Hazel Poa Koon Koon

Alternatives to GST Hike

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Mr Speaker, Sir

There are many measures announced in this year’s Budget Statement that we welcome.  We welcome the further tightening of foreign manpower, the increased focus on redistribution through the introduction of higher income tax rates at the top tiers and higher taxes on property and luxury cars.  We think that more can be done, but are happy with the direction we are taking.

However, we object to the raising of GST.

Firstly, this is a bad time to be raising GST and we don’t need the revenue now.

Singaporeans are concerned about the rising cost of living. Additional worries are on the horizon over the inflation outlook.

The Federal Reserve Chairman and the European Central Bank President articulated their expectations of high inflation this year. 

Oil price rose by 50% in 2021.  The war in Ukraine is likely to worsen the picture.

According to Food and Agriculture Organisation, food prices rose by 28% in 2021.  In December 2021, fertilizer prices rose to more than double the price from a year ago.  This is expected to put further inflationary pressure on food prices.

Closer at home, MAS has revised their inflation expectations upwards. Bus, train and taxi fares have been raised.  Electricity tariff has been rising steadily every quarter since 1Q2021.

The GST hikes will further exacerbate inflationary pressure.

While for the time being, the rebates given out is more than the expected additional GST to be collected, it is only a matter of time before most Singaporeans have to pay more in GST, for that is the whole purpose of raising GST – to raise additional revenue.

The fact that the government is giving out rebates in excess of the expected additional GST to be collected over the next few years underlines the fact that we currently do not need the additional revenue now.

If raising GST is to fund the additional healthcare and other social spending in future, how much would we have to raise GST by?  The Finance Minister has shared that healthcare spending could increase from $11bn in 2019 to $27bn in 2030 based on current trend.  So does this mean that we would have to raise GST by 11% just to fund the additional healthcare spending? Are we looking at 18% to 20% GST by 2030?

This is an alarming prospect which brings us to our second point.  We need to look at other ways of raising revenue.

GST was introduced to enable Singapore to cut corporate income tax and personal income tax rates to make Singapore a more attractive investment destination.  GST started at 3% in 1994 and gradually increased to the current 7%.  Over the same period, corporate income tax rate was gradually cut from 27% to 17% and personal income tax rate was gradually cut from 30% to 20%, before being raised to 22% in 2016.  This tax development benefitted the rich more than the poor and middle class.

With the Base Erosion and Profit Shifting initiative, not only will we lose tax revenue, using low corporate tax as a tool to attract investment will also become less effective. 

It is therefore time to review our previous approach of raising GST to cut corporate and personal income taxes.  Income taxes are progressive while GST is regressive.  The pandemic has also worsened inequality by hitting the poor more than the rich.  

In light of new tax developments and the current environment, we should reverse our earlier moves.  Instead of raising GST for additional revenue, we should look at raising corporate and personal income taxes.

We are happy to note that the personal income tax rate for the highest tax brackets will be raised, but we believe there is room for more.

While our corporate tax rate is 17%, there are tax incentives that lower the effective tax rate of many companies.  Even if we were to raise our corporate tax rate to 20%, it would still be low compared to the region.

The pandemic has affected different sectors differently.  Some sectors suffered, others weathered it better, while some sectors actually benefitted from the pandemic.  Corporate tax is applied only on profitable companies and hence is a more discerning way of raising revenue.  Loss making companies will not be affected by an increase in corporate tax rate but some will be hit with increased cost due to a GST hike.

Moreover, many companies have benefitted from the generous Covid packages offered by the government, including companies that remained profitable throughout the pandemic.  It is only fair that they now pay a higher corporate tax.  This is simple give-and-take.

Next, I will talk about land sale proceeds.  Currently, land sale proceeds are not treated as revenue, but are put into reserves.  The government considers this just a change in the form of the asset – from land to money – not an income.  If the land is sold on a freehold basis –  once sold forever gone – then I would agree that this approach makes sense.  However, it would be a different matter if land is sold on a leasehold basis. 

The issue of using land sale proceeds as revenue is not new.  My colleague Mr Leong also mentioned this yesterday but we are aware of the Government’s long standing position on this matter.  Today, PSP would like to suggest an alternative way of treating land sale proceeds.

