Singapore's GDP to grow 3-5% in 2022, says PM Lee as he outlines reasons for coming GST increase

Budget 2022 will lay the basis for "sound and sustainable government finances" for the next stage of Singapore's development, said Prime Minister Lee Hsien Loong on Friday (Dec 31).

In his annual New Year Message, he explained the need for a vibrant economy to generate the resources needed to realise the country's goals, and why the government must have "reliable and adequate" revenues to carry out its social programmes.

"It needs to raise additional revenues to fund the expansion of our healthcare system and support schemes for older Singaporeans. Those who are better off should contribute a larger share, but everyone needs to shoulder at least a small part of the burden," he said.

This, said PM Lee, is the rationale for why Singapore is raising a broad-based tax like the Goods and Services Tax (GST), coupled with a "comprehensive scheme" of offsets to cushion the impact for lower-income households.

The government had previously said that the GST increase - by 2 percentage points to 9 per cent - would take place at some point between 2022 and 2025, with the expectation to implement it sooner rather than later.

"The GST forms one important component of our system of taxes and transfers that also includes income and wealth taxes. Overall, our system will remain progressive and fair," said the prime minister.

"We have seen this need coming for some years. Now that our economy is emerging from Covid-19, we have to start moving on this," he said.

The decision to raise the GST - the third-highest tax type after corporate income tax and individual income tax - was first announced in Budget 2018.

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A S$6 billion Assurance Package was then unveiled in Budget 2020 to soften the impact of the increase for the majority of Singaporean households for at least 5 years, with more given to lower-income families.

Earlier in his message, PM Lee said Singapore's economy is recovering steadily, and the government expects gross domestic product (GDP) to expand by 3-5 per cent in 2022.

This is in line with the earlier projection by the Ministry of Trade and Industry on Nov 24. The full-year GDP growth for 2021 is expected to come in at around 7 per cent.

"The year ahead will be a time of transition ... Barring fresh disruptions, (the economy) should grow in step with global economic recovery," he said.

He said that the government will progressively phase out emergency Covid-19 support measures as businesses recover, although he pointed out that a few sectors will take longer to do so.

On the reopening of borders, PM Lee said the authorities will "safely expand" cross-border travel and reconnect with the rest of the world, the Omicron variant permitting.

The government will also carry on with efforts to bring in more migrant workers who are much needed by many companies, and ensure that international talents feel welcome and are able to complement Singaporeans, he said.

Beyond the immediate outlook, PM Lee spoke of the country's plans to achieve longer-term goals.

"We will press on with our industry transformation efforts to enhance existing strengths, and help companies restructure and workers upgrade their skills. Together with businesses and the labour movement, we will keep investing in our workers to keep them productive and employable throughout their careers," he said.

"We will seek out new growth areas, including in the digital and green economies, building on our Smart Nation efforts and the Singapore Green Plan 2030."

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Apart from dealing with Covid-19, PM Lee stressed that the government must continue to "generate new growth, new jobs, and prosperity" in a post pandemic economy.

He added that much will depend on whether there is a stable global and regional environment, and central to this is the relations between the United States and China.

"The differences between the 2 powers remain many and deep, but their recent high-level engagements and practical co-operation on climate change are encouraging," said the prime minister, adding that Singapore will continue to engage its partners both near and far.

He said Singapore will continue to pursue trade liberalisation and regional integration, including through the Regional Comprehensive Economic Partnership, the world's largest free trade agreement that comes into force on the first day of 2022.

As Singapore ushers in a new year, PM Lee pointed out that the fight against Covid-19 is "not over", now that Omicron has brought new uncertainties.

"Thankfully, our position is now greatly strengthened compared to 2 years ago. We have rolled out booster jabs and started vaccinating children below 12," he said.

"We have also learnt to better manage the public health challenges while minimising the hit on our economy. As we brace ourselves for the impact of Omicron, we can be quietly confident that we will cope with whatever lies ahead."

He thanked Singaporeans for mustering the strength and resolve to support one another since the pandemic began, with many going above and beyond the call of duty.

He singled out frontline and healthcare workers who have "worked tirelessly", as well as businesses and "everyday heroes" who have displayed courage and public spirit and kept Singapore going and its people safe.

Describing the pandemic as a "crucible of fire" for this generation of Singaporeans, PM Lee said it has also underscored the importance of people needing to stand united as one.

"This will not be the last crisis to try us; we will face more tests and trials in our nation-building journey. We must strenuously resist powerful external tidal pulls that will strain fault lines in our society, and not allow them to divide us," he said.

"As successive cohorts come of age with new perspectives and expectations, our societal norms will evolve. We should do this cautiously, maintaining the core values that make us Singaporean."

This article was first published in The Business Times. Permission required for reproduction.