02 March 2011

Lowering GST Rate to Help Lower-Income Families

During the budget debate in Parliament on 28 February 2011, Member of Parliament Low Thia Khiang (The Workers' Party) said that the more should be done to tackle inflation from every possible angle.

As Goods and Services Tax ("GST") was at the centre of everything the people consumed, he reiterated The Workers' Party's call for the government to reduce the GST rate by 2 percentage points from the current 7 per cent and waive GST on basic necessities.  Both would benefit all sectors of society.

Lowering the GST rate by 2 percentage points would reduce the receipts for FY2011 by an estimated $2.4 billion, or $0.85 billion if the one-off "election-year" Growth Dividend of $1.55 billion was ignored.  A balanced budget could still be achieved by trimming the budgets of some bloated ministries, a possible increase in consumption stimulated by a lower GST rate, and the expected increase in tourist receipts from the fully operational integrated resorts.

Mr Low said that there was a need for a concerted effort to address the rising cost of living at the fundamental level, which was to control the price increase of essential items like food, transportation, education and health care.  Rebates and subsidies could only ease the people's hardship in the interim.

People's Action Party Members of Parliament Khoo Tsai Kee and Christopher De Souza responded by pointing out that the revenue collected from GST has been redistributed by the Government to benefit those in the lower income through programmes such as ComCare and the Public Assistance Scheme.

Mr Khoo said that the government's policies were designed to protect the lower-income group.  If the government lowered GST, those who would benefit were the rich Singaporeans.  As such, The Workers' Party was not defending the lower-income group but the higher-income group.

Mr de Souza pointed out that it was not the first time that The Workers' Party had raised issues with the GST.  They were old issues, and had been ventilated, discussed, voted on and implemented for the benefit of Singaporeans.

Lowering the GST rate and waiving GST on basic necessities benefit everyone, not just the rich.  Although rich families consume more than the lower-income families and therefore will benefit more in dollar terms, the rich consume a smaller percentage of their income than the lower-income, and therefore the impact of any reduction in GST will be more significant and more meaningful to the lower-income.

Furthermore, there is a limit to how much more of basic necessities such as rice, sugar, and milk powder the rich can consume if GST is waived on such items.  The lower-income families may be able to consume more, inasmuch as they may not be able to afford to do so now.

Technology has come a long way since GST was first introduced in 1994, and it should not be too difficult to consider different GST rates for different classes of goods and services.

As for The Workers' Party's having raised the subject of lowering GST and waiving GST on basic necessities previously, it is perhaps time that the government seriously considered the suggestion.

It is not clear why Mr Khoo claimed that revenue collected from GST has been been redistributed by the government to benefit those in the lower income through social welfare programmes.  The government's stand has always been that all receipts by the state are credited to the consolidated revenue account to meet outlays by the state.  Receipts from one source are commingled with, and indistinguishable from, receipts from another source once they have been credited to the consolidated revenue account, and no receipts from any source are earmarked to meet any specific outlay.  Therefore, one cannot claim that GST revenue has been redistributed to the lower-income group.  Furthermore, the government does not need to rely on GST revenue to assist the lower-income group inasmuch as it has sizable budget surpluses in most years.

Finally, the estimated basic budget deficit of $2.2 billion and overall budget surplus of $0.1 billion for FY2011 (without taking into account Mr Low's suggestion) were arrived at after putting back into past reserves $4.0 billion that was drawn down for the Resilience Package (comprising the Jobs Credit Scheme and the Special Risk Sharing Initiative) in FY2009, and after giving out the $1.55 billion Growth Dividends.  Although few people would argue against putting back into reserves what was taken out, the ability to do so is evidence of the underlying strength of the economy.

Notes.  "Bread-and-Butter Issues in the Spotlight: Housing, Foreign Workers, Income Gap Dominate Budget Debate" TODAY (1 Mar 2011).