Your Views: Calling all Singaporeans for more suggestions on the proposed GST hike and more help for the needy

The Prime Minister announced in Parliament on 13 November that the Goods and Services Tax (GST) may be increased to 7 percent, up from 5 percent presently. Mr Lee said the hike is necessary to finance the enhanced social safety nets, which are needed to help the lower income group.

There are plans to increase the grant to the needy to buy their first home, as well as to give them more "workfare" bonuses as an incentive to stay employed, and it will come with a package which will more than offset its impact on the poor.

Since May, there has been increases in chronological order, electricity, taxi fares, electronic road pricing (ERP), food and beverage prices due to the higher rentals of upgraded food centres, university fees, development charge for non-landed residential sites, bus and MRT fares, HDB 1-room and 2-room rentals, etc.

GST is a regressive tax because it generally affects the lower-income more than the higher-income. As income tax rates have been reduced gradually since the introduction of GST, the higher-income has also in a sense benefited more on a relative basis.

Instead of just increasing GST, I would like to suggest that we explore the possibility of taxing the higher-income more, as well as other cost-cutting measures like reducing the number of scholarships for foreigners. We could also consider waiving GST for basic necessities like food, utilities, public transport, medical fees, etc, like some other countries.

Past experience indicates that most businesses may just pass on the GST increase to consumers, often times disproportionately more than the actual increase.
"A package which will more than offset its impact on the poor" may lead to those who are marginally above the poverty level to be in a way "squeezed more" in relative terms.

Our experience with the New Singapore Shares (NSS), Economic Restructuring Shares (ERS), etc, has shown us that there may be leakages in the system in that tens of thousands may not get the help that was designed to help them most, because they failed to register by the datelines imposed.

Increasing GST may also affect Singapore's competitiveness internationally, as our current costs are already much higher that our neighbouring countries.

I suggest that a comprehensive study and review be conducted to examine the extent to which GST and its increases, may have contributed to the widening income gap. In so doing, we may avoid the fine balance of increasing the probable cause of the problem which we are trying to address, which may further aggravate the problem.

This is reflected in the Department of Statistics' (DOS) General Household Survey 2005 (GHS) that about 40 per cent of households had declining incomes (inclusive of the bottom 10 per cent of households which had no income from work, presumably most of which are retiree households) after adjusting for inflation from 2000 to 2005, and the DOS Household Expenditure Survey 2003's (HES) data that about 40 per cent of households had a deficit in their monthly income-expenditure.

We could also try to explore other resources that Singapore has to help the poor, such as our US$132 (S$205) billion foreign reserves which has been ranked number one in the world on a per capita basis. According to the International Monetary Fund (IMF) World Economic Outlook Database September 2006, Singapore is ranked number one in the world for current account balance in percent of Gross Domestic Product (GDP) ratio. Singapore's ratio of 28.5 in 2006, is more than double the second ranked country, Switzerland's ratio of 13.3.

I believe the additional revenue from the two per cent GST increase is estimated to be less than $2 billion. This year, Temasek's paper losses in Shin Corp is already estimated to be over $1 billion and SingTel's SingTel Optus estimated expected write-down is about $8 billion. We could try to re-examine how our Government-linked Companies (GLCs) invest, particularly overseas, with a view to learning from the experience and the lessons, so that in future,we do not in just one year, have a paper loss that may be more than four times the annual increase in revenue from the GST increase.

The Government Investment Corporation (GIC) had returns of 8.2 per cent per annum for the last 25 years, and Temasek had returns of 18 per cent per annum for the last 32 years. With about $205 billion of foreign reserves, if just one per cent of the GIC and temasek's average annual returns is used to help the needy, there may be no need to increase GST, or a lower increase.

As to "plans to increase the grant to the needy to buy their first home", the lower-income may generally have a higher probability of encountering financial difficulty at some point in a typical 30-year mortgage, and thus risk losing their homes and CPF.

Some of the measures to help the needy, may unintentionally end up creating other problems for them.

Leong Sze Hian