Budget 2022: Upper-income contributes more & lower-income benefits more is fairest system

Here’s a story that us Asians can relate to:

Imagine a family consisting of two elderly parents and three sons. Though the sons’ fortunes differ, both parents did their utmost best to raise them up and gave them all they could to help them succeed.

Son A, the middle child, has done well in his career and has the highest spending power.

Son B, the oldest, is doing ok but has just started a family and is starting to spend a lot more of his resources on his own family.

Son C is still studying and only has infrequent income from holiday jobs.

Naturally, the family looks to Son A to fork out more for healthcare, transport spending for the elderly parents and even for birthday celebrations.

A hunky dory situation? Not really.

Soon, this results in deep resentment on all levels: Son A says enough is enough and begins to take a supine stance, telling Son B to split the responsibility with him since Son C is unable to help. On the other hand, Son B has to pick up the slack while trying to provide for his own family – he feels particularly squeezed. Lastly, Son C feels hard done by as both brothers are accusing him of being a freeloader, his dignity affected.

This will be the beginning of the end for this family.

The scenario above is not dissimilar to the Workers’ Party populist stance on the fiscal system: to tax the rich first and if it doesn’t generate enough revenue (especially with rising expenditure when Singapore’s population ages), the upper-middle and middle income groups will be next to pay more taxes.  

One needs to ask: What does such a suggested tax regime signal?

Surely, this will go down the route of no return: sooner or later, there will be deep resentment and mistrust between the have’s and have not’s. 

What’s the solution for the three sons of different means?  The starting point is everyone chips in to help the parents. Son C, who earns the least, volunteers to accompany the parents to see the doctor when he is not working. Son B buys the groceries. Son A helps the parents pay their medical bills and the occasional holidays.

They know that each is contributing, but those with the means take a bigger share. Because of that, they get along.  From time to time, Son A picks up the bill when they go out for family dinners, even helps his siblings with their finances.   

A foundation of trust

A broad-based tax like the GST is the foundation of trust, to ensure that everyone contributes something and in turn, sends a signal that all of us are in this together. The well-to-do contributes a larger share of the GST while sound redistribution policies ensures that more help goes to those who need them more.

Finance Minister Lawrence Wong explained the PAP government’s fiscal system in his Budget roundup speech on Mar 2:

“One, a fair revenue structure, with everyone contributing, but those who have greater means contribute more. A fair system of subsidies and transfers, where all benefit, but those who are less well-off benefit more. A system where we keep taxes on middle income households low, by targeting our social safety nets at the more vulnerable households who really need the support, while ensuring universal access to high quality public housing, education, and health care.

When you put all three together, we have a progressive system of taxes and transfers – where the better-off contribute more and receive less in tax-funded benefits, while the less well-off still contribute, but a smaller amount, and receive much more in benefits.”

This forms part of the overall progressive tax structure in Singapore. For every dollar of tax paid, a lower-income Singaporean will get back S$4 in grants and subsidies. For the middle-income, they get S$2 back for every dollar of tax they pay. The wealthy in our society will pay more than what they receive – they only get back 30 cents for every dollar of tax paid.  

Singapore needs to remain an open and egalitarian society, that’s how the country can continue to be prosperous for generations to come.

Cover photo credit: L YS on Unsplash