SPEECH ON THE SECOND READING OF THE GST (AMENDMENT) BILL
In my speech on the occasion of the 2nd reading of the GST (Amendment) Bill, I conducted a review of our Government’s GST policy from 1993 to date. I pointed out that, contrary to predictions then that GST would affect the poor amongst us and increase inflation, this was not the case. In fact, we were able to generate more revenue for social spending and help uplift the lives of many low-income households. I also dealt with what is meant by “political courage”, a point raised by my honourable friends across the aisle in an article they published recently.
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Mr Murali Pillai (Bukit Batok): Mr Speaker, Sir, for the Second Reading of this Bill, we are in a unique situation. This is because the principal issue that arises for consideration in this Bill, that is, the GST hike, has already been discussed not just during this year’s annual Budget debate, but in the speeches made since 2018, after the Government’s decision to increase GST was announced.
This long foreshadowing has already led to the Workers’ Party (WP) deciding to vote against the GST increase. Voting, however, is a blunt knife. It does not cut well because there are, in fact, points of consensus between hon Members of the PAP and WP on several important things.
As stated by my Parliamentary colleague, Mr Liang Eng Hwa, broadly, both parties agreed to higher levels of social spending for the future and acknowledged the need to raise revenue to meet the expenditure; especially against the spectre of an economy that is likely to grow more slowly.
Where we come apart, clearly, is whether GST should, and can be, a source of revenue. Globally, such value added taxes have been used at higher rates than Singapore — Sweden at 25%, UK at 20% and Japan at 10%.
Mr Speaker, Sir, no political party in this House has a monopoly on care and concern for the welfare of Singaporeans, especially the low- and middle-income groups, the sandwich class, the elderly who need heavily subsidised healthcare, as well as the young Singaporeans who need to see a future and opportunities in Singapore.
But how to get there? That is the nub. And, in this, we appearing to be arguing from exact opposite sides of each other. So, how is it that two parties, which are aligned on all the main objectives, can be so far apart in the assessment of whether or not a GST hike is the proper thing to do for our people?
Let me try and answer this by offering a historical perspective. In 1993, the GST Bill was introduced in this House. Then, as now, it was an unpopular move. Then, as now, there were good reasons to do so — we needed to strengthen our tax base to ensure that our tax structure was resilient and promote enterprise and growth.
In 1993, direct taxes made up about 60% of our tax revenue, of which 73% was income and corporate tax. Introducing a consumption tax would keep Singapore competitive and also allow us a stable and diversified stream of tax revenues and allow us to invest more heavily in growth. The WP raised strenuous objections to its passing.
The hon Member then, Mr Low Thia Khiang, in his speech, felt that there was no basis to suggest that high income and corporate taxes had the effect of driving talent and entrepreneurism away. He was concerned about the regressive nature of the tax, especially on low-income people.
The PAP’s response was to recognise the possible shortcomings and work in policy fixes, such as GST offsets for low-income households. GST was introduced on 1 April 1994 and what happened thereafter? Historically, the rate of corporate and personal income taxes was at 40% before 1985; this came down to 33% after the recession in 1985. After GST was enacted, it came down further, to 28%, now it is up to 24% for personal income tax and 17% for corporate tax.
In fact, the majority of Singaporeans do not pay income tax. In the meantime, our Government grew our economy by leaps and bounds. We attracted investments and talent, we had Government transfers to our people, median salaries increased.
In other words, whatever the hon Ministers then, Dr Richard Hu and Mr S Dhanabalan, said on behalf of the Government on that occasion in 1993 would happen, happened. Our tax rates went down, our tax revenues did not. Our social spending went up — benefiting the poorest amongst us the most. The doomsday prediction that the poor and the lower-income people would be left behind did not materialise.
On the issue of timing, it should be borne in mind that, in 1993, there were strong economic growth and budgetary surpluses. It could have been argued that there was no pressing need to pass the GST Act. But when you cast your eyes into the long-term, your perspective changes. In 1993, when our economy was strong and our people were young, it was already felt that GST was needed for the long term. Today, when we are older and the economy is struggling, it turns out that our 1993 decision was correct.
I then fast forward to 2003. Those were tough times, more like 2022. Then, we were recovering from the Asian Financial Crisis of 1997 and the recession in 2001. We also had SARS. Our fiscal situation was very tight, the Singapore economy was struggling, revenue needed to be increased to fund expenses.
