I attended a community forum on the impending GST increase organised by the Boon Lay grassroots organisations today. Attendance was about 130 people, of which interestingly only like less than 15 were younger than 30 years old. Majority of the people present were well into their middle-age or are already elderly folks. I do wonder if the reason for the lack of youth participation to be because Boon Lay is a mature estate with an ageing population, or is it that the youths in Boon Lay don’t really care?

Anyway, the important thing was the proceedings of the forum. MP for Boon Lay, Mdm Ho Geok Choo explained the reasons behind the GST increase, and I think there’s little to argue about. She gave assurances that the poor will not be less well-off as the offset packages are more than any increase in actual expenditure that low income households will be facing. I orginally didn’t like the GST increase because the poor will suffer disproportionately, but since I can be reasonably sure after this session that the poor will be taken care off, I think the GST is now much more palatable to me.

Prior to attending the forum, I read in the morning that corporate taxes are likely to be cut to maintain Singapore’s competitive edge. We’re at 20%, while our close rival in Asia, Hong Kong is at 17.5%. I’m not sure if 2.5% is a deal big enough to make business move to Hong Kong, but assuming it does, I think we have no choice but to accept a cut in corporate tax. And if we cut corporate tax, then there’s no choice but to increase GST because there really aren’t many other options left.

Given that the GST increase will come (MM Lee was quoted today in the papers that he is not concerned with whether Singaporeans buy the rationale of the GST increase), I think the next thing we need to consider is how to deal with the aftermath of the GST hike. Mdm Ho raised 3 questions for the floor to consider on how to cushion the impact of the GST increase.

1. Should the offset package be a general package for all or should it be specifically tailored to certain groups?
2. If the offset package is to come in the form of ERS, should it be:
a) ERS for all, with the top 10% earners taking half of what others receive
b) ERS for all except the top 10% earners, with the amount of ERS received proportional to income
c) ERS for only the bottom 30% earners
3. Should the type of housing be the benchmark to determine the amount of aid to be given, just like when the ERS was given out in 2003?

I didn’t give an answer to Mdm Ho at the forum because I thought it was better to let the older folks have their say. Being tech savvy, I could always send her an email with my input, so I decided to keep quiet.

Taking all her 3 questions into consideration, I think that the offset package should be one that targets the middle income and the low income. As the Kway Teow Man has pointed out, the real problem is not the low income group, but rather, the middle income group who are too well off to be eligible for generous aid packages but not too well off to shrug off the effects of the GST increase. The nature of the offset package should be different for each group.

For the low income group, the offset package should be more liquid. The reason is because the low income group has relatively much less disposable income and that they tend to spend a higher amount of their disposable income on necessities. The offset package should be such that the low income folks can use it to meet increases in their day to day expenditure. Perhaps the ERS or progress package would be a good idea for this group. Alternatively, if the government fears that the low income group does not know how to manage the money properly, the aid package can be such that it can only be used to offset utility bills, school fees etc. This is to prevent some people from cashing out the money and going to Batam or Bangkok to splurge it all at one go.

For the middle income group, the offset package should be more illiquid. The middle income people actually should have no problem dealing with the 2 percent increase in GST if they, as the KTM argues, change their lifestyle a little. Giving the middle income liquid assistance might actually result in the money ending up for some ridiculously expensive enrichment classes or to service an installment of a luxury car loan. For this group, I think the aid package should be top ups to the CPF accounts or any of the 3Ms (Medishield, Medicare, Medifund). It’s perhaps for the good of the middle income group that they have less money to spend on unnecessary expenditure as a result of the GST increase, and at the same time, the government’s offset of the 2% increase in expenditure is channeled into ‘savings’ for the future.

As for determining how much money to give, please do not use type of housing as a benchmark. It is a useless benchmark. Not everyone who lives in a big HDB flat is wealthy. There are those who are still stuck from buying HDB flats at rocket high prices in the 90s before the recession and are still struggling to pay off the loan. Yet others may suffer unforeseen financial circumstances after buying their big flat (e.g. from dual-income to single income). I think a more objective yardstick would be income. Those who earn less should receive more assistance. If one is earning high income but still struggling financially, it’s a problem with personal money management and the government is not obliged to help them out as much. The key here is that those who are really earning peanuts (no pun intended) should be given more assistance.

I do hope that when Parliament convenes to discuss the Budget on Feb. 15, other than measures to directly offset the immediate effects of GST increase, I hope that other measures will also be announced as a complete package to help Singaporeans. An increase in employer CPF contribution rate would be welcome, as well as creation of Edusave for higher education. Cost of living can only go up, and I hope that the government would at least try and make it more bearable for the bulk of Singaporeans by ensuring that the older folks have sufficient money for retirement and the younger folks have sufficient money to get higher education to compete in an increasingly globalised world.