While the goods and services tax (GST) rate will remain at 7 per cent next year, the increase cannot be deferred indefinitely as the revenues are needed to support Singapore’s spending needs to secure its long-term future, Deputy Prime Minister Heng Swee Keat said yesterday.

“We will continue to study the timing of increasing the GST rate carefully, taking into account the pace of our economic recovery, our revenue outlook and how much spending we can defer to later years, without jeopardising our long-term needs,” he told Parliament in rounding up the debate on the Government’s Covid-19 strategy.

Mr Heng said GST collections this year are projected to be down by 14 per cent from initial estimates before the start of the year, mainly due to travel disruptions and the impact of the circuit breaker period.

Collection of GST is also expected to stay lower than usual for a few more years until international travel recovers fully, he added.

In February, Mr Heng, who is also Coordinating Minister for Economic Policies and Finance Minister, had announced that the GST rate will remain at 7 per cent next year.

Yesterday, he assured Ms Foo Mee Har (West Coast GRC) that a $6 billion Assurance Package for GST has been set aside to help Singaporeans when the rate is eventually raised.

Ms Foo had earlier raised concerns about the impending GST hike amid the gloomy economic environment. Mr Heng said the Assurance Package will offset the GST increase for five years for most households, and 10 years for those living in one-to three-room flats.

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Noting that over 60 per cent of GST collected from individuals and households comes from foreigners residing here, tourists and the top 20 per cent of households, Mr Heng said shelving the GST rate increase indefinitely – as Non-Constituency MP Leong Mun Wai had suggested – means forgoing the additional revenue from these groups that can be used to improve the lives of Singaporeans.

In response to a question by Mr Liang Eng Hwa (Bukit Panjang) on how the Government would balance its Budget with the revenue situation remaining weak, Mr Heng said that revenues in the medium term are expected to be subdued and uncertain for two reasons.

One is that global economic growth will likely remain weakened for several years, and the other is that the global competition for tax revenues can be expected to intensify, he said.

Even with these challenges, Singapore cannot lose sight of its goal to secure its long-term needs, such as those of public healthcare and pre-school education, he said.

The Government is studying how to strengthen its fiscal toolkit, Mr Heng said, and had been looking at borrowing for major long-term infrastructure even before Covid-19 struck. But its approach will be principled and prudent, he emphasised.

“We will borrow only for infrastructure that benefits multiple generations, and ensure that our debt level and future repayments are sustainable… We will not borrow just to make up for revenue shortfalls or be opportunistic in timing the market.”

However, for recurrent spending like healthcare and education that benefits the current generation, the responsible way is to pay for them using recurrent revenues like taxes. “This discipline ensures that every generation earns and pays its share,” he stressed.

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In his speech, Mr Heng also touched on how the latest round of Covid-19 support measures he announced in August is being funded entirely from budget reallocation.

Addressing questions from MPs such as Mr Murali Pillai (Bukit Batok) and Mr Xie Yao Quan (Jurong GRC) on whether the Government was extending the time horizon or cutting back overall investment on key infrastructural projects, Mr Heng said the Government did an extensive scan to identify deferments or reductions in spending.

Some expenditures, such as those for MRT lines, Housing Board upgrading, and sewerage and drainage works, were deferred as a result of delays arising from the circuit breaker and the reopening of the construction sector after that. Other expenditures were lower than earlier projected due to Covid-19 and safe distancing measures.

“However, most of these are not savings but delayed spending, which will still be incurred in future years,” he said. “These projects are needed to raise Singaporeans’ standard of living and our economic development. We will push ahead when the conditions allow.”

Major infrastructure projects are already being reviewed to account for the longer-term impact of Covid-19, said Mr Heng. An example is how the construction of Changi Airport Terminal 5 has been put on hold for two years.

There could be further deferments or reductions in scale if travel demand takes longer to recover, said Mr Heng.

Conversely, the need to build in more resilience and safety features could also raise project costs.



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