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Govt's cash surplus mostly comes from sale of state land, doesn’t reduce need for GST hike: Indranee

Govt's cash surplus mostly comes from sale of state land, doesn’t reduce need for GST hike: Indranee

Source: TODAY
Article Date: 07 Apr 2021
Author: Wong Pei Ting

The Government plans to increase GST from 7 per cent to 9 per cent between next year and 2025.

  • The Workers’ Party believes that a GST hike is unnecessary due to the country’s “significant cash surpluses”
  • But Second Minister for Finance Indranee Rajah said WP’s Facebook post on the matter is “inaccurate and misleading”
  • Cash surplus should be distinguished from government revenue, the amount available for spending, she pointed out
  • The bulk of cash surplus comes from the sale of state land, and such proceeds do not generate fresh revenue, she added

Second Minister for Finance Indranee Rajah said raising the Goods and Services Tax (GST) is necessary to fund upcoming government expenditure, as she described a Workers’ Party (WP) Facebook post on the matter as “inaccurate and misleading”.

She said this in response to questions in Parliament on Monday (April 5) on whether the Government really needs to raise the GST.

The WP had, in a social media post last month, cited the country’s “significant” cash surpluses as one of the reasons the party opposes the planned GST hike from 7 per cent to 9 per cent, which could happen anytime between next year and 2025.

WP said the Government’s reported deficit figures of S$32 billion between 2011 and 2020, and S$11 billion this year do not account for the cash surplus. And when they take this into account, there would be a surplus of S$205 billion between 2011 and 2020, and a deficit of just S$3.5 billion this year, it claimed.

Following that, Member of Parliament (MP) for Bukit Panjang Single Member Constituency Liang Eng Hwa filed a parliamentary question asking if the cash surplus indeed indicates that the Government has more fiscal space than it states in its Budget statements, reducing the need for the GST hike.

In response, Ms Indranee said WP’s claim is “inaccurate and misleading”, as cash surplus should be distinguished from government revenue, which reflects the amount available for spending.

And the biggest difference between cash receipts and revenue lies in the fact that the bulk of the cash surplus comes from the sale of state land, she said.

Such proceeds from land sales do not generate fresh revenue and are “simply a transformation of one asset to another”, she pointed out.

Ms Indranee said: “When land is sold, the asset is converted to cash. State land that is not due for immediate development is typically leased out for interim use. This yields revenue for the Government, too, in the form of rental income.

“So selling land does not increase the Government’s revenue, and if we were to spend all the proceeds from land, it would deplete our store of wealth.”

As such cash proceeds do not create additional revenues for the Government, there is “therefore not a valid reason for holding off the GST increase”, Ms Indranee said.

She used the analogy of a family home in bringing her point across.

“If the family sells the house and uses the proceeds for day-to-day expenditure, they will soon have nothing left. However, if it invests the proceeds of the sale wisely, it will still have the original sale proceeds, plus a constant stream of income from those proceeds,” she told Parliament.

“This income can then be used partially for expenditure and partially reinvested to help sustain both present and future members of the family.”

WRONG TO LOOK ONLY AT CASH SURPLUS

Likewise, in government budgeting, land sale proceeds are not considered part of the revenue and cannot be directly used for expenditure, she said.

Instead, they are invested and part of the investment income is used to support the spending needs of Singaporeans via the Net Investment Returns Contribution (NIRC).

Pointing out that the NIRC is now the largest single source of Government revenue, supporting about one-fifth of the country’s spending needs, she said: “This is only possible because of the prudent and disciplined approach we have taken to building and protecting both our land and financial reserves.”

With these, Ms Indranee stressed that the Government is indeed expecting a deficit of S$11 billion, and it was wrong for WP to just look at cash surplus to understand the fiscal position.

WP member Louis Chua, MP for Sengkang Group Representation Constituency, then asked Ms Indranee if the raising of a regressive tax such as the GST is “really the best option” for the country to raise its revenues.

He suggested that there could be other options, such as relooking the NIRC framework.

In response, Ms Indranee said that the framework was “very carefully considered and thought through, (as well as) tried and tested”, and thus should not be something that can be revised easily.

She also said that it is precisely because the Government knows how the GST hike would impact the low- to middle-income groups that it had taken steps to mitigate its impact by introducing the S$6 billion assurance package.

Adding that the authorities had also indicated that it would enhance the permanent GST Voucher scheme after the GST hike, she said: “This will provide a permanent cushion for lower- and middle-income households, even after the temporary support ends.”

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