Raising the GST to 9%: Should Singaporean Seniors Support this Move?

If you listen to the budget speech, seniors are of course looking for the “goodies” that was promised by the Prime Minister a few months back such as the Merdeka Generation Package(MGP). All the social spending, including defense, education, health care and social support expenditures, need to be paid for by the government without raiding Singapore’s hard-earned reserves. To maintain a “balanced budget” and still pursue a policy of social spending that is much need in Singapore’s ageing population, the government of the day needs to increase tax revenue as it spends. Sometime between 2021 to 2024, the government plans to raise the GST from 7% to 9%. On the surface, it looks bad for seniors — but when we look deeper, I believe seniors should welcome this move. Here’s why.

  • Spending for social services to help seniors, especially those without enough savings to live on, will increase sharply by 2030 — where 1 in 4 will be over 65 years-old and we are expected to live past 83. We already have the Pioneer Generation Package and is now launching the Merdeka Generation Package to take care of the generation of Singaporeans that laid the foundation for today’s First World Singapore but could not save enough for their old age. In the past, their salary was just a small fraction of what it is today. If there is not enough tax collected, there isn’t enough to spend to address Singapore’s ageing population. In principle, Singapore needs to collect more tax revenue to account for the anticipated increase in expenditure especially in health care. But is this the best way?
  • While some argue that GST hurts the poor more than the rich because it is a regressive tax, ie. the poor pay a larger percentage of their income, it is only true on the surface. The way to make the tax fair is to reallocate the tax revenue with direct transfers to the lower income segment of the population – including many seniors. In Singapore, because of our efficient CPF and HDB databases, we have a cost-effective and quick way to do this. Every year, billions of dollars are transferred directly to the lower income households through GST rebates, credits for conservancy charges in their HDB flats, top-ups in Medisave, Edusave and Retirement Account and other forms of direct subsidies including cash. Statistics show that lower income households have overall “negative tax” in Singapore – and this is important as seniors are increasingly the beneficiary. If the government continues to use direct transfers and subsidies to help the lower income, an increase of GST to 9% will allow the government to help even more.
  • Based on Wikipedia, data from 2010 shows that most of the GST paid was collected from foreigners and top 40% of Singaporean households – the bottom 20% only accounted for 4% of all GST paid. That is not surprising because foreigners that visit and live in Singapore consume many of the goods and services that keeps our economy going – and it is also logical to assume that the higher income group consumes more and are therefore pay more GST. Raising the GST to 9% will similarly tax the higher income and foreigners more.

In general, I am never an advocate for higher taxes and Singapore has the option to tap on its massive reserves to fund the looming ageing crisis over the next decade – and not increase the GST. I do not support that because Singapore will one day need the reserves to meet a true and unexpected emergency to defend Singapore. Borrowing will just pass the buck to future generations. We have time to plan for our demographic challenges now and we should do it through sound strategic financial planning including the right tax regime and not take the easy way out.

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