How should we analyse the sudden urgent requirement of the Singapore government to raise taxes?
There are always reasons to raise taxes and politicians can always cite data and economic views to support their claims. However, when the media goes into full force to convince its readers to accept a tax hike and influencers are paid to push the agenda, it is good to look at the reason for such a desperation.
All reasons to raise taxes are vaild. You cannot deny the logic nor the validity of the reasons. The most recent comment was on 22 Jan 2018 by the MAS managing director Ravi Menon.
“Being inclusive… is the morally correct position to take,”
How can anyone fault such a statement? If you do, there must be something wrong with you.
“The key to sustaining a dynamic economy in the face of an ageing population is inclusivity — and this means having a society that is willing to pay the taxes needed to support those left behind by globalisation and technological advancements, said Monetary Authority of Singapore managing director Ravi Menon.” — The Straitstimes
So here are the list of reasons we need to raise taxes:
1. Moral — Ravi Menon
2. Meet growing needs in healthcare and infrastructure — FM Heng
3. Budget deficits (without Net investment returns and government’s top up from past reserves)
4. To support social spending — PM Lee
5. Singapore taxes (GST or income tax) are low compared to elsewhere
And of course, the questions that arise:
1. Is the government spending wisely?
The Straitstimes is quick to answer with Economists weighing that;
“The Government has also moved to rein in costs, such as by implementing a permanent 2 per cent downward adjustment to the budget caps of all ministries and organs of state from this April.
But those hoping that such moves will help to stave off tax hikes will be disappointed, since economists said these are not likely to push spending below current levels.
Rather, these are done to control the growth of spending, to guide Singapore onto a gentler trajectory as expenditure grows.”
So the quick answer would be, our government has always been prudent.
2. Why can’t we use more of the reserves?
Ms Indranee gives you a succinct answer:
“”It would be easy to spend the reserves, because then you don’t have to do anything right?” she said.”
ESM Goh has been quoted as saying “Killing the golden goose to get at its meat would be to the country’s detriment, he said.”
Professor Tan also contended “taking more money to spend without making more money is not very good.”
Yes, please use the reserve and then your country will suffer!
So, let’s take a step back and not harp upon the question if taxes should be raised or if alternatives should be explored.
Let’s focus on what Singapore is and why is Singapore in such a predicament now?
What is Singapore seen from a tax point of view?
A take care of yourself policy
Singaporeans are subjected to a 37% deduction from their salaries and these deductions are put aside for housing, medical and retirement needs.
Housing costs in Singapore is very high, and most of the CPF are used to finance housing. The government had to step in to set a limit to prevent full usage of the funds.
Retirement and Medical needs are forced saved and you cannot touch it unless the Government gives you permission to use it.
The main reason for all these policies is so that Singaporeans need not rely on the government for handouts. Singaporeans must fund their own retirement and medical needs.
Since there is no or less burden on the Government to take care of the citizens, lower taxes can be enjoyed by the citizens.
“The CPF is a mandatory social security savings scheme funded by contributions from employers and employees.
The CPF is a key pillar of Singapore’s social security system, and serves to meet our retirement, housing and healthcare needs.” — www.cpf.gov.sg
So, what can we tell from the urgent increase?
It doesn’t take a genius to realise that the CPF policy is a failure. The stark reality is that what Singaporeans earned and kept in the CPF account, a whopping 37% is insufficient!
Assuming Singaporeans enjoyed low cost housing, subsidized medical care and retirement payouts, the cost of it would be a 37% on Singaporeans and this will NOT be enough!
Let’s for one moment ask ourselves, if a 37% tax is not sufficient to fund housing, retirement and medical, should we actually turn our attention to the COST OF LIVING instead?
Vivan Balakrishnan a Minister says:
“How much do you want? Do you want three meals in a hawker centre, food court or restaurant?”
We can assume that Singaporeans cannot live on “hawker centre” living and not “restaurant” living since, the government has to interfere to raise taxes to take care of its citizens.
If a country’s citizen’s pension fund cannot even fund basic needs, there is really an issue with cost and not with the revenue!