The Government decided to stagger the GST increase much like this time; 1% in 2003 and 1% in 2004. Then, like now, some voices had suggested to defer, but that will heighten the risk of leaving the Government with insufficient funds for healthcare, education and defence. Singapore would then be in a structural deficit. In a small open economy, this would have had serious consequences for our exchange rate, for the stability of the Singapore dollar.
If we continually run a deficit, the Singapore dollar would go down, inflation up and everything in Singapore, including our CPF savings, would be worthless. Therefore, we decided to do the difficult thing and proceed.
Again, the WP was against it. Mr Low Thia Khiang argued for the increase of the Net Investment Income (NII) ceiling, not unlike what the WP is asking for now. He also suggested an increase in property tax and sin taxes, too. He was, again, concerned about the impact of GST on inflation.
Deputy Prime Minister Lee Hsien Loong, as he then was, explained why we were unable to avoid a GST hike, much like how Deputy Prime Minister Lawrence Wong explained during the Budget debate this year. What happened after that? In 2002, we dreamt big. The Budget, which included raising of the GST, also contained the new thinking of the Economic Review Committee (ERC), which brought about fundamental changes to our economic policies.
It aimed to develop a vibrant sector driven by entrepreneurial energies, fuelled by regional and global competition, all seeking the best return on their ideas. It aimed to attract more global talent, even as we improved and nurtured our own people. It wanted to make our economy more resilient and dynamic through investing in human capital.
But one thing remained the same as in 1993 — the Government saw its role as creating a pro-business, stable environment for the market to operate. Part of this requires the implementation of sound fiscal and monetary policies. As a result of the GST hike, we kept fiscal discipline, turned in positive economic growth and improved the livelihoods of Singaporeans.
I now come to 2007. That year, Deputy Prime Minister Tharman Shanmugaratnam, as he then was, announced the GST hike to 7%. At that point, there, too, were questions about the need to reduce direct taxes, the landscape was even more competitive. Everyone was waiting to grab our lunch. Taxes, then, had to be reduced. He announced the decision to tweak the NII, which was something Mr Low Thia Khiang advocated, to what it is today.
Mr Low Thia Khiang and Ms Sylvia Lim argued against the GST hike and suggested instead that the Government use even more NII, get revenue from land sales, corporate tax, stamp duties and so on, much like what is being sought today.
Senior Minister Tharman Shanmugaratnam demurred. He pointed out that it was dangerous to rely on sentiment-driven transactions for Budget purposes and he said, and I quote: “We have no idea whether these improvements would be sustainable and it would be very poor fiscal policy to commit to future expenditure in the hope that short-term spikes in revenue would be sustained” — exactly as what Deputy Prime Minister Lawrence Wong said this year.
When Mr Low Thia Khiang and Ms Sylvia Lim suggested that GST should only be considered after we have run out of revenue streams, Senior Minister Tharman stated, and I quote: “This is not the way a responsible Government conducts its fiscal policies”.
As hon Member Ms Jessica Tan just said, it is dangerous for the Government to start scrambling to plug revenue gaps when there is an urgent need to do so.
So, what has happened since 2007? We had a recession in 2008 due to the Global Financial Crisis. Core inflation, at its highest, was at 6.5%. But we powered through with the GST hike and helped Singaporeans affected by inflation. We focused on creating a more inclusive Singapore with heavy investments in our people, especially the vulnerable, with programmes, such as KidStart, WIS, Silver Support Schemes and so on. We recovered from the recession quickly.
In 2012, the GST Voucher scheme was made permanent. This hardwired the GST to a larger redistributive regime and it is fair and progressive. Today, our economic landscape has been transformed through ITMs. We achieved a remarkable rise in GDP per capita with a larger private sector and a high-value workforce.
But more importantly, quoting Senior Minister Tharman Shanmugaratnam in his speech delivered on 14 August 2015 to the Economic Society of Singapore, he said, and I quote: “We achieved broad-based social upliftment, jobs for all, rising incomes for all, homes for all, quality schools and public healthcare for all, and neighbourhoods and parks shared by all”.
It is not my intention to create a rosy picture of the past. The Government is not perfect. But by and large, the doomsday predictions of the poor becoming poorer owing to GST hikes simply did not happen.
Returning to 2022, actually, set against the historical context, there is nothing significantly new in what the WP has suggested for this House’s consideration. This leads me to a paragraph in the Hammer article co-written by the hon Members Assoc Prof Jamus Lim and Mr Leon Perera entitled “Why the GST Hike is Not Necessary” that was published on 1 July 2022.
