SINGAPORE: The Goods and Services Tax will be increased to 7 percent from 5 percent presently.
This was announced by Prime Minister Lee Hsien Loong in Parliament on Monday.
However, when the rise will be implemented, will be decided later.
Speaking in Malay, Mandarin and English, Mr Lee explained that the hike was necessary to finance the enhanced social safety nets, needed to help the lower income group and he emphasised that the offset package would more than counter the rise in GST.
First of all I must categorically state that I am not against the GST hike (although I can't say the same for all other recent fare hikes). The 'A' Level Economics student in me recognises the rationale for shifting towards a greater emphasis on collecting revenue from indirect taxes, mainly the GST. We know the income gap is widening due to the double-edged sword that is globalisation and I believe the government when they say they are trying to narrow the gap. I am also without a doubt that the latest tax reforms will benefit our economy in the long run.
What I do not like, however, is the way this GST increase was explained to us. Notice how PM Lee's speech was skewed to make it seem like the main objective of the hike was "to help the lower income groups and the elderly". Now indirect taxation is regressive in nature, therefore increasing GST in itself serves no purpose in redistributing wealth in favour of the poor except doing the opposite. Lee obviously knows that, and stressed that an 'offset package" would be introduced and that it would more than counter the higher cost of living. But wait, if your aim is primarily to help the poor and the old, why make things so complicated? One would not need the package if he has not been burdened with heavier taxes to begin with.
I would think that the main reasons for this move are far less politically palatable. One, to compensate for the loss in government revenue as a result of cutting direct taxes, say corporate taxes, to build a competitive tax regime that is attractive to investment and talent. At the same time, it makes things easier for them as collection of GST is a lot easier compared to direct taxes [insert regurgitation of Econs notes]. The government will also not have to worry about tax evasion and tax avoidance because [inset more regurgitation].
Sadly, these reasons are intentionally disguised by very "NE" statements we are seeing on the papers and hearing on the news. Oh well, since when is the local media reliable when it comes to politically sensitive topics anyway? But that's a different post for a different day. Here I must emphasise again that I do not have any problems with the policy nor do I feel the poor are going to be worse off due to the GST rise. I know the GST has to go up and that is the right way to go, but I get turned off when the hike is justified almost entirely on grounds of solving the widening rich-poor gap to sound morally appealing and to effectively douse complaints about living costs from the masses. I would say, be more frank and open.
While we wait for the details come next year February, I guess I will have to learn the meaning of austerity from now on.
