GST introduced while revenue position was still strong: Tharman
IN explaining the background to the way the government has turned out to have gathered far more money than was predicted in last year’s Budget, Finance Minister Tharman Shanmugaratnam told Parliament yesterday that the basic approach is to use the best information available at the time, with ‘realistic’ assumptions rather than ‘optimistic’ ones.
At the time of the Budget last year, the finance ministry estimated 2006 stamp duties to be $1.5 billion and hence projected the same level for 2007, Mr Tharman said.
‘This was because 2006 was itself already an exceptional year,’ he said. ‘In fact the subsequent data for FY2006 based on actual collections for January and March – the data comes out later, after our Budget – showed a significant increase in stamp duties and took total stamp duty collections to $2 billion, not $1.5 billion which we estimated at the time of the Budget.’
Eventually, the property market accounted for more than $3.5 billion in extra revenues, lifting the budget surplus for FY2007 to $6.4 billion.
Although policymakers had assumed further price increases in the property market then, they did not expect the surge in the volume of transactions.
There was also uncertainty on whether the buoyancy in luxury projects would filter through to the rest of the property market.
Mr Tharman assured the House that soft targets were not set just so they could be exceeded.
In the past 10 years, there had been six instances of over-projection in the Budget positions.
But he conceded that accurate forecasting will remain difficult, ‘especially because we are a city economy that is fully exposed to the swings in global markets and to the vagaries of our own asset markets’.
He added: ‘We cannot expect too much prescience in the budget planning process.’
On the timing of last year’s GST increase, Mr Tharman explained it was necessary to introduce it while the revenue position was still strong, so that the government would be able to fully offset the impact on cost of living for most Singaporeans.
In fact, the $1.4 billion collected from the increase in GST was equal to the GST offset package and the Workfare Income Scheme paid out.
Data collected showed that the bottom 60 per cent of Singaporeans actually received more in offsets than the additional tax paid.
Mr Tharman also rebutted the argument that the government’s ‘grow at all costs’ policy had led to rising business costs and to lower-income Singaporeans being worse off.
‘It is precisely the rapid growth that we have seen in the last few years that has turned things around for our low income households and allowed them to enjoy positive growth in real incomes after the very difficult period they went through earlier in this decade,’ he said.
He stressed that the way to assure long-term growth for Singapore is to take advantage of opportunities when external conditions are favourable.
Small businesses, for instance, have been better off because Singapore has grown well in the last few years.
Even those that are heavily reliant on the domestic market have seen their businesses pick up because of the strong growth of Singaporeans’ incomes.
‘Costs are higher, but so are overall volumes and demand for their goods and services,’ Mr Tharman said.
He went on to say that the government is studying the individual learning account scheme as a tool to encourage participation in adult learning.
In the meantime, there are already incentives and subsidies of up to 80 per cent of fees to drive re-training of workers.
Although this year’s Budget is seen to provide for more significant benefits for households than businesses, Mr Tharman urged for it be seen as a balance between short-term relief measures for rising costs and long-term initiatives to build up capabilities.
While global uncertainties exist, the economy is not in a crisis, unemployment is at a record low, and the Singapore economy is expected to grow 4-6 per cent this year.
Source: Business Times 28 Feb 08