Re: WP Doing Nothing?
Budget 2013 Speech – MP Sylvia Lim
By MP for Aljunied GRC, Sylvia Lim
[Delivered in Parliament on 5 March 2013]
Evolving Singapore’s tax system – progressivity as a tool to promote cohesion and to mitigate the cost of living
This year’s Budget makes several important statements about the need for social cohesion amidst rising inequality. While income inequality is also large in other global cities, the government has explicitly recognised that “further steps to temper inequality” must be taken, because we are not just a city but a nation (Budget Statement (BS), para B14). Indeed, the concept of being a nation implies a people with a common identity, bound together psychologically in community; after all, we are all in the same boat.
While some inequality is useful to provide incentives to invest and to work, high levels of inequality are undesirable. Apart from the socially devastating effects of high inequality, there may be negative impacts on economic growth itself. An IMF Staff Discussion Note in 2011 observed that high income inequality was associated with shorter spells of economic growth; the authors found that countries were better able to sustain growth over longer periods of time when levels of inequality were reduced (Berg, A.G. and Austry, J.D. (2011). Inequality and unsustainable growth: Two sides of the same coin? IMF Staff Discussion Note SDN/11/08, April 8, 2011. Washington D.C.: International Monetary Fund.)
We face the twin challenge of needing to improve lives and yet keeping our country cohesive. What makes a society a “good” one? The influential philosopher John Rawls argued that a good society redistributes its wealth so that all its citizens have the same opportunity for future success in the form of equal access to public goods, such as quality education and health care. To this end, it is widely acknowledged that key government responses to inequality should include targeting subsidies to those who need it, and a progressive tax system (Berg and Austry, 2011).
This year’s Budget continues to target subsidies to households to mitigate the rising cost of living. These include higher WIS (Workfare Income Supplement) payouts, double GST vouchers for lower and middle-income households this year, and S&CC rebates. These are in principle good measures. The government has also indicated that it is thoroughly reviewing the financing framework for healthcare. The stated aim of this review is stated is to bring down Singaporeans’ out-of-pocket share of medical costs while the Government takes on a larger share (BS, para D84), again focused on the lower to middle income groups. This is welcome. The issues of healthcare costs and healthcare inflation are indeed uppermost in Singaporeans’ minds, especially with our aging population; it is also a topic I have spoken about in previous Budgets. I look forward to the fleshing out of the directions of the review as promised.
The other strategy which is key to mitigating inequalities is a progressive tax system. Simply put, a progressive tax system should aim to require those who have more to contribute more to the national coffers, which will then be used as general revenue and for re-distribution to those in need. I believe Singaporeans on the whole see the wisdom and need for this, including those who are better off. There should be a fair contribution towards our fellow citizens and to the country as a whole.
In my speech, I wish to urge the government to continue to look for ways to make our tax system more progressive and suggest that there is still room to do so, without unraveling our economic strategies.
Benefits of progressive tax system
What would be the benefits of making our tax system even more progressive? Besides the benefit of mitigating inequalities through re-distribution, having a more progressive tax system is symbolically and psychologically important at the national level. It signifies that Singaporeans are journeying together as one people towards the future, with the stronger helping the weaker.
There was a recent study of 54 nations by social psychologist Professor Shigehiro Oishi and others entitled “Progressive taxation and the subjective well-being of nations”. The study analysed data from 54 countries, including Singapore, and concluded that progressive taxation was positively associated with a nation’s sense of well-being. (Oishi et al (2012). Progressive Taxation and the Subjective Well-Being of Nations. Psychological Science 23(1) 86–92.) It was shown that, generally, countries with higher degrees of progressive taxation had citizens showing more satisfaction with their lives, as they evaluated their lives at higher scores.
According to this study, Singapore was rated in the lower half of the countries surveyed in terms of progressivity of the tax system i.e. more than half of the other countries’ tax systems were rated as more progressive than Singapore’s. As for life satisfaction, Singaporeans ranked their lives less optimistically than those in many developed jurisdictions such as Israel, United States and countries in Europe. Though the study measured a subjective index viz. citizens’ sense of well-being, this measure is important. One’s sense of well-being would affect one’s morale and confidence in the future; these would in turn affect one’s desire to procreate, something high on our national agenda.
