Government says it needs revenue boost to pay for ageing population
SINGAPORE — Singapore is expected to raise goods and services tax for the first time in more than a decade sometime in the fiscal year starting in April, say economists.
Francis Tan, an economist at United Overseas Bank, sees the government hiking GST to 8%, from the current 7%. He expects another hike to 9% next year.
Citigroup’s Kit Wei Zheng also sees the likelihood of a 1 or 2 percentage point increase in GST. “We can’t preclude the probability (the government) may use the recent growth rebound to pursue counter-cyclical fiscal policy via GST hike.”
The government is expected to make the announcement Monday as part of its 2018 budget for the year starting April 1. Singapore is well-known for its low-tax regime that helped its transformation from a small port to a major financial center. But faced with an ageing population and structural growth issues, the government has to consider various options to raise revenue.
One of the areas in which the government wants the money to go into is to help pay for rising healthcare costs as a result of the ageing population. This is a delicate matter for the ruling party, which has to weigh elderly care against a potential voter backlash, with general elections due to be held by January 2021.
“Being in the middle of the electoral term, the GST hike is more likely to be implemented early rather than near the end of the term,” said UOB’s Tan.
How and when to raise taxes has been a heated topic for the past year in Singapore, but ministers had hinted at an increase. “Looking ahead, healthcare expenditure will obviously increase,” Senior Minister of State for Finance Indranee Rajah said late January, according to a report by local newspaper Straits Times. “We do have to look at the question of raising taxes.”
In November, Prime Minister Lee Hsien Loong noted the need for a tax hike during an annual convention held by his People’s Action Party. “For this current term of government, we have enough revenue,” Lee said. “But our spending needs will grow.”
The United Nations estimates that the population of those 65 and older will rise to 23.2% in 2030, from the current 13%. Government health care spending for the current fiscal year to end-March is expected to rise to 10.7 billion Singapore dollars ($8.1 billion), almost triple the S$3.7 billion it actually spent in fiscal 2010.
The big increase in spending has created an estimated primary deficit of S$5.62 billion for the current fiscal year, a figure that has ballooned to about twice that of fiscal 2016 when it was just S$2.72 billion, the government said.