ADDITIONAL REBATES AND OFFSETS

The White Paper stated that most households, including most lower income households, will be better off after the GST is introduced. For nearly all households earning at least $1,500 per month, the combination of personal income tax reductions and rebates, plus the property tax rebate, will be sufficient to offset the GST. However, households earning below $1,500 do not pay sufficient income tax for these tax reductions to offset in full the GST they will pay. To ensure that they too are not worse off, the Government will implement a package of additional rebates to offset the GST. The rebates will be largest at the beginning, when households are still adjusting to the new tax, and will taper off over time as incomes rise.

According to the 1990 census, there are 195,000 households earning less than $1,500 per month in Singapore. (See Appendices (Cols. 607 - 610) C and D) 90% of them stay in HDB flats. 125,000 or 64% of them are in 1, 2, and 3-room HDB flats. Government will therefore use rebates on rentals for 1 and 2-room flats, and rebates on Service and Conservancy (S&C) charges for 1, 2, and 3-room flats, as the main mechanism to assist low income households. The Government will also increase S&C subsidies to Town Councils to offset the GST payable on S&C charges. Appendices - HOUSEHOLDS EARNING BELOW $1,500 PER MONTH BY RESIDENTIAL DWELLING (NUMBER), STATUS OF HOUSEHOLDS EARNING LESS THAN $1,500 PER MONTH (Cols. 607 - 610)

Another 55,000 or 28% of the low income families are owner-occupiers of larger HDB flats, shophouses, terrace houses and semi-detached houses and small bungalows. They will benefit from the property tax rebate for owner-occupied properties outlined earlier.

The remaining 20,000 families earning below $1,500 per month are tenants in old shophouses, old walk-up private flats, or owner-occupiers in attap and zinc-roofed houses. They form only 3% of the total number of households in Singapore. However, they are too diverse a group to be reached by a single rebate or subsidy mechanism. Instead, the Government will work through the Citizens' Consultative Committees (CCCs) who are in close touch with the ground to administer a CCC assistance scheme for families needing help to cope with the GST.

In addition, Government will increase several grant schemes to meet the needs of specific groups. It will increase the Edusave grant from $50 per child to $100 per child, to help families with school-age children. It will raise Public Assistance rates to help destitute households. It will also raise the Singapore Allowance, to help Government retirees on low pensions cope with the GST.

Rental Rebates

There are 61,000 HDB rental premises, of which over 83% are 1 and 2-room flats. We will grant rental rebates to tenants of 1 and 2-room rental HDB flats who are Singapore citizens, as follows:

(a) For 1-room tenants: a rental rebate of $16 per month for the first year, declining by $1 a year to $12 per month in the fifth year.

(b) For 2-room tenants: a rental rebate of $12 per month for the first year, declining by $1 a year to $8 per month in the fifth year. The cost over the 5 years averages $7 million per annum.

Rebates for Service and Conservancy Charges

Singapore citizens staying in 1, 2 and 3- room HDB flats will enjoy rebates on their S&C charges over a period of 5 years. Specifically:

(a) For 1-room flat dwellers: $12 per month for the first year, declining by $1 a year to $8 per month in the fifth year.

(b) For 2-room flat dwellers: $11 per month for the first year, declining by $1 a year to $7 per month in the fifth year.

(c) For 3-room flat dwellers: $8 per month for the first year, declining by $1 a year to $4 per month in the fifth year. The cost is estimated at $24 million per annum over the 5 years.

Offseting GST Payable on S&C Charges

Households staying in HDB flats will have to pay GST on their S&C charges, as S&C charges are for a service like other goods and services which households consume. In order for the GST not to raise S&C charges, Government will increase the subvention to Town Councils to offset the GST payable on the S&C charges. The amount of subvention given will depend on the S&C charges collections from each Town Council. This will benefit all HDB residential flat dwellers. The cost is estimated at $9 million per annum.

Edusave grant

The Edusave grant is currently $50 per annum per pupil. To help families with children defray any increases in educational costs due to GST, Government will increase the Edusave grant per pupil to $100 per annum from 1994. As mentioned earlier, to do this the Government will double the Edusave Endowment Fund to $2 billion. The increased grant will more than offset the GST payable on school books and other miscellaneous school items. It will also make the offsets fairer between big and small families, as families with more children who incur higher household expenses and pay more GST will also obtain more Edusave grants. Increase in Public Assistance

Public Assistance is currently given to aged destitutes and those certified medically unfit for work, widows or deserted wives with young dependent children, and orphans. The amount given ranges from $150 per month for a single-person household to $430 per month for a 1-adult and 3-children household. To help this group offset the GST on their monthly consumption items, we will increase the amount of Public Assistance by between $5 per month for a single-person household to $15 per month for a 4-person household. This translates into a 3 to 5% increase in the Public Assistance for the various household compositions. Details will be released by the Ministry of Community Development.