Currently, the Government typically sells industrial land on 20 or 30 year leases, and residential land on 99 year leases.  After the requisite number of years, the land returns to Government and it can be sold again.  The land sale proceeds is therefore more akin to rental income over the length of the lease.

In Budget 2018, Worker’s Party suggested that up to 20% of land sale proceeds be used as revenue.  Then, Finance Minister Heng said, with reference to land sold on 99-year lease, that “If you are rigorous about it, you really ought to be spending no more than 1% of that land sale proceeds”.  This statement, while true, paints an incomplete picture and is therefore misleading.  It does not address what happens over time.

With your permission, Mr Speaker, may I ask the Clerks to distribute a handout illustrating the revenue stream over time?

PSP proposes that land sale proceeds be taken as revenue over the period of the lease.  In other words, if a piece of land is sold on a 99-year lease, then the sale proceeds should be taken as revenue spread over 99 years.

Take for example industrial land sold on a 20-year lease. 

Suppose the sale proceeds were treated as revenue over 20 years, then each year, the revenue would be 5% of the sale proceeds for the next 20 years. In year 1, the revenue would be 5% of the sale proceeds in year 1.  In year 2, the revenue would be 5% of the sale proceeds in year 1 plus 5% of the sale proceeds in year 2.  In year 3, the revenue would be 5% of the sale proceeds in year 1 plus 5% of the sale proceeds in year 2 plus 5% of the sale proceeds in year 3. 

For the sake of simplicity in illustration, if we were to assume that land sale proceeds remain constant over the next 20 years, by year 20, the revenue amount would be equivalent to 100% of the land sale proceeds for that year. 

This is illustrated in the form of a table in the handout.

Revenue in year
Land sale12345678910111213141516171819202122
Year 110055555555555555555555
Year 210055555555555555555555
Year 310055555555555555555555
Total5101520253035404550556065707580859095100100100

The same principle applies to land sold on 30- or 99-year leases.  The revenue stream is cumulative and builds up to a significant amount.

PSP therefore contends that treating land sale proceeds as revenue over the term of the lease does not compromise on financial prudence and is also a significant revenue stream.

Thirdly, we need to look into cutting expenditure.  We should not have this thinking that when cost increase we just raise revenue to pay for it. If expenditure increases in one area, let’s first look for ways to cut cost in other areas.  This is how most individuals and businesses deal with cost increases.

Finance Minister Lawrence Wong shared that since FY2017 the budgets of all Ministries have been cut by 2% and, from FY2023, a further 1% cut will be implemented.  However, a look at the actual government expenditures from FY2017 to FY2019 showed them to be higher than the figures in FY2016.  Can the Finance Minister explain how this is a budget cut? 

From FY2022 to FY2028, the Government is subsidising the F1 race to the tune of over $80m per year and that works out to be over $560m.  If the race brings economic benefits, shouldn’t the private sector be paying for it? Why do we need to raise revenue to subsidise F1?

Another dubious expenditure is the $900m payment to SPH Media Trust over 5 years.  If SPH had not been restructured, the losses from its news operations could have been covered by the profits from its property operations. With the restructuring, taxpayers end up with a $900m bill!

These are instances where we feel that our tax revenue is not being used judiciously.  We disagree with such voluntary wealth transfers from the government to commercial entities.  They result in the costs being paid by taxpayers and the commercial benefits kept by the commercial entities.

Each year, HDB pays about $3 to 4 bn to SLA for purchase of land.  This internal transfer amongst different parts of the government is treated as an expenditure on one end, but not as revenue on the other end.  This means that we need to raise tax revenue to fund this transfer of land from SLA to HDB.

While the land was most probably acquired under the Land Acquisition Act back in the 1960s to 1980s at low prices in the name of national development, the transaction between HDB and SLA is made based on current land prices.  In other words, even though Government had acquired the land at low prices using tax revenue in the past, taxpayers have to now pay for that land again at current prices. This state of affair does not seem reasonable to us, and further strengthens the point that land sale proceeds ought to be treated as revenue over the lease period.

In conclusion, PSP objects to the GST hike.  We do not currently need the revenue and when we do, we have other revenue sources and we should cut expenditure first.

Thank you.

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