GST-Plus

The finance minister Mr Tharman admitted yesterday in Parliament that the GST in itself is not a progressive tax, but if you add in the the Growth Dividends, Edusave Top-Up, S&CC rebates, U-Save rebates and Medisave Top-Up - voila, you all get an almost perfect taxation system that takes care of the poor, the middle-class and keep the nation on an even keel to a steadier growth path. This strange concotion of GST together with its myriad of handouts and top-up will magically transformed into a progressive tax system. It is also claimed passionately by the majority of the PAP MPs that is the rich that it is subsidizing the poor and the middle class (bottom 60% household) through the GST-plus taxation system.

The simple question - is that true?

I did a simple, crude research using data from the Dept of Statistics with some assumptions and came up with the following table below:-

Household Income	2010 Monthly Income (Dollars)	Transfer Amount (Budget 2011)	Est Expenditure	Est GST	Transfer Amt minus Est GST
1st – 10th	1400	4181	1000	840	3341
11th – 20th	2681	2981	1760	1478	1503
21st – 30th	3757	2956	2881	2420	536
31st – 40th	4886	2660	3256	2735	-75
41st – 50th	5888	2660	3571	3000	-340
51st – 60th	7016	2603	4051	3403	-800
61st – 70th	8358	2603	4532	3807	-1204
71st – 80th	10095	2555	5305	4456	-1901
81st – 90th	12818	1640	6078	5106	-3466
91st – 100th	23684	740	12078	10146	-9406

In summary, GST-plus is positive for the bottom 20% of the household income group, but for most of the population, the burden of GST is greater than the provided GST-plus benefits. If we assume citizens in the broad band of the spectrum from the zero to the 90th percentile do not pay any income tax, GST-plus is regressive for the bulk of the Singaporean population.

I will do an analysis in the future to look at the income tax savings for each percentile group to get a better overall picture. However, I would conjecture at this point that the income tax saving resulting from the implementation of the GST will probably benefit the top 1% of the household income group more than anybody else.

Anyway, the overall picture that emerges from this simple analysis (which stand to be challenged and corrected) do not seems to be close to what the finance minister and his party MPs are claiming in the recent Budget debate.

Hong Kong - No GST!!!

Our budget for 2011 is supposedly designed by the government to be an enticing bag of goodies specifically intended to sweeten the ground before the impending general elections. It is akin to the carpet bombing of the enemy terrain before the ground troops are called upon to claim the final victory for the incumbent. Of course, the analogy is not totally correct as the humans residing in the terrain are not exactly the enemy of the incoming troops. In fact, it would be uncontentious to claim that more than half are friends instead.

Thus, it came as a embarrassing surprise that our closest competitor with a physical and demographic profile akin to ours recently announced a much more generous packet of "ang pow" for their citizens. To be precise, it is an outright cash grant of about $6000 HK dollars to every adult individual more than 18 years to combat the rising inflation . On top of this, there are various rebates given to income earners to lessen their tax burden. You have to bear in mind is that all this is done without the consideration "to sweeten the ground" as there  are no impending elections to talk about in Hong Kong in 2011.

You may want to ask - why is Hong Kong government able to be so generous unlike our PAP government, despite the iron-clad fact that our ministers and high-rank civil servants are paid much more to deliver the goods to its people.

Ther clear answer lies in the simple observation that there a a large hole (in fact the largest) in our expediture allocated in the name of national security and sovereignty to defence. This rather obscene sum take up about 28% of the overall government expenditure every year.In 2011, the exact sum is slightly more than $12 Billions. This is the fodder that goes to acquire the fighters, frigates... and also to provide a very luxurious income for the senior officers in the SAF. A number of related GLCs, in particular ST Engineering are kept fed and well taken care by this defence budget. As a matter for comparison, despite the hoo-ha and controversy surrounding the GST, which account for all the spending related tax we have, it amount to $7.9 billion. Not forgetting that the GST rate is now at a rather elevated 7%, it is difficult to see how to grow it further unless consumption increases further. If the rate goes higher, I shudder to predict the trajectory of the people's response.

In Hong Kong, defence expenditure is close to ZERO. So in Singapore, everyone - young or old, employed or unemployed, retirees or not is subsidizing the SAF and its affiliated organizations directly or indirectly to keep it operational and updated. However, it is still a very much an untested elephant.

For me, it means the Singpore will always remain uncompetitive vis-a-vis HongKong at a fundamental level in terms of optimising our human and financial resources.

A Note on GST

Recently, rising inflation is probably one of the most talked-about topic in Singapore and also elsewhere in the world. Witnessed the domino-like toppling of entrenched authoritarian regimes in Tunisia, Egypt .....Against the backdrop is consistently one of bulging under-employed or unemployed youth population, sky-rocketing commodities prices, growing intolerance to corruption amongst the existing ruling elites and their circle of cronies etc.

Over here in miniature Singapore, the situation is considerably milder, but we must not underestimate the hardships felt by a growing segment of the population whose incomes level have remain stagnant over the last 5 years fighting a day-to-day existential existence against the rising cost of living brought about increasing cost of basic necessities. The huge influx of immigrants over the last five years may have added a few percentage points to our GDP growth, but for a large segment of the populace, what they are getting in return for bearing with the huge the influx are wages suppression, competition for prized jobs and public infrastructure.

Hence, there is a growing chorus of calls for the abolition of the GST, at least for the basic necessities that provide for a decent living. After all, why do we want to tax the young, the poor, the unemployed and the retirees? It is therefore heartening to witness the opposition parties taking up this call, but the reaction of the ruling elites is almost as predictable as the sun rising from the east ie like a proud cockerel perched on a high rock with its beak pointing into the air. There isn't the slightest attempt to cock its ears and listen to what the other side is trying to say.

Christopher De Souza, lawyer by profession with scant understanding of economics 101, I would assumed, attempted to demolished LTK's argument for GST reduction of 2% from the existing 7% to 5% by claiming that "High income earners, we know, consume more and therefore pay higher GST." While I thoroughly agree that the high-income individual pay a higher absolute amount for GST compare to a low-income individual, there remain a strong case to look at the abolition of GST for basic necessities to alleviate the cost pressures felt by a substantial portion of the under-privileged. Remember, 7% off the basic necessities would mean their cost of living will go down by an average of 4%  to 6% for most people.

So far, I could only see two possible objections for such a proposal. Firstly, there is a significant proportion of foreign workers in Singapore, so GST is a way to ensure that they help to contribute to the nation budget since they are also the implicit beneficiary of our national infrastructure. To zero off GST even for the basic necessities would then remove the contribution from such a group that do rightly have to contribute to their host country. Secondly, there could seriously be an issue in terms of implementing a system of GST excluding the basic necessities.

In both cases, there is merit to examine more closely on the suggestion than to brush aside such proposal with the stern look of a father looking at an over-indulgent child