Tax system that penalize spending
In Singapore, you have GST, water borne taxes, utilities taxes, car ownership taxes, sin taxes…etc.
If you don’t spend, you don’t need to pay the taxes.
If you are company, you pay not only corporate taxes but taxes on employing foreign workers (foreign workers levy) on top of all the other taxes mentioned above.
When you go on a holiday and return, you have to pay GST for amounts above the concession limits.
You must think that the government has earned a lot of revenues from here!
Credit — The Straitstimes
If the government tells you that non-corporate and income taxes amounting to nearly 30 billion over dollars in revenue is insufficient and the government has been prudent in its spending, again, don’t you think there is something wrong with the costs of getting things done in Singapore?
If we assume that it is not costs that is the problem, then it can be deduced that the government is anticipating that spending in Singapore is going to go on a downward trend?
In order to keep the revenue numbers with declining spending, you can only do two things actively, raise the rates of taxes and create new taxes.
Tax loopholes
Every time you buy locally, you are 7% poorer. You are over paying for whatever you purchase by 7%. You can avoid paying the GST by going to a non-gst registered trader, but in reality, the 7% has already been priced in especially if the goods you purchased comes from a foreign source.
Stayers in Singapore (foreign, local, half local…) could by pass the GST by buying from foreign sources within concession limits spread out over many shipments and not pay for GST.
This makes them richer by 7% and the 7% could be used to buy even more goods from overseas or reluctantly spend it at the local hairdressers, restaurants…etc
The government is seen to be anxiously closing this “loophole”.
Again, let’s ask this question. Has the GST hurt the future of Singaporeans? Remember that we had talked about cost in Singapore?
Imagine your CPF has $200,000 in Retirement funds, this value is depleted to $186,915! An estimated whopping $14,000 reduction in spending power due to 7% GST.
Let’s say, GST increases to 10%. Your spending power will be reduced to S$181,818.
What if you only had the bare minimum? S$80,000. At 7%, your spending power has reduced to $74,766, $5,234 poorer! If GST is increased to 10%, you will have $72,427 left.
Has cost of living gone out of control that the CPF retirement savings has become insufficient?
Has the impact of overseas purchases due to GST savings hurt the economy so badly that companies are closing down because of their non-competitiveness?
Paying for your neighbours
As seen above, the CPF savings is deemed to be insufficient and the government who is always ahead has come up to demand higher taxes to pay for the failure of the CPF policy.
The PM apparently dealt with this issue in his NDP speech here.
Changes such as allowing a leaseback arrangement, raising minimum sum, paying out portions instead of full withdrawals etc would highlight that the CPF savings are insufficient.
Remember that an aging population pays less income taxes generally. They become “useless” members of societies because they no longer “contribute” either with labour or income taxes.
This is where GST is such as likeable option for governments worldwide. You will be taxed till the day you die as long as you spend money.
By raising the GST, pensioners would have to give away a larger and larger portion of their savings to the government to spend.
Many Singapore economists contend that Singapore’s GST rate is so low, perhaps a higher rate can be accepted.
Higher GST means more wealth for the government to cover the reduction in income taxes from these retirees.
Final say — mathematically speaking
(Income x income tax) + (Spending x GST) + (Spending x other taxes) = Government revenue
If Income = Spending, then government revenues are affected by a decrease in Income.
Therefore, a forecasted decreased in revenue would prompt a government to raise tax rates.
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CPF savings + savings = Y amount of retirement funds available
Z = Retirement costs
Let X = Social spending
If Z = Y, then Social spending = 0, therefore X = 0
If Z > Y then
Social spending = Z — Y, therefore X will be the difference
If Social spending is said to have to increase, it means that:
a. Z has increased tremendously
b. Y has reduced tremendously
If Y has reduced tremendously, it means that:
a. Income earned has reduced. (As CPF savings are co-related to how much you earn)
b. Housing, medical cost has eaten up the retirement sum.
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Seen from a very non-biased eye, it is not difficult to assess that we should look at what had gone wrong, what is going wrong and if raising taxes or creating new taxes is pouring good money into a black hole.
