In his Budget Speech 2008, Finance Minister Tharman Shanmugaratnam said that the higher than expected 7.7 per cent growth and low 1.6 per cent unemployment was a result of the Government’s “broad-ranging efforts to restructure the economy, labour market and fiscal system” and “delivering superior performance”.
Actually, the global economy has done exceedingly well in the past year, powered in part by double digit growth in China. Stellar economic growth is not just due to the Singapore Government’s efforts. Interestingly, when the Singapore economy is doing badly, the Government turns to blame the external environment like the Asian Financial Crisis, SARS and the Iraq war. Unsurprisingly, PAP MP Seng Han Thong blamed inflation worldwide for Singapore’s inflation problems, when in fact much of Singapore’s inflation was caused by the GST hike and hikes in property taxes.
Financial Year (FY) 2007’s overall Budget balance is expected to be a whopping surplus of $6.4 billion against a projected deficit of $0.7 billion (difference: $7.1 billion). In FY 2006, the budget deficit was $1.3 billion against a projected deficit of $2.9 billion (difference: $1.6 billion).
It seems that more often than not, government economists’ projections of the budget position seem to be far off from the actual numbers. Obviously from a political perspective, underestimating works in favour of the Government, as it gives the Finance Minister something positive to report at the next Budget Speech. However, constantly underestimating the next year’s fiscal position may result in the government spending less than it can actually afford to on essential services and assistance for the poor. It will also increase pressure to raise taxes unnecessarily.
The Goods and Services Tax (GST) hike is a prime example. The $7.1 billion additional windfall more than covers the $0.3 billion given out in Workfare Income Supplements (WIS).
Singaporeans will recall that the rationale given last year for the GST hike was to help the poor, not to increase overall revenue. The past year’s budget position suggests that the GST hike was not necessary to achieve this. In fact, the GST hike raked in $1.2 billion more than expected, even though it was implemented just 7 months ago.
Consumer price inflation was 4.4 per cent in December 2007, and overall inflation for 2008 is expected to be between 4.5 per cent and 5.5 per cent. The Minister has acknowledged that the sharp rise in the Consumer Price Index (CPI) at the end of last year was “partly due to the GST increase in July”.
I support WP Sec-Gen Low Thia Khiang’s call in Parliament yesterday to bring the GST back down to 5%. NMP Gautam Banerjee also echoed this point, as did NCMP Sylvia Lim today.
I also stand behind my earlier articles in December 2006 asking for the GST not to be raised in the first place:
- Is GST really a fairer tax for the poor and SMEs?
- The GST spin and the whole truth
- Is a GST hike the only solution?