SINGAPORE: The increase in the Goods and Services Tax (GST) over the last two years did not “turbocharge” inflation as the Leader of the Opposition has asserted, said Prime Minister Lawrence Wong on Friday (Feb 28).
Instead, external factors are the primary drivers of inflation in Singapore, and in the two years that the GST was increased, inflation according to the Consumer Price Index (CPI) actually fell, Mr Wong said in rounding up the debate over the national budget.
Workers’ Party (WP) chief Pritam Singh had on the first day of the debate questioned the government’s move to raise the GST and “thereby turbocharging inflation”.
“Let’s be clear, as a small and open economy, our inflation was driven primarily by global factors, wars, supply chain disruptions and rising energy costs,” said Mr Wong, adding that even before the GST increase, prices were already going up globally.
“The central bank MAS (Monetary Authority of Singapore) had assessed that the effect of the GST increase on inflation would be transitory. Indeed, that was the case,” he said.
Mr Wong said that in 2022, CPI inflation was 6.1 per cent. With the GST increases, it actually dropped to 4.8 per cent in 2023 and fell further to 2.4 per cent in 2024.
“Where is the turbocharging? Look, I know elections are approaching, but this chamber is not an election rally. Let’s not get carried away by hyperbole and have a debate based on facts,” said Mr Wong.
The budget was passed unanimously in parliament on Friday.
In his clarification, Mr Singh said he had taken reference from a previous reply given by the government which stated that the MAS’ core inflation forecast for 2024 was projected to average between 2.5 per cent and 3.5 per cent.
“It assessed or it estimated that the GST increase would contribute slightly less than 1 (percentage point) to core inflation. So if you take that figure with the lower end of the estimate at 2.5 per cent, that’s 40 per cent and that’s the contribution of the GST hike,” said Mr Singh.
“That’s how I read it, hence my characterisation of ‘turbocharged.'”
Responding to Mr Singh, Mr Wong said that other MAS statements had said “clearly” that the impact of the GST on price levels is “once-off” and that the impact of inflation is “transitory”.
“The explanation that he gave … actually doesn’t make sense because if I take that view, then I really should be raising GST at a time of very high inflation. Then the proportionate impact would be quite small,” he added.
“Because the 1 per cent on a very high inflation base means there is very little impact. But if that’s the case that the Workers’ Party feels, then really there should not be any concern about the timing of the GST increase.”
