Singapore has to face tax question as it ages - policymakers

By John Geddie and Masayuki Kitano

SINGAPORE (Reuters) - Singapore will have to address the question of how taxes can be used to better support the social issues created by a rapidly ageing population, policymakers said on Monday.

The city-state has some of the lowest tax rates in the world but top government officials have been signalling the need for higher taxes as its social spending and investment requirements increase.

Analysts expect changes to be unveiled as soon as Feb. 19, when the proposed budget for the fiscal year starting April 1 is presented. Many expect an increase to the 7-percent goods and services tax (GST) rate.

"The willingness of a society... to pay in taxes to support those less well off is quite critical. You see this in the small European countries and they do this quite well. I think this is one of the existential questions we have to face," Ravi Menon, the head of Singapore's central bank, said at an Institute of Policy Studies event.

Finance Minister Heng Swee Keat said in last year's budget speech that the government will have to raise revenues through new taxes or raise tax rates to meet longer-term healthcare and infrastructure needs.

Speaking at the IPS event, Heng said he stood by his earlier comment that it is "not a question of whether but a question of when".

Heng said government spending has more than doubled over the past decade, with the largest increase in social spending.

Over the same period, he said, reserves grew to be a major source of revenue for the country: from 5.6 percent of S$43 billion in FY2007 to 17.3 percent of S$83 billion in FY2016.

"To put it another way, if we hadn't had those numbers, if we hadn't used contributions from reserves, what it means is that your personal income tax could have doubled, GST could have doubled, corporate income tax could have doubled."

A survey published last week showed Singaporeans were not in favour of higher taxes to support their elderly and would prefer the country to tap its national reserves to deal with future social spending increases.

Deputy Prime Minister Teo Chee Hean, who did not address the issue of taxes directly in his speech, said that because Singapore is ageing more rapidly than most countries, the subsidies provided for healthcare will eat up more of the budget in the future.

"The doubling of our population of seniors by 2030 means that the subsidies that we provide from our government budget for healthcare will grow very substantially," he said, referring to a state pension scheme and a health insurance scheme.

Teo said that health expenditure may overtake spending on education in the government budget in coming years.

(Reporting by John Geddie and Masayuki Kitano; Editing by Sam Holmes and Richard Borsuk)