The Case for Rebating Fiscal Surpluses — speech by Jamus Lim on the Income Tax (Amendment) Bill

Mr Speaker, the Income Tax Amendment Bill will implement tax changes associated with the Government’s 2022 Budget Statement.

I will concentrate my remarks on Clause 46, which concern related amendments to the Goods and Services Tax Act. My speech will focus on the spirit of these amendments, and in particular, the impending increase in GST, which (in part) necessitate these amendments. More specifically, I wish to revisit the case for rebating fiscal surpluses, in lieu of a more immediate increase in GST.

Inflation remains real and present

As members of this House are aware, consumer prices in Singapore continued their stubborn climb in August. Headline inflation clocked in at a scorching 7.5 percent, a 14-year high last experienced during the throes of the global financial crisis, in mid-2008.[1] Pause, for a moment, and consider what this implies. Were inflation to remain at this rate, prices would double in just 9 years. Think: in 2031, a plate of chicken rice would cost $7, instead of $3.50. A slightly used Honda Civic would be $220,000, and that is assuming COEs don’t increase further. A four-room BTO in Sengkang, the constituency I represent, would go for $700,000, and likely double that in the resale market.

To place this number in even more stark context, for the half-decade between 2016 and 2021, median household income rose by a respectable 2.8 percent per annum, after adjusting for inflation.[2] But had inflation been at rates experienced over the past six months, paychecks would have shrunk by about half that rate. For those among us that still rent, the hit has been even more severe. Stories of landlords raising rental by 40 percent are not unheard of.

What is worse, core inflation—the stable component of price increases, which strips out the more volatile components of private transportation and accommodation—struck 5.1 percent. This means that—much like in the United States and a number of other economies—price rises are gradually becoming entrenched into peoples’ expectations, running the risk of a self-reinforcing inflation cycle.

MAS can tighten policy, but this has consequences for unemployment

To be clear, this is hyperbole. I do not expect inflation to remain at an elevated level of more than 7 percent for the next decade, nor do I expect that the MAS does, either. But that does not detract from the fact that higher prices have significantly eroded the purchasing power of Singaporean families. And that the real and present danger of inflation becoming persistent means that the monetary authority cannot simply stand pat in the face of price pressures.

What is the MAS to do? It has already adjusted the appreciation path of the Singapore dollar four times over the past year, and has even taken on the more aggressive stance of adjusting the exchange rate upward over the past two cycles. There is concern that, as a small, export-reliant economy, an excessively strong Sing dollar will erode out competitiveness. Since October of last year, Singapore’s exchange rate—relative to its main trading partners—has appreciated by almost 5 percent. Even so, the main bilateral exchange rate of interest—the dollar exchange rate between Singapore and the United States, for which global commodities such as agriculture and energy are priced—has gone the other way, and depreciated by close to 6 percent.

Small wonder, then, that our economy—which is almost entirely reliant on imported food and fuel—has continued to battle under the weight of inflation. Singapore’s inflation dynamics appear to closely track that of the U.S., writ small. And since the Federal Reserve remains undeterred in its effort to raise interest rates to break the back of domestic inflation,[3] it is not unreasonable for the MAS to embark on at least another round of tightening monetary policy. Things look to remain challenging for at least a while longer, before they get better.[4]

Indeed, it appears increasingly likely that we may need to accept that a soft landing of our economy—where labor markets remain robust—may be a pipe dream. And if we accept that unemployment has to rise, then, our workers are due for a double whammy. Singaporeans everywhere are already hurting due to increases in the cost of living, feeling the pinch from things they were previously able to comfortably afford. But should the economy slow in response to tighter monetary policy, it is the marginal worker that will be displaced from their jobs, losing their incomes at a time when they can least afford it.

Now, with the economy about to face a right jab and a left hook, do we really want to shoryuken (literally, “rising dragon fist,” an uppercut) our workers with a jump in prices of another 1 percent, because of the GST rate hike in January?

Government should not be accumulating excess revenue as a result of high inflation

After all, as I shared in my Adjournment Motion with this House on July 5,[5] we should not be building up excess fiscal surpluses at a time when the economy is still in recovery, and inflation is biting into citizen’s pocketbooks. I suggested, instead, that any excess revenues from taxes and duties collected should—as much as possible—be rebated back to our people. This is because fiscal policy should be playing a stabilizing role, rather than amplify the stresses keenly felt by the private sector.[6]

In the time since that speech was delivered, the Inland Revenue Authority of Singapore (IRAS) subsequently reported that tax revenues surged by more than 22 percent for financial year 2021/22.[7]

This increase was led by corporate tax income, but individual income tax receipts also rose, as did revenue across the board from most sources. The largest increase—of $2.9 billion—was due to higher stamp duties, due to (in IRAS words) a “buoyant property market and an increase in property transactions.” Notably, the take from GST also increased—by 22 percent—even without any increase in the rate of GST.