Increase in Singapore Allowance

A special allowance is given to pensioners whose pension is less than $850 per month. The Singapore Allowance is the difference between the $850 and the individual's pension, subject to a limit of $100 per month. As at 31st March 1992, there were 16,473 pensioners of whom 9,858 or 60% receive this allowance. From 1 April 1993, we will increase the maximum allowance by $30 per month to $130 per month, and the specified pension level by $50 from $850 to $900 per month. This will be more than the GST payable by these individuals when they spend their pensions. Cost is estimated at around $4 million per year.

Grants to CCCs

The rebates on HDB rentals and S&C charges, the property tax rebate, the increases in Edusave grants, Public Assistance and the Singapore Allowance will cover 90% of the households with income below $1,500. Most pensioners and retirees will also be covered by one or other of these schemes. The remaining 10% or 20,000 households are a small but diverse group. Not all of them are necessarily poor. Some own significant amount of property, or have accumulated more than enough savings for their needs. Some old folks are supported by their children, who will benefit from the tax cuts and other rebates. It is difficult to design a single scheme of Government assistance to target precisely those who need help. We need a more sensitive mechanism to distinguish those who genuinely need help to cope with the GST from those who can manage on their own.

The Citizens' Consultative Committees (CCCs) provide such a mechanism. Being grassroots organisations, the CCCs are in constant touch with the ground. They are well-placed to identify which households in their constituencies need help, and what type of help will be most useful. The CCCs can work with other grassroots organisations like Residents' Committees in this task. They can then channel help to whomever needs it, including pensioners and retirees not living in HDB flats and not owning private property, or households which for some reason do not benefit from the offsets that I have listed above.

The Ministry of Community Development will budget $3 million per year for CCCs to operate this assistance scheme. This should be sufficient to cover all the estimated 20,000 low-income households not covered by the HDB and other schemes, even though probably not all of them will need help. The $3-million budget can be increased if necessary. The CCCs will evaluate needy cases who approach them for help. They will have the discretion to decide whom to help, and how much help to give. The amount per household will usually not need to exceed $200 per annum. This will resolve the specific problems of retirees and non-HDB residents arising from the GST.

It is important to be clear that the CCC scheme is not meant to solve all the financial problems of poor families, or to give general assistance to households in distress. Other welfare schemes already exist to help poor families. The CCC scheme is designed specifically to offset the GST that poor families will incur, to the extent that the package of other rebates does not make up for the GST they have to pay. The CCCs will have to administer it with this objective in mind.

Timing

The property tax rebate, the increases in Public Assistance and the Singapore Allowance, and the additional subsidies for Town Council S&C charges will continue indefinitely. However the S&C charges rebates, rental rebates and CCC grant scheme will operate in the first instance for 5 years. They are meant to be transitional measures to help households tide over the introduction of the GST. Therefore the amounts of the S&C charges and rental rebates will diminish over time, although even in the fifth year the total package of assistance provided will be more than sufficient to offset the GST payable by most low-income households. During these 5 years, incomes should grow in real terms by 5 to 7% per year. This will be more than sufficient to offset the 3% GST, which should lead only to a one-off increase of prices of around 3% in the year of introduction. Higher incomes will reduce the need for these special schemes. After 5 years we will re-assess the situation to decide whether to continue the package in a modified form.

The Government has undertaken that nearly all households will be better off after the GST is introduced than before. This offset package fulfils this promise. However, the Government cannot promise that households whose incomes are presently low, and who therefore pay little or no tax, will never pay more tax than they now do, even after their incomes rise as a result of economic growth. The tax burden has to be spread as broadly and fairly as possible, so that it will weigh lightly both on individuals and on the economy as a whole. This is indeed one of the purposes of introducing the GST.

Gains and Losses

Appendix E (Cols. 611 - 612) summarises the benefits to specific households by dwelling and income groups per year in the first and fifth year. Appendix F (Cols. 613 - 618) gives the net change of expenditures for lower-income typical households before and after the GST is introduced. It confirms that most households will be better off after the GST is introduced than before. Appendix E - NET BENEFITS FOR DIFFERENT TYPES OF FLATS, (Cols. 611 - 612)

Appendix F - ANNUAL ACCOUNTS OF DIFFERENT TYPES OF FLATS (Cols. 613 - 618)

Appendix G (Cols. 619 - 620) summarises Government's revenue position as a result of all the tax changes and offsets against the revenue collected from the GST. It shows that the revenue loss from the whole package amounts to $1,104 million. If we exclude the transient items, the total loss is still $1,070 million. As the GST collection is estimated at $921 million, the Government will have a reduced revenue of $183 million revenue per year during the initial 5 years. However, in the long run, I expect the package to be revenue neutral, because with economic growth consumption will increase and so will tax collections. Appendix G - TOTAL REVENUE LOSS TO GOVERNMENT OF OFFSETS (Cols. 619 - 620)