SINGAPORE • Singapore Finance Minister Heng Swee Keat announced a range of tax increases in his budget, including a two percentage-point hike in the goods and services levy, to prepare for fiscal pressures that will come with a rapidly aging population.
The government plans to raise the Goods and Services Tax (GST) to 9% from 7% sometime from 2021 to 2025, Heng said in his budget speech in Parliament yesterday. He also set a carbon tax of S$5 (RM14.80) a tonne, and will impose alevy on imported services, like online video and music streaming websites.
“There is a need to strengthen our fiscal footing,” Heng said. “In the next decade, between 2021 to 2030, if we do not take measures early, we will not have enough revenues to meet our growing needs.”
Policymakers had warned of higher taxes to balance a budget that they see as too reliant on investment returns, and that will see new strains in the years to come. Spending on health and retirement benefits are set to grow over the years as the elderly population climbs, while the government is also planning on higher expenditure for infrastructure, security and education.
The hike in GST is estimated to boost revenue by almost 0.7% of gross domesti product a year. Heng said the timing of the increase will depend on the state of the economy, how much expenditures grow and how buoyant the existing taxes are, but added that he expects “we will need to do so earlier rather than later in the period”.
“The GST increase is necessary because even after exploring various options to manage our future expenditures through prudent spending, saving and borrowing for infrastructure, there is still a gap,” the minister said. “This boost in revenues will be vital in closing this gap.”
The budget includes planned offsets to cushion the blow to lower-income consumers from higher taxes, while the delayed implementation of the tax increases will allow residents to ease into the changes.
Singapore is facing a severe aging crisis. The share of the population that’s 65 years and older is set this year to match those younger than 15 for the first time. The fertility rate remains half the global average, at 1.2 births per woman in 2015, according to World Bank data. And the government has maintained fairly strict immigration policies to ensure locals have enough job opportunities.
For now, Singapore’s economic outlook for 2018 remains bright. The boom in global trade last year that’s helped spur manufacturing, especially in semiconductors, is spreading to other sectors of the economy. The government sees growth at slightly above the middle of its forecast range of 1.5% to 3.5% this year, moderating from last year’s expansion of 3.6%.