Cutting the Goods and Services Tax (GST) is not the right solution to tackle the rising cost of living, said Finance Minister Tharman Sharnmugaratnam.

Wrapping up the two-day Budget debate on Wednesday, which saw nearly 50 MPs speaking on the Budget proposals, Mr Tharman also addressed concerns on the increase in foreign worker levies and how Singaporeans will gain from the $3.2 billion "Grow & Share" Package.

The widening income gap and rising cost of living are issues close to the hearts of Singaporeans.

Mr Tharman said overall, the government expects inflation to be 3 to 4 per cent in 2011.

And the Finance Minister said the "Grow & Share" Package is timely.

"We are providing more than required to offset the entire increase in the cost of living that low and middle income households will face this year," said Mr Tharman.

For a retiree household in a 3-room flat, expenses are expected to go up by about $400. But they will receive more than six times that amount in transfers.

Likewise, a lower-income household with two children will receive about five times more than the increase in cost of living this year.

A three-generation middle-income household will get 1.8 times more.

Mr Tharman noted that there will invariably be some families with unique circumstances, for whom the package does not fully cover increases in the cost of living this year.

For those who need extra help, the government and the community have in place many assistance schemes.

Mr Tharman said further help is available through the CCC ComCare Fund administered by the Citizens' Consultative Committees.

He said the CCCs have sufficient funds for now and the government will provide top-ups if they need more.

The Finance Minister also noted that opposition MP Low Thia Khiang had dismissed all that the government is doing in this year's Budget to help families offset the cost of living increases. Instead his solution to the rising cost of living was reducing the GST by two percentage points and waiving the GST for basic necessities.

"It seems to me that this government looks at GST as panacea to everything - income to help the lower income. My concern is whether this mindset is a risk on GST as a way of being able to get the resources to help the lower income and fund many other projects and social projects," said MP Low.

Explaining why that is a wrong solution, Mr Tharman said the bulk of GST collected came from higher-income groups and foreigners.

In fact, in 2010, the bottom 20 per cent of households contributed only about 4 per cent of all GST paid. The bottom 60 per cent paid about 16 per cent.

Mr Tharman said: "It is a trade-off which any opposition has to address; the alternative policy cannot be about giving more and more. It also has to say where you are going to get the money from. In your case, you are going to take less money from the rich and you have to explain how you are going to give more to the poor.

"So we don't see the GST as a panacea; we see it as part of an efficient and equitable system."

Mr Tharman said the lasting solution to inflation is to raise incomes across the board.

And this is what Budget 2011 seeks to do, by providing assistance to raise skills and productivity.

He said Singapore has done well in growing incomes for its citizens, better than countries with lower income inequality.

"We have to do more to prevent an underclass from forming, an underclass that replicates its condition across generations. We have achieved phenomenal mobility in the last few decades. Real median household incomes in Singapore grew by 1.7 per cent per year from 2000 to 2009," said the Finance Minister.

And key to achieving that is education, particularly investment in early education as it reduces the disadvantages faced by those from low-income backgrounds.

"The more we do early on to help kids who have disadvantages, the more likely they will be able to move up. So if you look at our expenditure pattern for education, our expenditure on childcare and primary school has grown much faster than other levels of education," said Mr Tharman.

Next is promoting training and upgrading to ensure no one gets stuck in a low-end job.

But he said productivity improvements will not be realised if firms continue to rely on low-cost foreign labour. Hence the increase in foreign worker levy, as it is better to introduce a gradual increase when the economy is strong.

channelnewsasia.com