They said, and I quote: “Political courage means recognising that the facts and assumptions that supported an earlier decision have changed… Political courage means being able to recognise that contrary arguments have merit, even though those arguments come from one’s political opponents. Political courage means not opposing for the sake of opposing.”
I have no trouble with the statements, but, surely, this applies both ways. History reveals that the WP has always been taking a conscientious objection to GST, regardless of the effects it has brought about. Assoc Prof Jamus Lim quoted about the Japanese experience of over 25 years to justify his proposition that GST will lead to runaway inflation.
I thought it was noteworthy that he did not analyse the Singapore experience instead. Rhetoric, for effect, seldom helps. Political courage commands a price, but mere talk of political courage is cheap.
I now come the crux of my decision. Objectively, what has happened in history favoured the PAP. What we are doing now, as a matter of approach, is no different. It is not just theory; it is almost 30 years of practice. It is clear to me that we will continue to have fiscal pressures. We will have to deal with it, failing which, we will pay a serious price. We also need to get the balance right, so as not to affect our attraction as a hub for talent and investments.
We just increased our personal income tax, property tax and vehicle tax. To be fair, this was something that the Workers’ Party has broadly advocated for. To further increase these tax bases will upset this balance.
I therefore support the increase in GST with the features and schemes addressed to help the less well-off. I also support the judgement call at this point not to deplete income from reserves through land sales and increasing the NIRC ceiling.
It is asked how much is enough when it comes to our reserves. No one knows and I join Mr Sitoh Yih Pin in expressing his view on the same matter. I remember this question came up in the last session of Parliament and I venture to suggest — think of the Indian Ocean tsunami. Nobody expected it to happen, but it happened, and we had to deal with it.
There could be a collapse of an Antartica ice shelf and we will have to deal with the ramifications of it. We may have to accelerate the polder construction. All these cost money.
The point is — no one knows — and if somebody says he knows, he is probably a snake oil salesman.
The 50–50 NIRC ratio is equitable because it balances current needs with future needs, putting it on an equal platform. Tilting it in favour of current needs is, I think, selling our children too short.
In building the Singapore of today, our founding fathers carried us on their shoulders. Through sheer grit and determination, they persevered even though at times, their knees were buckling and they could have easily given up. We should do the same thing for our children.
This is not to say current needs are unimportant. The Government is on record to say that no one will be left behind. For cost-of-living issues alone, $3.5 billion has been allocated for Singaporeans. This twin approach must carry on at the same time — fiscal responsibility with inclusivity.
To argue that Government should sequence its actions is to ignore the reality that our Government has to just develop the tentacles to deal with all the multiple existential issues happening at the same time to steer our country out of stormy waters. We have no choice. For this reason, I support the Bill.
Mr Speaker, Sir, I asked how is it that the PAP and the WP, which are aligned on many points relating to the need for tax revenues, can be so far apart in assessment of whether or not a GST hike is the proper thing to do for our people.
The answer lies partly in political principle and partly in a difference of political judgement.
On political principle, we part ways on many counts, but just on the point of political courage, the WP sees it as courageous for the PAP to accept good ideas from the WP.
The PAP does not. We see it as good sense. The PAP has pledged to do our best for Singaporeans and being in a small country, we must not care about the pedigree of ideas, merely about their quality. The Hansard is replete with illustrations where suggestions made across the aisle were accepted by the Government. One vivid example is WP’s call to level the playing field for accused persons in 2020, which led to the passing of the Public Defenders Act this year.
On the other hand, what we see as true political courage in the context of a GST hike, the WP dismisses as being unnecessary or bad timing.
We are not so naive as to think that the GST will gain us political favour. We know that it will be a tough pill. But yet, we still ask this of the Singaporean people. We ask this because there are hard, immovable economic and fiscal realities in public life that can be either sugarcoated beyond recognition or presented in their true form.
The PAP’s choice, from 1993 till 2022, has always been the latter. We do so as a matter of principle and also because of our deep and abiding faith in the Singaporean people to understand the need for these hard choices and why we have to make them. This is not mere theoretical conviction, but a judgement call born of years of experience in running the government and understanding the global marketplace.
We ask this at this difficult time because we truly believe that it will give us a fairer and more progressive way of financing our government and build a stronger foundation for our nation. That is political courage.