Singapore - WAS GST HIKE TOO HASTY?

THE billion-dollar question came up in Parliament yesterday.

With a $6.4 billion Budget surplus last year (a huge turnaround from the original projection of a $700 million deficit), why the need for a 2 per cent point hike in the GST last July?

Remember, the Government said it raised GST to fund extra social programmes like the Workfare scheme, and it's better to do it during good times to help ease the transition.

But couldn't the Government have seen the better-than-expected Budget surplus - courtesy of a strong economy and a red-hot property market - coming earlier? Was it too hasty in raising GST?

Those were the questions posed by three MPs on the first day of the Budget debate yesterday.

Inflation - no surprises there - was the hot topic. On the same day, the Department of Statistics also revealed that inflation rose 6.6per cent last month, a 25-year high.

MrInderjit Singh was the first MP to raise the GST issue.

Referring to the $6.4b surplus, he said: 'This is a pleasantly embarrassing outcome, given that (Finance Minister Tharman Shanmugaratnam) stoutly defended the (GST hike) last year, citing reduction of government income from other sources and the need to tap on GST to generate enough money to fund Singapore's growth.'

Last month, Mr Tharman had said in Parliament that the Government earned an extra $990m last year from the higher GST. A large portion went back to Singaporeans, as part of the GST offset package.

Mr Singh said: 'In light of the booming economy, which should have been visible by mid-2007, (it) could have (held) off the GST rise by a year or two.'

Opposition MP Low Thia Khiang and Nominated MP Eunice Olsen were concerned about the Government's credibility.

ANTICIPATE REVENUE FIGURES

Miss Olsen asked Mr Tharman 'why the Government did not anticipate revenue figures more accurately'.

She cited the example of Hong Kong, which is expected to unveil tomorrow a surplus of HK$100b ($18b) - four times the forecasted amount.

'The takeaway for some people, judging by reactions online, is that Hong Kong managed to rake in a record surplus even though it was forced to scrap a proposed sales tax after public objections,' Miss Olsen pointed out.

'Was the Singapore Government too hasty in raising GST, a regressive tax, at a time when the income gap was the hot topic? Now, inflation is the topic du jour.'

In view of the huge surplus, Mr Low suggested the GST be reinstated to 5 per cent.

Some MPs thought the Government could have been more generous than the $1.8b worth of benefits it's already giving out.

But Mr Seng Han Thong and Mr Sam Tan feel the mindset to expect hongbaos from every Budget needs to be changed.

Earlier this month, Prime Minister Lee Hsien Loong said that economic growth was the way deal with rising cost.

'Even (at) the bottom, the middle, everybody's real income went up. I think that is the right way to overcome these problems,' he said, when asked about rising costs.

Source : Electric New Paper - Singapore, Singapore,  dated 27/02/2008