Opposition Leader Calls for Alternative Revenue Streams Instead
In Parliament on Monday (Feb 28), Leader of the Opposition Pritam Singh expressed the Workers’ Party’s opposition to the planned Goods and Services Tax (GST) hike, stating that they would contest Budget 2022. Several WP MPs, including He Ting Ru, Louis Chua, and Jamus Lim, who is an associate professor of economics at ESSEC Business School, proposed alternatives to the GST increase announced by Finance Minister Lawrence Wong, set to take effect on Jan 1, 2023.
Prof Lim has previously voiced his concerns about the GST hike, warning in January that it could ‘shock’ the economy. During the 2020 General Election campaign, he described a GST increase as a form of contractionary fiscal policy.
In his speech, Prof Lim argued that raising the GST could jeopardize Singapore’s fragile post-COVID-19 recovery, which is just beginning to take shape. He cautioned that such a move could backfire, referring to it as “scoring an own goal,” and suggested alternative revenue streams that could bolster Singapore’s finances without resorting to the GST hike.
Using Japan as a cautionary example, he highlighted how the country’s GDP “collapsed” following consumption tax increases in 1997 and 2014, leading to recession and rising inflation rates during those periods. While Singapore did not experience a recession after the GST hike in 2007, Prof Lim noted that economic growth in the following year plummeted to just 1.1 percent, down from 7.8 percent the previous year. He emphasized that the current global economic situation is even more precarious than it was at that time.
He further argued that the timing of the GST hike is particularly unfortunate, as it could exacerbate already elevated inflation. With uncertainty surrounding future inflation rates, he urged the Government to reconsider the planned increase, especially given the ongoing economic instability.
In his speech, Prof Lim proposed several alternatives to the GST hike, which the Government has justified as necessary due to rising healthcare costs associated with an ageing population. He suggested increasing corporate taxes in line with the Base Erosion and Profit Shifting initiative (BEPS 2.0), which aims to impose a minimum effective corporate tax rate of 15 percent globally. This change could yield approximately $3.45 billion, while allowing the effective rate for small and medium-sized enterprises (SMEs) to remain unchanged.
Additionally, he proposed implementing wealth taxes that could generate another $3.7 billion, as well as higher taxes on gambling, alcohol, tobacco, and carbon emissions, which could collectively bring in an estimated $3.65 billion. In contrast, the expected revenue from the GST hike is around $3.66 billion.
Prof Lim concluded that Singapore can opt not to raise the GST by adjusting other available levers, suggesting a combination of the proposed measures to create an acceptable revenue mix. His full speech can be viewed here.
