By Tony Tan

In the recent Community Care Endowment Fund (ComCare) appreciation lunch on 2 Dec 2010, PM Lee spoke on the government’s approach to boost our social safety nets. PM Lee said that we should not create a handout mentality and impose a tax burden that would prove impossible to roll back.

On the point of further taxation in order to enhance the social safety net, I like to highlight that the GST had already been increased from 5% to 7% in 2007. 

“Speaking in Malay, Mandarin and English, Mr Lee explained that the hike was necessary to finance the enhanced social safety nets, needed to help the lower income group and he emphasised that the offset package would more than counter the rise in GST.” Extract from the Straits Times article: “GST to be raised to 7%: PM Lee” (13 Nov 2006)

After GST was increased to 7% for more than 3 years, we need to take stock of the tax burden already imposed on Singaporeans and how that extra revenue had been used to enhance our social safety nets. Reported by the Ministry of Finance, the extra revenue generated by hiking the GST by 2% is about S$1900 millions annually.  See Table 1.

Table 1 – GST Revenue

Financial Year GST Revenue Gain in GST Revenue
after increasing to 7%
2005 S$3,815m Not Applicable
2006 S$3,978m Not Applicable
2007 S$6,165m   S$1,028m#
2008 S$6,487m S$1,853m
2009   S$6,660m*   S$1,903m*


#
GST is 7% with effect from 1st July 2007                       

*Revised Budget

But expenditure on social transfers and subventions as shown in Table 2 by Ministry of Community Development, Youth and Sports (MCYS), despite GST hike in 2007, has not increased relative to the significant increase in GST revenue collected.

Table 2 – Government Expenditure on Social Transfers & Subvention by MCYS

Financial Year Expenditure on total social transfers & subventions Gain in GST Revenue after increasing to 7%
2005 S$78.1m Not Applicable
2006 S$42.1m Not Applicable
2007 S$52.2m  S$1,028m#
2008 S$44.2m S$1,853m
2009  S$68.6m*   S$1,903m*

*Revised Budget

Expenditure on other programmes: Workfare, GST Credit and Senior Citizen Bonus to enhance social safety net continue to lag behind the significant gain in GST revenue collected. See table 3.

Table 3 – Expenditure on Workfare, GST Credit and Senior Citizen Bonus

Financial Year Total expenditure on Workfare, GST Credit, Senior Citizen Bonus Increase in total expenditure on Workfare, GST Credit, Senior Citizen Bonus after GST hike Gain in GST Revenue after increasing to 7%
2006 S$400m Not Applicable Not Applicable
2007 S$939m S$939-400   = S$539m# S$1028m
2008    S$1,166m S$1166-400 = S$766m S$1853m
2009  S$699m* S$699-400   = S$299m* S$1903m*

 

# Since total expenditure was S$400m in 2006 when GST was 5%, the increase in total expenditure in 2007 after GST   is 7% is S$(939-400)=S$539m.               

*Revised Budget

Numerically, the extra revenue generated by a 2% hike in GST is staggeringly large relative to the expenditure on programmes that enhance our social safety nets.  If the argument for GST hike in 2007 was purely meant for enhancing social safety nets, a 1% hike would have been more than sufficient. 

The Reform Party calls for the government to be prudent in policy implementation, especially on policies that unduly increase the tax burden of Singaporeans.  Policy should be well thought off before implementation. The government has to do better than to calibrate their policies on the move and explained away poor policy implementation by saying that “we are listening and we are calibrating”. Ill-conceived policy could have the unintended consequence of hurting the group of people you are trying to help. A case in point is whether a GST hike of 2% was excessive. The government could have implemented the GST hike in steps. Its implementation in 2007 was also poorly timed, as it coincided with worldwide commodity price hike resulting in an unprecedented increase in prices for food and basic necessities. Following on is the property price hike, which leads to higher business operating cost, due to the government’s liberal policy on immigration, while not increasing the housing supplies adequately.

Since 2007, the cost of living under this government has increased significantly. The lower strata of the society are most affected by the higher cost of living, while the middle class has been sandwiched. The Reform Party calls for the government to be upfront about whether they would continue to increase the tax burden on Singaporeans after the General Election; this includes possible hike in GST, ERP and other government taxes and services. 

