SINGAPORE: The Goods and Services Tax will be increased to 7 percent, up from 5 percent presently.
This was announced by Prime Minister Lee Hsien Loong in Parliament on Monday but when exactly will be decided later.
Speaking in Malay, Mandarin and English, Mr Lee explained that the hike is necessary to finance the enhanced social safety nets, needed to help the lower income group, and he emphasised that the offset package will more than counter the rise in GST.
While Singapore's current model to tackle the widening income gap is sound, Mr Lee said the government will take on 2 approaches to deal with the new environment - to strengthen the safety nets and tilt the balance in favour of the lower-income groups who do not benefit from the fruits of economic growth.
To do this, government spending will have to go up. The government now spends some 15 percent of its GDP - one of the lowest in the world.
"This is inevitable over the next 5 to 10 years - infrastructure investments will cost money - R&D is to cost $5b over the next 5 years; as medical technology improves, people age and more will go to hospital to get more treatment so spending is bound to go up. As we tilt the playing field across the board, the lower income will be getting another boost not just once in awhile. Therefore its better to start building resources now so that when we spend more," said Mr Lee.
To finance this, indirect taxes or the Goods & Services Tax will have to go up.
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