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Commentary: Why the need to raise the GST now?

The regressive influence of the GST is offset by progressive earnings taxes and vital fiscal transfers together with WIS, Silver Support and the GST Voucher scheme. In reality, the enlargement of those transfers has elevated the total progressivity of the system over the previous twenty years.

CUSHIONING THE IMPACT, SEEKING PUBLIC BUY-IN

Still, there are considerations that the GST enhance will raise prices at a time when inflation is gathering tempo globally. Prices here are rising in tandem with the value of oil, meals and uncooked supplies; the Government tasks a core inflation fee of 1 to 2 per cent this yr, greater than in the previous two years.

The S$6 billion Assurance Package, introduced in Budget 2020, will offset the influence of a better GST by 5 years for many Singaporeans and by 10 years for the lower-income group. In designing this help, the Government might search to deal with near-term value pressures as well as to the influence of the GST enhance.

Besides addressing prices, two different elements are important to public buy-in for the GST hike. First, the Government should be seen to be exercising prudence in public expenditure — whether or not in infrastructure growth, financial programmes or social spending. Otherwise, proof of wastage or extravagance would weaken the case for elevating GST.

Second, the total fiscal system should stay equitable, with the better-off contributing their justifiable share of taxes. To this finish, the Government might want to think about strengthening the progressivity of asset taxes additional or introducing new types of wealth taxes sooner or later.

However, there are limits to how a lot extra income such taxation might web with out jeopardising Singapore’s attractiveness as a enterprise and wealth hub.

A GST enhance is rarely a straightforward promote. It will trigger some unhappiness, however this long-awaited transfer is a part of the broader effort to assist shore up Singapore’s revenues, giving the nation the wherewithal to deal with the challenges that lie forward.

Terence Ho is Associate Professor in Practice at the Lee Kuan Yew School of Public Policy. He is the writer of Refreshing the Singapore System: Recalibrating Socio-Economic Policy for the twenty first Century (World Scientific, 2021).

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