GE Questions Finally Answered: Fare & GST UP!

GE Questions Finally Answered: Fare & GST UP!

Updates: Please note that the figures on GST collection is theoretical value. The actual value (from Ministry of Finance Budget 2006 figures) for GST collection per 1% is $702 million while for Income/Corporate Tax per 1% is $556 million. The tax base for GST is not as wide as I first thought. I have written another article on this little "mystery" posted in this blog.

During the May General Elections, I have asked the ruling party, PAP, to come clean with their plans for Singapore. The two main questions I have asked are:

1) Is the PAP government going to allow public transport fare increase?
2) Is the PAP government going to increase GST to 7%?

The local press did not publish my direct questions to PAP and PAP have chosen to keep silent on these questions but instead, they are more interested to continue harping on the James Gomez saga during the elections.

It is only 6 months after the May GE that I finally got my answers. The answers are Yes and Yes. I am very puzzled that if PAP is so confident that Singaporeans will support its intention to allow public transport fare hikes and GST to be increased to 7%, why didn't they say so during the May GE?

Unfortunately for Singaporeans, they have to make voting decisions with incomplete information. But I guess this is not the end yet. I believe that GST will be raised further to 10%. Why? PAP government wants to lower income tax from 20% to 16%. In thier calculations, this could only be achieved by increasing GST further by at least 3 percentage point.

I believe by now, most people will know that GST in itself, is a regressive tax. In essence, it is "robbing the poor to help the rich". It taxes on the poor so that the (income) tax on the rich could be reduced. From the news report, it is interesting to derive one simple fact: the tax base for GST is twice as big as Income tax. It means that for Income Tax, only the top 50% of income earners will be taxed. Let see how this could be derived:

It is said that for every 1% of Income tax, it equates to $700million tax revenue. Singapore's GDP is about $150 to $160 Billions. Government spending is about $20 to $30 Billions. Thus, for 1% income tax to derive $700million, its tax base must be about $70 billions.

As for GST, it is supposed to be value added tax, thus its tax base is the whole of GDP. This will mean that 1% of GST does not equate to 1% Income Tax. That means, in the simplest case when 1% of income tax is reduced, only roughly half a percentage increase in GST would be needed to cover the lost in tax revenue.

It will also mean that a 2% increase in GST will increase government revenue roughly by $3 billion. My question is this, is PAP going to spend $3 billion in welfare schemes since it claims that the increase in GST is to help finance social safety net?

Besides, PAP government has openly said that they do not believe in a "permanent" comprehensive welfare scheme but an increase in GST will definitely increase their tax revenue permanently! I am really puzzled by PAP's latest "selling point". PAP has never worked on the basis of direct financing; eg. road tax, ERP and COE revenues are not directly used in development of road networks and such. There is never a direct link in revenue to spending. All revenues collected will be pooled and redistribute accordingly. Thus it is a bit strange to me that PAP has in fact claimed that they will increase GST to finance the social safety network which is not a "permanent" system in their governing concept. In fact, if I could remember correctly, the highest government spending lies in Defence. Spending on welfare schemes hardly reach the billion mark! So what are they going to do with the potential increase of $3 billion of GST revenue? How many percentage of this increase will go to welfare scheme?

The reasoning that offset package will be in place to offset the increase of GST. But my question is, offset for how long? One year? Two year? GST will apply EACH AND EVERY YEAR, forever if it continued to be applied, not just one year! I really don't know how many Singaporeans will buy their reasoning of "offsetting" but don't they get tired of their stale marketing technique for so many years?

The most disturbing thing is that, since income gap has been widen throughout the years, is it right to further widen the income gap by taxing more (GST) on the poor and perhaps, reduce the income tax on the rich?

The most comical thing is for PAP to make comparisons with other welfare states' GST tax rate! Yes, they pay high tax but their welfare schemes are intensive and comprehensive. It seems to me that PAP government wants the best of both worlds... high GST tax rate but low welfare schemes!

Even for a capitalist city like Hong Kong, has its own side of welfarism which is more comprehensive and "permanent" than PAP's. The Hong Kong government has just announced that it will sponsor each child that goes to kindergarten HK$13000 (about $2600) every year. Out of this amount, HK$3000 is for the kindergarten to spend on their teachers' development while HK$10000 will offset the child's school fees. It would practically mean that each child will only need to pay a very neglible amount of a couple of hundred HK dollars each month for their kindergarten education. This scheme is set to solve the unequal opportunity available for those poorer families that could not afford to send their children to kindergarten and at the same time, encourage Hong Kongers to have more babies by reducing the cost of upbringing a child. Beside this scheme, Hong Kong's most impressive systems are their healthcare subsidies and unemployment benefits.

Granted that HK manages to save on defence spending but the fact still remains that it has one of the lowest rate of tax in Asia: 16%. Of course the welfare spending will create burden on its government's financial health but I think people would not mind to pay a little bit more tax when they know most of their taxes are spent on the benefits and welfare of its people. Thus, even though many Hong Kongers resisted their government's plan to implement GST, personally I am not really against the idea basically because I know the Hong Kong government really takes care of its people. It is just a matter of how much GST should be implemented.

But in Singapore's context, I do not think the PAP government is that generous in helping our citizens. They are more interested in the amount of surplus they could accumulate and how to win elections by utilizing government funds in providing HDB upgrading. In fact, when PAP government keeps promising hundreds of millions of dollars of upgrading programmes (in total, at least $2billions) during the elections time, it has never mentioned about how these upgrading programmes could be financed.

Given that the PAP government has not come up with any concrete plans on a more comprehensive welfare scheme or mention any increase in healthcare subsidies, I do not think it is justifiable for PAP to increase GST to 7% by giving such vague link to social safety net. PAP, please show us the beef and we will decide whether to buy your argument or not!

Goh Meng Seng