TL;DR – Two things in life are certain: Death and Taxes.
Today is the 23rd of November. If your boss tells you that you have to submit something by the end of this month otherwise you will lose your job, when do you think you to submit that piece of work? By 30th November or 22nd December? If you think you have until 22nd December, then you better get ready to find a new job.
Because when people say by the end of this month, they usually mean the end of the current month you are in. Similarly, if someone said in 2015 that we have enough money to spend till the end of this decade, do you think that means that we have enough to spend till the end of 2019, or till 2025? Of course that person meant that we have enough to spend till the end of 2019.
What DPM Tharman said in 2015
So when DPM Tharman said this during the Budget debate in 2015:
” Based on current projections, the revenue measures we have undertaken will provide sufficiently for the increased spending needs we have planned for till the end of this decade.“
What PM Lee said last Sunday
DPM Tharman meant that we have done enough to cater for the increased spending until the end of this current decade we are in, yes, that means until the end of 2019. That’s why even though PM Lee said recently that we will eventually have to raise taxes, that doesn’t contradict what DPM Tharman said back in 2015. Especially since PM Lee said:
“For this current term of Government, we have enough revenue”
Base on what PM Lee said, it reads to me that any increase in taxes will probably happen earliest near the end of this term of government, or even at the start of the next. And this term of government only needs to end in 2021. By then, that’s already the next decade. Which means there isn’t any contradiction between what PM Lee said recently and what DPM Tharman said in 2015.
Phew. That took a lot of words to explain. But that might be the only way for some people to understand it. Of course, there is still the chance that things change, and taxes are increased earlier than expected, like before the end of this decade. But… given all that is said, I think that’s highly unlikely.
Still, tax increases are never good news that are welcomed by people no matter in what form.
According to the latest statistics in Budget 2017, the top three contributors of government operating revenue for the fiscal year 2016 were corporate income tax (CIT), goods and services tax (GST) and personal income tax (PIT). They accounted for 20 per cent, 16 per cent and 15 per cent of the Government operating revenue, respectively. You can download the year-on-year comparison here.
Let’s have a look at our corporate tax rates
Our corporate taxes have gradually been reduced from a high of 40 per cent in 1986 to the current 17 per cent since 2010. I don’t anticipate that the Government will increase corporate taxes, given the potential impact such a move can have on attracting big businesses to Singapore and growing our economy.
What about personal income tax?
I think what is possible is for the Government to introduce a higher tax bracket for super-high income earners. As Mr Panneer Selvam from Ernst & Young Solutions said,
“The income bracket that could most likely see an increase in tax rate would be those earning over S$160,000. Based on chargeable income for the year of assessment in 2016, raising the top marginal income tax rate by 1 per cent to 23 per cent could result in the government’s approximate tax revenue going up by some S$300 million.”
But one pitfall of upping the income taxes for the super-rich class is that it might send a signal to top foreign talents who are considering a move to Singapore. And of course, it might drive talents out too.
Will they finally increase GST?
By nature, the goods and services tax (GST) is inherently regressive in nature. A regressive tax is a tax that takes a larger percentage of income from low-income earners than from high-income earners. It is in contrast to progressive tax, which takes a larger percentage from high-income earners. A regressive tax is generally a tax that is applied uniformly to all situations, regardless of the payer.
However in Singapore, this regressive tax works within a system that turns it into a progressive tax. You see, since GST was introduced in 1994, the Government has introduced GST offsets that exceed the GST taxes paid by less well-off individuals. By now, it has evolved into a permanent GST voucher scheme that provides transfer payments to the needy individuals. So yea, Singapore has turned a regressive tax progressive.
I think it’s safe to assume that even if the Government increases the GST rate, it will continue with the GST voucher system, and perhaps some other forms of social transfers to lower-income Singaporeans.
Why not cut Ministers’ pay?
Can’t we pay for the increase in social expenditure in by cutting the pay of ministers? After all, they are paid so much!
Surely you have heard of these rants online. Oh please. Even if all our ministers worked for free, that will not even pay for building the Circle Line.
Another way to think about it, in 2015, there are about 30,000 families who received short to medium term financial assistance under ComCare. Even if all the ministers worked for free, that’s only enough to give every of those families an additional $800 a year. So, if anyone says that we can pay for all the increase in social spending by just cutting the pay of the ministers, that person should probably get their head checked.
That said, if raising taxes allows us to have a strong social safety
net trampoline and helps us build a Singapore where no one really need to suffer the pain of being in abject poverty (think senior citizens and cardboard boxes), then please go on ahead to raise taxes. That’s the right way to go towards building a more equitable society.