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Jan 23, 2009
GST credits will double
Rebates for service and conservancy charges enhanced for households
By Lee Siew Hua

-- PHOTO: STEPHANIE YEOW

FAMILIES will enjoy a doubling of GST credits and generous benefits to help them live on reduced incomes this year.
Most households will soon receive a basket of benefits that exceeds what they would have gained if the Government had cut the goods and services tax by 2 per cent.

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Finance Minister Tharman Shanmugaratnam produced a package of direct assistance to cheer up families yesterday, especially the low income and elderly.

He said in his Budget speech: 'Many households this year may face reduced incomes, because of lower bonuses or wages and some pick-up in unemployment that is inevitable in the recession.'

In this light, he will double GST credits and offer rebates, including on public housing and personal income tax.

This is how the credits work. 'Each household will get an additional payout of GST credits, on top of the one that they will receive in July,' he said.

'To help households with their immediate needs, the additional GST credits will be paid out on March 1, 2009.'

This extra payout, in cash, will cost the Government $580 million.

About 2.4 million Singaporeans will receive the GST credits, including about 734,000 people aged 55 and older who will see a doubling in their Senior Citizens' Bonus.

Adult Singaporeans receive GST credits to offset the impact of the 2-point hike in GST in 2007, from 5 to 7 per cent. As before, those who earn less or live in smaller homes will get a bigger sum.

Mr Tharman illustrated with the example of a Singaporean retiree, aged 60 or older, living in a four-room HDB flat.

The retiree will get an additional $400. His total for the year is $800 in GST credits and Senior Citizens' Bonus.

Meanwhile, those earning above $100,000 and who had earlier received a one-off $100 GST credit will not get anything.

Other direct assistance will be enhanced too.

One more month of service and conservancy (S&C) charges rebates will go to residents of one to three-room HDB flats. This means they will reap rebates of three to 4.5 months this year.

Those in bigger apartments will enjoy rebates of one to two months.

These rebates will go out in April to 800,000 HDB households.

For rental flat-dwellers, an extra month of rental rebate will be given. This means the rebate this year for a one-room rental will rise to four months' rent and for a two-room rental, three months' rent. About 35,000 households are eligible.

'Most households will in fact be receiving benefits this year that exceed what they would have gained if the Government had instead cut the GST by 2 per cent,' Mr Tharman pointed out.

Keeping the GST unchanged, he said, means substantial benefits for households. 'But more importantly, the distribution of benefits favours low and middle-income households.

'This is the right strategy for the times.'

Experts agreed that doubling GST credits is better than reducing the GST rate below 7 per cent.

Mr Yeo Kai Eng, Ernst and Young partner for GST Services, said the strategy targets the vulnerable well, explaining: 'The high-income earners are the ones that tend to spend more whereas the lower-income earners' spending would generally be limited to their day-to-day living expenses.'

The upshot: high-income earners gain more from a lower GST rate.

He added: 'The Government's approach via the GST credits is the preferred approach as it is a more targeted approach that is aimed specifically at helping the lower-income households. Under the GST credits approach, lower-income Singaporeans receive larger GST credits.'

Said Ms Selena Ling, OCBC Bank's head of treasury research and strategy: 'The benefits of GST credits and Senior Citizens' Bonus and other measures amount to more than a 2 per cent cut in the GST, and they benefit not only working adults but also the elderly, students and low-income households.'

siewhua@sph.com.sg