Tellingly, observers also expect that tax revenues in the upcoming fiscal year are likely to increase even further. One analyst said that he expected government revenue to continue exceeding earlier budget projections, while another believes that this increase will be due to strong corporate profits, rising wage growth, and higher property tax and stamp duties.[8]

Circumstances have changed, which justify changes to the fiscal stance

In my speech on the Budget this year, I suggested that, with the inflation fire burning as hot as it was, raising the GST would only add fuel to the flame.[9] That was back in February, where inflation was only 4.3 percent. Inflation is now almost double this rate.

The government has previously argued that they stand ready to address rising inflation with additional measures. Deputy Prime Minister Lawrence Wong assured this House during his Budget speech that (and I quote), “[i]f inflation turns out to be persistent and higher than expected, we [that is, the government] will deal with this separately through other tools” (end quote).[10] He reiterated this position in April, stating that the government will “assess the overall situation and then consider what additional steps” it could take.[11]

We have fiscal space, and more fiscal space is likely forthcoming

One immediate objection to rebating fiscal surpluses is that the increase is only reflective of a low base, from repressed collections the prior year.

But the revenues of $60.7 billion booked last year is not only larger than the low base of $49.6 billion booked last fiscal year—understandably due to pandemic-related reasons—but is also almost $9 billion higher than the average from the three years before last.[12] Whichever our base year, it is evident that last year’s revenue was an anomaly, and larger than previously anticipated.

Another objection is that the unexpectedly high surpluses—much of which derived from real estate-related duties—are unlikely to be replicated, and hence should not be utilized for recurrent expenditure.

In principle, this is true; we should not be planning recurrent expenditures on the basis of one-off revenue gains. Yet what is being proposed here is likewise a one-off expenditure, meant to tide households over this difficult period of high inflation. Nobody expects a continued stream of payouts from the government, once inflation returns to historical norms.

Moreover, there is the prospect of even more extraordinary revenues in forthcoming months. This government had previously indicated that it would be unwise to plan for new revenues arising from the OECD-led BEPS collaboration to roll out a global minimum corporate tax.[13] This caution may appear to be warranted, given the unwillingness of the United States’ Congress to ratify the deal (which, ironically, it helped broker).

Mark Twain, the American novelist and social critic, is often said to have quipped that “reports of [his] death have been greatly exaggerated”.[14] Much like the quote, reports of the demise of the global corporate minimum tax appear to be incorrect (or, at the least, premature). There are good reasons to believe that, in the medium run, there are strong incentives for nonadopters of the treaty, such as the U.S., to do so, as long as other major economies choose to ratify it.[15]

The probability that this tax will proceed, regardless of American participation, lends further reason for the government to rebate surplus tax revenue now. Were the agreement to proceed—even in a slightly diluted form—it would almost certainly require changes to our local corporate tax laws that are far more likely to raise government revenues than diminish it.[16]

The takeaway is that we appear to have the fiscal wiggle room to move forward with such a rebate, both now and in the future.

Options for rebating fiscal surpluses

What are some options that may be available to this government, should it choose to fully rebate the $8.7 billion windfall revenue. In June, DPM Wong announced a $1.5 billion support package,[17] which still leaves $7.2 billion on the table.

One approach is to postpone the GST tax increases. Even if we accept that we cannot, in DPM Wong’s words, “keep delaying the GST increase, given our pressing revenue needs,”[18] we can at the very least forestall the increase for another two years.[19] This will afford our households and businesses a breather, and allow our economy to avoid a simultaneous constriction of both monetary and fiscal policy next year.

Another alternative is to distribute the amount via GST vouchers. This would amount to another beefing up of the GST voucher scheme, similar to what had previously been announced earlier this year.[20] The government had previously suggested that GST expenses would be fully offset for almost 20 years for our poorest households, and even for the richest, they would be covered for around two and a half years. The reality is that this claim has since been eroded by inflation, and the vouchers would only make up less than 19 years for those in HDB 1 or 2 bedroom flats, and between 1 and 6 months less for the rest.[21] Another GST voucher distribution would afford temporary, targeted, and timely support for our most vulnerable groups, and help restore the government’s original promise of the number of years of offset .

