Lawrence Wong explains why the government can’t rely on the fluctuating real estate market as a stable source of tax revenue – Mothership.SG

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The Singapore government has taken an increase in revenue in the financial year (FY) 2021/2022, but it is not expected to rely on “fluctuating recoveries” as a sustainable source of revenue for future expenditures.

It remains to be seen whether the government will end up running a budget deficit in fiscal years 2021 and 2022.

Increase in tax revenue collection unsustainable in the long term

Deputy Prime Minister Lawrence Wong answered questions about the substantial tax revenue.

PAP MP Foo Mee Har noted that tax revenue collected in the 2021/2022 financial year was S$60.7 billion and asked if this could help defer tax hikes on products and services planned for 2023 and 2024.

Wong, who is also finance minister, said the government saw an increase of around 22% in tax revenue in the 2021/2022 financial year, compared to the previous financial year.

However, Wong explained that the increase was due to a weaker base in 2020, due to the Covid-19 pandemic. Consequently, the collection for the following year would register a greater increase once the economy recovers.

But the more relevant reason, Wong said, was higher-than-expected “sentiment-based revenue” collection.

These are purchases that are not made on a regular basis, but are one-time and driven by sentiment, such as goods or new gadgets.

Stamp duty collection accounted for the largest share of tax revenue increase in fiscal year 2021

Wong noted, “In particular, stamp duty collection accounted for the largest share of the increase in tax revenue in fiscal year 2021. The real estate market has recovered at a much faster pace than predicted by many market watchers.”

He argued that the real estate market might not stay bullish forever, and therefore the government cannot rely on fluctuating, sentiment-driven buying as a stable source of tax revenue.

He also said the government had new spending needs and used some of the tax revenue to provide short-term relief to businesses and families, for example.

The government still has increased spending needs

Wong also highlighted long-term spending needs, such as food resilience and green transformation, and said new revenue measures, including the GST hike, had been announced in his 2022 budget to pay for them. .

Although the hike will continue as expected, Wong reassured the public that due to the support packages he also announced, the majority of Singaporean households will not feel the impact of the GST hike. for at least five years. Low-income households will not feel the impact for 10 years.

He ended by saying that prudent financial management is one of Singapore’s strengths and has helped the country emerge stronger from the Covid-19 crisis.

Difficult to predict real estate prices

Wong then took some follow-up questions from PAP MPs Yip Hon Weng and Foo Mee Har.

Yip asked if the Ministry of Finance could better project a more accurate estimate of expected revenue in the future.

Wong said wryly that if anyone had a way of predicting future real estate prices, they should let them know. He pointed out that not all market watchers predicted the strong rally and that this is a fundamentally difficult revenue item to predict.

Foo then referred to earlier reports that Singapore budget deficit for fiscal year 2021 was to be S$5 billion, with S$3 billion projected deficit for fiscal year 2022. Given the large collection of taxes, she asked if deficits were still expected. Wong replied that it was still too early to tell and that income and expenses fluctuated from month to month.

However, Wong stressed that the government’s goal is not to run up surpluses, but rather to achieve a balanced budget over the medium term.

Government shares Singaporeans’ concerns over inflation

Earlier, Wong answered a question from Jamus Lim of the Workers’ Party, who asked if the GST hike could be postponed due to rising inflation and the fact that income growth has not kept pace. rhythm.

Wong acknowledged that inflation has increased this year and the government shares Singaporeans’ concerns.

In addition to the S$1.5 billion support package announced in June 2022, the government has also worked with employers and unions to help their workers become more productive, which will support real wage growth over time. .

Low-wage workers will also be boosted by the expansion of the progressive wage model to other sectors. Wang added:

“To help businesses adjust to this difficult economic environment, the government is offering transitional support of up to 75% to employers to pay their workers progressive wages, which is an increase from the previous level of 50%.

This is on top of S$9 billion in transitional wage support for businesses and improvements to Workfare.

The government will consider doing more to help low-income groups if needed to tackle inflation

In a follow-up question, Lim said the impact of inflation on real income growth was felt more keenly by “poorer” workers, and asked if their GST voucher payments could be adjusted accordingly. .

Lim also asked if the MOF had done any studies to find out if the progressive wage model payments for this group would offset real income losses due to inflation.

Wong replied that the government is monitoring income growth in different segments of society very closely and that the programs it has rolled out are providing more assistance to low-income groups.

However, if they still face high inflation issues even after receiving the financial support, Wong said the government would consider doing more to help these households.

Top image from MCI YouTube.

Penny D. Jackson