References:
1. “Government to keep boosting social safety net: PM” by Straits Times, 3 Dec 2010
2. Ministry of Finance website: http://app.mof.gov.sg/

By Tony Tan

In the recent Community Care Endowment Fund (ComCare) appreciation lunch on 2 Dec 2010, PM Lee spoke on the government’s approach to boost our social safety nets. PM Lee said that we should not create a handout mentality and impose a tax burden that would prove impossible to roll back.

On the point of further taxation in order to enhance the social safety net, I like to highlight that the GST had already been increased from 5% to 7% in 2007. 

“Speaking in Malay, Mandarin and English, Mr Lee explained that the hike was necessary to finance the enhanced social safety nets, needed to help the lower income group and he emphasised that the offset package would more than counter the rise in GST.” Extract from the Straits Times article: “GST to be raised to 7%: PM Lee” (13 Nov 2006)

After GST was increased to 7% for more than 3 years, we need to take stock of the tax burden already imposed on Singaporeans and how that extra revenue had been used to enhance our social safety nets. Reported by the Ministry of Finance, the extra revenue generated by hiking the GST by 2% is about S$1900 millions annually.  See Table 1.

Table 1 – GST Revenue

Financial Year GST Revenue Gain in GST Revenue
after increasing to 7%
2005 S$3,815m Not Applicable
2006 S$3,978m Not Applicable
2007 S$6,165m   S$1,028m#
2008 S$6,487m S$1,853m
2009   S$6,660m*   S$1,903m*


#
GST is 7% with effect from 1st July 2007                       

*Revised Budget

But expenditure on social transfers and subventions as shown in Table 2 by Ministry of Community Development, Youth and Sports (MCYS), despite GST hike in 2007, has not increased relative to the significant increase in GST revenue collected.

Table 2 – Government Expenditure on Social Transfers & Subvention by MCYS

Financial Year Expenditure on total social transfers & subventions Gain in GST Revenue after increasing to 7%
2005 S$78.1m Not Applicable
2006 S$42.1m Not Applicable
2007 S$52.2m  S$1,028m#
2008 S$44.2m S$1,853m
2009  S$68.6m*   S$1,903m*

*Revised Budget

Expenditure on other programmes: Workfare, GST Credit and Senior Citizen Bonus to enhance social safety net continue to lag behind the significant gain in GST revenue collected. See table 3.

Table 3 – Expenditure on Workfare, GST Credit and Senior Citizen Bonus

Financial Year Total expenditure on Workfare, GST Credit, Senior Citizen Bonus Increase in total expenditure on Workfare, GST Credit, Senior Citizen Bonus after GST hike Gain in GST Revenue after increasing to 7%
2006 S$400m Not Applicable Not Applicable
2007 S$939m S$939-400   = S$539m# S$1028m
2008    S$1,166m S$1166-400 = S$766m S$1853m
2009  S$699m* S$699-400   = S$299m* S$1903m*

 

# Since total expenditure was S$400m in 2006 when GST was 5%, the increase in total expenditure in 2007 after GST   is 7% is S$(939-400)=S$539m.               

*Revised Budget

Numerically, the extra revenue generated by a 2% hike in GST is staggeringly large relative to the expenditure on programmes that enhance our social safety nets.  If the argument for GST hike in 2007 was purely meant for enhancing social safety nets, a 1% hike would have been more than sufficient. 

The Reform Party calls for the government to be prudent in policy implementation, especially on policies that unduly increase the tax burden of Singaporeans.  Policy should be well thought off before implementation. The government has to do better than to calibrate their policies on the move and explained away poor policy implementation by saying that “we are listening and we are calibrating”. Ill-conceived policy could have the unintended consequence of hurting the group of people you are trying to help. A case in point is whether a GST hike of 2% was excessive. The government could have implemented the GST hike in steps. Its implementation in 2007 was also poorly timed, as it coincided with worldwide commodity price hike resulting in an unprecedented increase in prices for food and basic necessities. Following on is the property price hike, which leads to higher business operating cost, due to the government’s liberal policy on immigration, while not increasing the housing supplies adequately.

Since 2007, the cost of living under this government has increased significantly. The lower strata of the society are most affected by the higher cost of living, while the middle class has been sandwiched. The Reform Party calls for the government to be upfront about whether they would continue to increase the tax burden on Singaporeans after the General Election; this includes possible hike in GST, ERP and other government taxes and services. 

References:
1. “Government to keep boosting social safety net: PM” by Straits Times, 3 Dec 2010
2. Ministry of Finance website: http://app.mof.gov.sg/