Cutting GST not the solution

02/03/2011 (Wednesday)

Finance Minister Tharman Shanmugaratnam says reducing the Goods and Services Tax or GST is not the solution to deal with the rising cost of living.

Wrapping up the Budget debate in parliament today, Mr Tharman rebutted opposition MP Low Thia Kiang's proposal to cut GST by 2 percentage points from 7 to 5 per cent.

Mr Low had also earlier suggested waiving GST for basic necessities.

Mr Tharman explained to the House why this was a flawed approach.

It would only mean giving more money back to the wealthier groups, while taking something away from the poor.

"The bulk of the GST we collect in fact comes from higher income groups and foreigners. Based on 2010 collections, the bottom 20% of Singaporean households contribute only about 4% of all GST paid. The first 60%, in other words from the lowest end to the 60th percentile of households pays about 16% of all GST."

Mr Tharman added that GST is a vital part of a fiscal system that provides substantial transfers to Singapore's lower income group.

This includes the Workfare scheme and other structural transfers like bursaries, healthcare subsidies, and housing grants for low income families.

The Finance Minister continued to explain that exempting basic necessities from GST is an extremely inefficient way to help the poor.

"Even for the bottom 20 % of Singapore households, the essential items comprise only 6 % of their total household expenditure. Because even for the bottom 20 % they are not living in a subsistence economy. They have other expenditure, and you only have to walk into a 3-room flat or 1 2-room rental flat and look carefully at what they have. Even when we look at these basic necessitites the bulk of the GST comes from the better off group, they cosme more of everything, not just the luxuries but basic necessities as well."

Therefore, Mr Tharman said it's better to collect GST on essential goods from everyone and use the resources to support the poor directly.


From: http://news.xin.msn.com/en/singapore/article.aspx?cp-documentid=4680344