Monday, 14 September 2015

Singapore GE2015 and taxes

Singapore's general election to form its 13th Parliament was held on 11 September 2015. The ruling People's Action Party secured a popular vote share of 69.9%, an almost 10% increase from the 60.1% it got in the 2011 election, reversing a decade-long downward trend in the PAP’s popularity.

GE2015 was the first since 1963 to see the PAP challenged in all the seats. The PAP took 83 of the 89 seats in 29 constituencies, up from 80 in 87 in the last Parliament.



Among the key issues raised by opposition parties during the nine days of hustings were: foreigner influx, job displacement by foreign workers, public transport overload, public housing cost and supply, hospital bed crunch, rising costs of living and income inequality.

In a bid to win over voters, the various opposition parties promised a slew of goodies if they were elected, such as lowering the age withdrawal limit for the Central Provident Fund (Workers’ Party), introducing a minimum wage (Workers’ Party), offering children and the elderly $300 a month (SingFirst), pegging the price of a HDB flat to a household's monthly income (Workers’ Party), removing land costs from the cost of HDB flats (Singapore Democratic Party), disbursing an old-age pension of $500 a month for those above 65 (Reform Party), capping the increase of foreign workers (Worker’s Party), advocating free healthcare, free services and stress-free education (Singapore Democratic Party), implementing an unemployment benefit scheme for retrenched workers (Workers’ Party) and extending parenthood benefits to single parents and maternity leave to single mothers (National Solidarity Party).

One question that emerged from the opposition’s promises was: where is the money going to come from if their proposals were to be put in practice? The opposition’s popular answer was: from the Government reserves. The PAP, however, informed voters that the real and unspoken answer was largely: taxes.

Deputy Prime Minister and Minister for Finance Tharman Shanmugaratnam called on voters to recognise the burden the opposition’s proposals would impose on the average Singaporean. He pointed out that a tax on the top 1% alone cannot pay for the levels of social spending promised by the opposition, adding that the rich know "how to move their money around".

Contrary to popular belief that the Government can draw more from the reserves to fund social spending without raising taxes, Mr Tharman pointed out that "We are already maxing out on the investment income from our reserves. The constitution allows us to spend 50% of the income on our reserves and we are already maxing out, we are spending it fully, on our increased social spending, on healthcare, on infrastructure. It’s fully used. There’s no more money left there that you can just take without compromising the next generation."

Taxes for the middle class would have to rise as well, he said. Citing countries like France, Germany and the UK, Mr Tharman said the middle class pays very high taxes for everyone to get something. In France, the income tax for the average worker is 15% (in Singapore, it is close to zero). Added to the VAT general sales tax of 20% (apart from discounts for some items), the average person in France pays well over 20% of income in taxes to the Government. That's apart from payroll taxes, which helps to fund the French healthcare system.

If that is to be the case in Singapore, it would mean the average worker here, who earns S$3,800 every month, would be paying S$850 in taxes each month.

While most income earners pay some tax in Singapore, mostly through the goods and services tax, for every S$1 in taxes the middle income pays, the family gets back S$2 in subsidies, especially after the latest Budget. In comparison, in Finland and the UK, the average family gets back S$1.30 and S$1.40, respectively, for every S$1 paid in taxes.

At the bottom 10% in Singapore, a family receives S$6 in subsidies for every dollar of tax paid. And at the top 10%, each dollar of tax paid will only yield 20 cents in subsidies.

His message was clear: One, nothing is free, and there are trade-offs involved for countries which appear to have a more egalitarian system. "There's no system in the world where you can give everyone something without taxing people, and especially taxing the middle-income group," he said. "And we must make sure that our system is never one where we place a high burden on the middle income group."

He also dismissed talk that the Government may raise taxes, including the GST, after winning the election. The Government would try to keep the GST “low” in the years to come, he added.

This was reaffirmed by the Prime Minister, Mr Lee Hsien Loong, in a separate interview. Asked specifically if the GST would be raised from the current level of 7%, Mr Lee said the Government does not adjust tax rates according to the percentage of votes the PAP wins at elections but only when it needs to and after careful consideration.

The last time the Government raised taxes for the individual earners was in February 2015, where taxes for the top 5% of earners were raised, effective from the Year of Assessment 2017. It also increased property taxes for high-end properties while lowering property taxes for smaller public flats.

Minister for Environment and Water Resources Dr Vivian Balakrishnan said that the western welfare state is a model of tax-funded universal benefits that has been tried for 60 years. “It works if the population is growing and young, incomes are going up and many are able to pay tax,” he said. But if the population shrinks, you go bankrupt, he noted.

In a Facebook post about the Singapore's Government budget, Temasek Holdings chief executive Ho Ching (the wife of Prime Minister Lee Hsien Loong) said Singapore imposes a much lighter tax burden on the economy compared with most other developed countries. On average, the governments of most developed economies collect more than 30% of their gross domestic product (GDP) in taxes. In comparison, the Singapore Government collects about 15% of the country's GDP in taxes between 2009 and 2014.

Ms Ho noted that Singapore is likely to see smaller surpluses in future, given rising Government expenditures and its competitive tax structure. This means reserves will also be accumulated at a slower rate. "If we don't want to see higher tax burdens, we should not be careless or wasteful in our spending." Instead, Singapore must continue to allocate its Budget and guard its reserves judiciously, especially since Government spending is expected to rise. For instance, funds have already been set aside for multi-year GST credits for lower-income families, and the Pioneer Generation Package. Healthcare spending will also be more than doubled.

Having crossed the 45-seat mark, the PAP will form the next Government of Singapore. The next five years will tell voters if the PAP keeps its promises of maintaining the current tax rates, and being a more engaging, bottom-up Government. Meanwhile, this voter is glad that her constituency will continue to be managed by a party with a proven 50-year track record.

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