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GST Hike 2 - Econs (H1/H2/SL/HL)

Following on my previous article on the much speculated GST hike. I want to use this article to share on some possible critical questions one may ask about the situation.

So raising GST helps to reduce the fiscal stress on the government such that they don't have to borrow to sustain their spending, this helps to maintain the country's credit rating and international standing.

However, GST is a regressive tax as in the lower income category actually get taxed more as a proportion of their income and this coupled with an ageing population will actually reduce the disposable income per capital of Singapore.

Questions to ponder on:

1) what proportion of the government's revenue is from GST now?

2) How much extra revenue is expected from the tax hike?

3) Where's the anticipated increase in government spending going to and how much is that?

and we can then work out Q2 on a back of envelop computation. Answer to Q3 is a bit more involved and will require more fact finding from here (will do a future post on that).

But nonetheless, the classic answer from Economics is - raising GST and income tax isn't the best solution - the best solution the government should focus on is instead raising everyone's income - in that case the cake from which they draw from grows larger:

a) they collect more from income tax

b) with rising incomes people spend more - more GST collected and corporations pay more income tax due to fatter profits.



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