The question on whether our Goods & Services Tax (GST) would be raised from the current 7% to 10% has surfaced recently. This is despite, the Ministry of Finance and DPM Tharman Shanmugaratnum debunking the myth.
For some reasons, there are people who still rather indulge themselves in the rumour that the Government intends to increase GST.
Instead of speculating on whether our newly elected MPs and Government will impose a higher GST, let us first take a look at the state of our country finances first.
How much does our Government spent?
We all know that the Government collects taxes so that important functions of the country can operate smoothly. These important functions include:
1) Social Development (e.g. education and healthcare)
2) Security & External Relations (e.g. SAF)
3) Economic Development (e.g. transportation)
4) Government Administration – Someone has to pay our public servants right?
Exhibit 1: Government Operating Expenditure – FY2014
Source: Accountant General’s Department
In 2014, our Government spent a total of $42 billion on operating expenditure ($42b). The largest expenditures goes to defense, education and healthcare, which took up 28%, 26% and 13% respectively. This makes up a total of 67% of the Government’s total expenditure.
How much does out Government make?
Like all Governments in the world, the main source of revenue is typically taxes. Our income tax and GST rates are known to be one of the lowest in the world. Therefore, many people are worried that we might not be able to afford the expenditures that we are incurring.
The operating revenue for our Government was $60b in 2014. The largest revenue sources are from corporate tax, GST and personal tax at 22%, 16% and 14%.
Will our Government increase GST?
We think that the Government has no basis to raise taxes for the near term due to several simple reasons
1) The Government has been earning more than what they have spent
For years 2011, 2012, 2013 and 2014, our Government’s revenue was $51b, $54b, $57b and $60b respectively. Government’s operating expenditure was $35b, $35b, $40b and $42b respectively.
What this means is that our Government had been running on significant operating surpluses annually for the last 4 years. Which is pretty impressive, when you consider the small size of Singapore.
The next question people will ask is why the Government isn’t spending more on its people? The answer is simple. Do you spend all the money that you earn each month? Or do you save and invest a portion of these earnings?
Similarly, our Government also saves and invests in order to ensure that the country has stable and reliable finances in times of tranquil and chaos.
It is important for us to add that the Government does “invest” a fair bit of their operating surpluses back into our country. This is in the form of “development expenditure.” In 2014, the government spent about $13.9 billion on development expenditure. When you add this development expenditure to the overall expenditure, the budget becomes a lot more balanced.
2) We do not borrow money from external parties
In terms of year-on-year budget, our government has always been running a tight ship. They have been very disciplined over the years to not borrow from external parties.
By borrowing externally, such as the Asian Development Bank and International Monetary Fund, we will be exposing ourselves to uncertainties such as exchange rate risk and external pressures and interventions. A great example would be Greece, who is consistently pressured by the European Union and the IMF to undertake policies that are uncomfortable for its citizens.
Our Government borrows in Singapore Dollars (SGD), mainly from corporate entities and its citizens. By borrowing in SGD, our Government can print money and repay its debt without increasing taxes. We are not saying they will, but that they could, if they want to.
3) No significant expenditure that was undertaken
From public sources, we do not know of any projects that our Government intends to undertake that would cause a huge dent in their (our) wallets (e.g. free healthcare or unemployment insurance)
Unless there are significant projects, it is very unlikely that the Government would need to raise taxes to fund these projects. More so, it still has a relatively large buffer of about $12 – $13 billion for its development expenditure that it can use first.
Golden Question: Will The GST Be Raised in the next few years.
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