FEBRUARY 25 — The government announced its latest Budget last week.
Now, as ever, the public wasn’t exactly gripped by the various targets, forecasts and figures that make up the Budget even though on some level we know that more than any other act of government policy, this is what most directly impacts all our lives.
This year, however, Finance Minister (and PAP fourth generation heavyweight) Heng Swee Keat added some theatre to the normally staid affair by making a prophecy;
“The goods and services tax (GST) will be raised from 7 per cent to 9 per cent sometime in the future from 2021 to 2025,” he said.
Now when the Finance Minister makes this kind of prophecy there is a very good chance it will come true.
Though like any good wizard/soothsayer, he left some unsettling uncertainly — exactly when between 2021-2025 will this horror descend on us?
And much more importantly, why?
This is bound to be a very unpopular announcement; no one likes more taxes and with elections due in 2021, why risk going into an election with looming tax increases?
I suppose the populace and business community will — on some level — appreciate the advance notice but on a deeper level, why move to increase revenue at all?
Singapore is not remotely cash-strapped. Quite the opposite; our government sits on considerable cash reserves in the form of reserves and sovereign wealth funds.
GIC, Temasek and The Monetary Authority of Singapore hold at least US$700 billion (RM2,742 billion) between them and quite possibly more than that.
Given the number of Singapore citizens remains under 3.5 million, that’s something like US$200,000 for each of us!
On top of that, last year the Budget returned a surplus of S$9 billion (RM26.7 billion) ie. government revenue exceeded its spending by a quite a large sum.
So if the government is spending less than it receives why move to raise taxes?
Well, the authorities do have a logic. They argue that Singapore should not rely on its reserves to finance regular expenditure.
Currently the government uses 50 per cent of the interest/investment value it receives from its cash piles to finance spending (that is on top of standard tax revenue). The remaining 50 per cent is reinvested — allowing the funds to keep growing in size.
The argument is these large and growing reserves provide vital stability — giving the government the financial muscle to withstand any potential future crises.
The government also argues that as our population ages, government spending will have to increase.
With more people expecting healthcare and livelihood support, raising tax collections is simply preparing for the inevitable.
These are valid points but I still wonder if a GST increase is the solution?
GST in particular is a blunt instrument as a tax on all goods and services affects the poor as much as the extremely wealthy.
There are alternatives. Donald Low, associate dean at the Lee Kuan Yew School of Public Policy, argued that the government could meet the challenges of an ageing population by simply reinvesting a higher proportion of the returns from government funds; 60 per cent instead of the current 50 for example.
The government, however, argues that the nation is already too dependent on income from reserves.
While debate over the interest earned from our national billions might seem abstract and academic, it is extremely important.
These cash piles are literally our nation’s greatest asset and we must ask ourselves what do they exist for? To ease the government’s long term financial management? To enrich Singaporeans today? Or to secure the future for coming generations of Singaporeans?
Obviously the answer is a balance of priorities — but the question remains: Why be so frugal when large reserves and a small population is a ground reality?
I mean we aren’t asking for Ferraris (though the nations current asset pile would, in theory, be more or less sufficient for one Ferrari for every citizen) we just don’t want to pay more GST. Is that too much to ask?
* This is the personal opinion of the columnist.
