FREQUENTLY ASKED QUESTIONS
Q1: Is it necessary to increase GST? Can't the Government cut back its spending or find other sources of funds?
A: There is very little scope to cut back further on government spending. Indeed, we have already reduced government spending from about 18% of GDP in 2001 to about 14-15% of GDP currently. At this level, we are already operating one of the leanest governments in the world. If anything, we will need to spend more going forward - to help the lower-income and to prepare for an ageing population, while continuing to invest for our future. Government spending over the next 5 to 10 years will have to go up by at least 1% of GDP. At the same time, the scope for increasing revenues is limited. Our largest sources of revenue are personal and corporate income taxes – which we cannot afford to increase further because it would affect our ability to attract talents and investments in a keenly competitive global environment.
Q2: Why must the Government increase GST now when our spending needs are only in the future?
A: To invest for the future, we would need to start spending now. There are immediate needs to invest in education, R&D, infrastructure, and urban renewal. Programmes to provide more for the lower-income and the elderly are also pressing.Increasing the GST when the economy is doing well and job prospects are good will also allow the Government to ease the transition to a higher GST rate for our citizens by providing an offset package. If we wait till the bulk of our spending needs are upon us before raising GST, the budget will be too tight and we will not be able to provide any assistance to help Singaporeans transit to a higher GST rate.
Q3: When will the GST rate change take effect?
A: As announced in Budget Speech 2007, the GST increase from 5% to 7% will take effect from 1 July 2007.
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