A third strategy is to roll out another off-budget support package that would offer broad support, similar the Resilience, Solidarity, Fortitude, and Assurance packages, for which I am sure will be accompanied by another clever moniker (perhaps Reassurance?). Such a move recognizes that not only the lower-income quintile groups—while undeniably disproportionately affected by inflation—are not the only ones who have faced difficulties due to higher costs of living.

Of course, the government may choose, as it did during this year’s budget, to combine a broad package with additional GST voucher support. The point is that exercising any one of these options—or them in combination—can make a significant difference to the immediate financial circumstances faced by our struggling households.


Let me be clear: The Workers’ Party remains opposed to a GST hike, for reasons we had previously articulated, not least because we believe that alternative revenue sources may be activated. However, if the GST rate increase must go ahead, the least we can do is to further soften the blow, with tools that we already have in hand.

[1] Huang, C. (2022), “S’pore Core Inflation Near 14-year High of 5.1% in August on More Costly Food, Services,” Straits Times, Sep 23.

[2] Department of Statistics (2022), Key Household Income Trends, 2021, Singapore: Ministry of Trade and Industry.

[3] The Federal Reserve recently sent its most assertive statement on its resolution to press on with hikes, and financial markets appear to (finally) believe that the Fed to execute, with an increase of at least another percentage point by the end of this year. Fed signals are from FOMC (2022), Summary of Economic Projections, Washington, DC: Board of Governors of the Federal Reserve, while expectations are drawn from Fed Funds futures, for which data are reported in real time with the CME FedWatch tool, available online:

[4] Inflation rates are also currently heightened in part because of base effects, which have been further amplified by price collapses that immediately followed the onset of the COVID-19 pandemic.

[5] Lim, J.J. (2022), “Tackling the Macro Picture in Rising Cost of Living Challenges,” Hansard 95(64): Jul 5.

[6] By the same token, windfall taxes levied on the corporate sector—such as those that have been announced by the UK Chancellor of the Exchequer—are sometimes criticized as sending a poor signal about the profitability of future investment, thereby discouraging investment today.

[7] Tan, E. (2022), “Singapore’s Tax Revenue Surges 22.4% to S$60.7B on Low Year-Ago Base,” Business Times, Aug 11.

[8] The first quote is from Chua Hak Bin, while the revenue estimate is from ANZ, by its head of research Khoon Goh. Both are cited in Tan (2022).

[9] Hansard (2022) 95(50): Feb 28.

[10] Hansard (2022) 95(52): Mar 2.

[11] Hansard (2022) 95(60): Apr 4.

[12] Revenue from FY2017/18 through FY2019/20 amounted to $50.2 billion, $52.4 billion, and $53.5 billion, averaging $52 billion.

[13] BEPS stands for Base Erosion and Profit Shifting, which correspond to the two pillars of the collaboration, to impose a 15 percent minimum tax on large multinational (Pillar 1) and to reallocate profits from where activities are conducted to where markets are (Pillar 2). 137 nations have signed on, to date. Details are available at the BEPS website, online:

[14] The quote is part of a longer statement, by Twain, in response to a request by the New York Journal, which was seeking a response to rumors that Twain was on his deathbed. The actual sentence was that “[t]he report of my death was an exaggeration,” and was published on June 2, 1897.

[15] Principally, this stems from how, should the EU adopt the minimum tax, the U.S. will also have a strong incentive to do so, because of the provision in the treaty that will allow taxation of multinationals, even if they are from countries that do not adopt the tax, with the resulting revenue accruing to adopting governments (this is known as the “undertaxed profits rule.” Hence, U.S. multinationals would continue to face taxes when selling abroad, without the U.S. government benefitting from the fiscal revenue. See Clausing, K. (2022), “The Global Minimum Tax Lives On,” Foreign Affairs, Aug 17.

[16] See, S. (2022), “BEPS 2.0 Unlikely to Hurt Competitiveness, May Net Singapore Gains in Tax Revenue,” Business Times, Feb 28.

[17] MOF (2022), “$1.5 Billion Support Package to Provide Targeted Relief for Lower-Income Households and Vulnerable Groups,” Press Release, Singapore: Ministry of Finance.

[18] Hansard (2022) 95(52): Mar 2.

[19] The GST rate increase is expected to yield an additional $3.5 billion in revenue every year. The $8.7 billion would fund this amount 2.1 times.

[20] Lai, L. (2022), “Budget 2022: Assurance Package Increased to $6.6 billion; GST Voucher Scheme Beefed Up to Offset GST Hike,” Straits Times, Feb 21.

[21] This assumes that inflation for this year and the next remain at 5.1 percent, before subsequently declining to the historical average thereafter.