Economy

Tax the rich? Sure, we do. But is it enough?

Here’s a common refrain when the topic of raising Goods and Services Tax (GST) is discussed: 

Why raise the GST when the government can just tax the rich?  This is a popular approach, an easy sell for a savvy politician. 

But there are two important points we should make: 

First, is imposing more taxes on the rich enough to fund our growing healthcare, social and infrastructure needs? 

Second, the government is already taxing the rich.  Statistics from the IRAS informs us that from our total tax receipts in 2020, the upper income bracket contributed to the bulk of the net tax. 

This excludes other duties and tariffs for goods and services, properties and automobiles.

The ways the rich are being taxed

A rich person owning and living in a property with a higher annual value? Pay higher property tax.

A rich person leasing out a property? Fork out even more property tax please.

A rich person buying property with higher market value? Pay more Buyer’s Stamp Duty.

A rich person buying a second property? Welcome to the world of Additional Buyer’s Stamp Duty, where buyers pay 17 per cent for a second property and 25 per cent for a third and subsequent property. In fact, the government just increased the rates last December.

A rich person buying a fancy, luxurious car? There’s the Additional Registration Fee.

The rich also pay higher income taxes while most workers don’t pay income taxes and receive Workfare Income Supplement. According to the Ministry of Finance, the top 10 per cent of individuals who pay individual income tax contribute about 80 per cent of individual income tax.

It’s undeniable that the government has been taxing the rich using a fair, progressive system.

Is it enough?

Ultimately, is implementing heavier tax rates on the rich enough to fund Singapore’s healthcare, education and transport needs, which benefit the masses?

From the chart above, we can see that GST was the third highest tax and accounted for S$10.3 billion in tax revenues for financial year 2020/2021.

A back-of-the-envelope calculation shows that an increase of two percentage points for GST would add S$3 billion, making GST the second highest tax type.

Why not increase the individual income tax since it’s comparable to GST in terms of tax revenue?

As individual income tax is a progressive tax, meaning the rich gets taxed more and the lower-income doesn’t pay income tax, raising two percentage points for individual income tax would add only S$200 million.

Or what about raising corporate income tax?

Raising corporate income tax would have a knock on effect on our economy as fewer multinational corporations would bring their businesses to Singapore, meaning there would be fewer jobs for our people. In this era of hyper digital connectedness, it is easy for Singapore to be bypassed by businesses in favour of tax havens.  

How about drawing from the reserves?

It’s always a tempting option but it’s morally questionable to draw more from the reserves.

Are we going to be part of the generation that enjoys the fruits of our forefathers’ labour and leave the future generation with a significant lesser amount?

Our Party believes this is unconscionable.  Our position since our founding has been that every generation must do what it can for the generation that comes after them.  We cannot withdraw against the future of the next generation.

The fact that the government was able to issue the response it did via the Covid Budgets during the first 12 months of the pandemic was a direct result of this fiscal prudence that is part of our Party’s DNA.

It will be foolhardy to think that Covid-19 will be the last pandemic or that Singapore will not face any more challenges or crises. In fact, the future generations will face existential issues such as climate change amidst an increasingly ageing population.

What is the government spending the tax revenue on?

Singapore is currently an ageing population and by 2030, one in four people will be aged 65 and above. This means higher healthcare costs and by extension, social and transportation costs.

A Straits Times report noted that from the last GST hike in 2007 to 2019, government spending rose from around S$33 billion to S$75 billion a year, with social spending nearly tripled and healthcare expenditure grew from around S$2.2 billion to S$11.3 billion.

Singapore’s MRT network also expanded rapidly. Since 2007, the government has added the Circle Line, Downtown Line, and part of the Thomson-East Coast Line, with the Jurong Region Line and Cross Island Line, the seventh and eighth MRT lines respectively, planned.

All these mean significant investments in infrastructure.

Making the difficult case for GST

No government wants to raise taxes if they can help it.  It hurts political capital and is unpopular. 

GST may seem like it’s a regressive system and that lower income folks are penalised.  This cannot be further away from the truth.

The fact is this: GST is a progressive tax because the rich, by virtue of their spending power, will pay more taxes.

More importantly, for every dollar a lower-income person pays for GST, he will receive S$4 in benefits while the rich will only receive $0.30 for every dollar.

These benefits come in the form of the permanent GST voucher, a scheme that helps lower- and middle-income Singaporeans with cash support and utility rebates, while the elderly also receive MediSave top-ups.

Finance Minister Lawrence Wong said on Feb 9 that there will be permanent enhancements to the GST voucher scheme and transitional measures like the S$6 billion Assurance Package to help manage the GST hike and the cost of living.

A couple earning S$5,000 a month with two children will receive S$6,500 in benefits, which works out to about 10 times the extra GST that they will have to pay each year, he said.

It is therefore untrue to say that lower-income people will be penalised more with the increase of GST.

The PAP government will not leave anyone behind

The PAP government believes in society-wide upliftment; It is the real Singapore Story and no one shall be left behind.

With the Assurance Package, permanent enhancements to the GST Voucher scheme amongst other measures, be rest assured that the PAP government will do right by all Singaporeans, especially lower-income Singaporeans and remain committed to helping Singaporeans manage the cost of living.

Budget 2022 will bring all Singaporeans forward in a fair and inclusive way as it addresses immediate issues such cost of living, while building a brighter, more secure future for all Singaporeans. 

Cover photo credit: Towfiqu barbhuiya on Unsplash