People would probably be familiar with two characters in most families: the strict father who instills discipline, tends to lecture a little bit too much during dinner but deep down you know that he cares for your and your siblings’ wellbeing and tosses in bed a little too much, partly because of his poor back from working like a horse over the years but mainly because he worries probably a bit too much for your future.
The other character is his brother or your uncle. He’s cool, suave, speaks well, and knows the latest memes. You probably meet him only once every year and when he’s here, it’s all about spending money and enjoying the moment. “Want an iPhone? Just ask your dad to sponsor you!” And come dinner, boy, you remember those clashes he had with your dad.
In the end, you didn’t need to ask for anything extra or a sponsorship from your dad. By putting away a portion of your allowance, you finally managed to get that iPhone. And as the water starts to evaporate behind your ears, you realise there’s more sense of achievement in saving up for what you want…
And that your cantankerous dad was right all along; the values you inherited from him have served you well.
This is the fundamental difference in philosophy between our Party and the Workers’ Party (WP) when it comes to taxes.
Be prudent, save up for the future, spend within our means versus a tax regime that wants to draw more from the reserves.
The GST conundrum
Despite the difference in philosophy, WP can surely agree to the Party’s proposed public spending.
However, where does the government generate S$3.5 billion (the extra revenue that can be generated from the 2 percentage point GST hike)? Wealth taxes? Sure.
But it is impossible to generate S$3.5 billion just from the top 1 per cent or 10 per cent. They will move their assets out of Singapore. They will earn their income somewhere else and many places will welcome them with open arms. In a globalised and mobile world, they are not price takers, countries are.
This means that people, not just at the very top, but the middle class would have to shoulder such a punitive load. It means our new university and polytechnic graduates, young couples, our average workers will have to pay more income taxes.
It means higher property taxes to a larger proportion of properties – not just your luxury penthouses or landed property but also all condos, maybe even larger HDB flats and Executive Condominiums.
Every country that has tried this approach has ended up with this scenario. There are so many examples in Europe and the US. Income taxes and wealth taxes across the board. And they still have GST or VAT of around 20 per cent.
Actually, WP’s Associate Professor Jamus Lim arrived at the same conclusion.
“If you look at the four levers that we described, only one of these, what we have called the Wealth Tax Lever, actually approaches the high income, high net worth individuals. And even within that particular scenario, we had made very modest recovery assumptions, amounting to something in the order of S$1.2 billion on wealth taxes alone. Now, of course the whole is S$3.5 billion. It is important to understand that the rest of that whole would have been met by much more broad-based form of taxation,” he said during the Budget debate on Mar 1.
Broad-based taxes – a code word that means the great majority has to pay.
The fairest, most equitable, least painful way to raise a broad based tax, is through consumption, or the GST.
The WP said that they want to help ordinary Singaporeans by taxing the rich a lot more.
But in reality, as mentioned above, their proposed alternatives will hurt the middle income the most.
On Mar 2, in his Budget roundup speech, Finance Minister Lawrence Wong astutely narrowed down WP’s strategy, which is to tax the wealthy, those with assets, large companies and the future generation.
The WP even said that they found a way to generate S$70 billion through corporate taxes, a figure that is so off the mark that Minister Wong described it as “wishful thinking”. Plus, if taxing the rich will hurt the middle income and is not enough to generate revenue for spending, where next? The reserves, of course. Asking for the Net Investment Returns Contribution to be increased, asking to spend the proceeds of land sales, they are suggesting to raid the reserves.
Yes, the WP prefer to raid the reserves, which is intended for our future generation to deal with future crises, rather than support a GST that will effectively be borne mostly by the better off and one that does not hurt the poor.
Social compact is important
If we are going down this route, we might as well bid farewell to the social compact that is holding Singapore together for so long.
By squeezing everyone who does well, the middle class inevitably suffers disproportionately. One moves up the ladder only to meet the snake. What is the point?
This will hurt our social compact and is hardly equitable.
Now you can finally afford an iPhone but you need to pay more just to unlock it and use it every day.
Manpower Minister Tan See Leng said it the best: “If we take this approach, if we raise the burden on the middle class, that’s the surest way to destroy trust in our society, and Singapore will not hold together.”
Cover photo from here.