.

6.50 pm

Mr Speaker: The question is, "That the Bill be now read a Second time". As many as are of that opinion, say "Aye".

Hon Members say "Aye".

Mr Speaker: To the contrary say "No". Leader of the Opposition.

Mr Pritam Singh: Thank you, Mr Speaker. The Workers' Party would like to record our dissent, please.

Mr Speaker: Let me state my opinion on collection of voices. I think the "Ayes" have it.

Would you like to call for a Division or would you like to record your dissent instead?

Mr Pritam Singh: Sir, recording dissent.

Mr Speaker: Would Members who wish to dissent, please rise to your feet.

Hon Members Mr Chua Kheng Wee Louis, Mr Gerald Giam Yean Song, Ms He Ting Ru, Assoc Prof Jamus Jerome Lim, Ms Sylvia Lim, Mr Muhamad Faisal Bin Abdul Manap, Mr Leon Perera, Mr Pritam Singh, Mr Dennis Tan Lip Fong, Ms Hazel Poa and Mr Leong Mun Wai rose in their place for their dissent to be recorded.

Mr Speaker: Thank you. Would any Members like to abstain? None.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mr Lawrence Wong].

Bill considered in Committee; reported without amendment; read a Third time and passed.