Enhancing progressivity in Singapore’s tax system
What is the state of progressivity of our tax system currently? According to IRAS data, the top 11% of earners already contribute almost 80% of total tax takings in Singapore (A/Prof Chia Ngee Choon, “How Progressive is the New Tax Structure”? The Straits Times, 28/2/13). It was noted by Assoc Prof Chia Ngee Choon that Budget 2013 makes a further progressive move, by implementing a ‘decisive shift’ towards taxing wealth viz. luxury cars and homes, rather than just taxing incomes (ST 28/2/13). Despite these new moves in the progressive direction, I would like to highlight two areas which I believe will make our tax system fairer and more progressive.
First, our regime of personal income taxes. Currently, our personal income tax system is already progressive. For instance, those earning less than $20,000 per year do not pay any income tax. Thereafter, there is a tiered system, where higher rates of taxes apply to income earned above certain thresholds. Finally, at the top end, those earning an annual income of more than $320,000 are taxed at 20%. It has been noted by several economists that there is room for further tiering above the $320,000 threshold, as the current tiering catches a wide range of income earners in this top bracket – ranging from a university professor who just makes it to this bracket and a banker who earns millions of dollars a year. I understand that this cut-off of $320,000 has not been adjusted for around a decade, while in the meantime, incomes at the higher ends have soared. There is clearly scope to have more tiers and higher rates, say up to 25%, for those who earn above certain higher thresholds. For instance, those earning above $320,000 and up to $500,000 could continue to be taxed at 20%, those earning between $500,000 to $700,000 at 22%; between $700,000 to $1m at 24%, and above $1m – 25%. Even at a maximum income tax rate of say 25%, such a top rate would still be low globally. While some may argue that such a move might reduce our attractiveness as a destination to high-earners, I believe Singapore would still have major selling points to them, such as the ease of doing business and low corporate tax rates.
My second point relates to one of this year’s Budget proposals - the move is the introduction of tiered property tax for residential properties.
For owner-occupied homes, higher tax rates are being introduced that raise the tax rates for homes from the current top rate of 6% to a new top rate of 16% by Jan 2015. It was stated (BS, para D60) that “most retirees will end up paying less property taxes”. I would like to ask for clarification about the basis of this statement about retirees. Is it based simply on the fact that only 12,000 residential homes fall within the annual values which will now attract higher taxes? (BS, para D64). Or is the statement about retirees based on some analysis of the age of persons currently living in the higher value homes? The Budget attachment entitled “Measures for Households” states that owner-occupied homes of Annual Value of less than $59,000 will enjoy lower property taxes (Budget 2013 Key Initiatives 2 – Measures for Households para B5). I am advised that the cut-off Annual Value of $59,000 for higher taxes could conceivably include an older home in a good location, which retirees may have purchased long ago or which they themselves may have inherited. The government has explicitly acknowledged in the Budget Statement (D60) that there are retirees who are not cash rich, though they may live in homes of significant value. Some consideration and concession should be given for this.
For non-owner occupied residential units, this Budget will replace the current flat rate of tax of 10% to introduce a tiered rate based on the Annual Value of the property, ranging from 11% to 19% from 1 Jan 2014, and from 1 Jan 2015, 12% to 20%. This tiered system being introduced is admittedly more progressive than the status quo. However, as noted in the Budget Statement, the increase will only be significant for investment properties at the high-end (BS, para D68). In addition, the tiers proposed also expose a potential loophole which can be exploited. It assumes that wealthy people will invest only in high-end properties, and does not address the fact that a wealthy person could well buy multiple units of mid-range properties which enjoy lower tax rates. A wealthy person may well do this as mid-range properties may be easier to rent out. Under the proposed tiers of property tax, it seems that a person’s potentially vast cumulative property wealth falls under the radar and will be taxed at a lower rate than someone who has just one high-end investment property.
Would it not have been fairer, as a wealth tax, to assess a person’s cumulative property interests rather than to have a per-property, stand-alone approach? While it may require more administration, I believe the relevant government land registries have exhaustive records of who owns residential properties and in what proportions.
Conclusion
To sum up, I acknowledge the government’s attempts in this budget to introduce further progressivity into our tax system and its focus on targeted help, which will go some way to mitigate the inequalities faced by Singaporeans.
What is of utmost concern to most Singaporeans is worry over the rising cost of living. This should give us even greater incentive to have more progressive taxes, which will reduce the need to raise other kinds of taxes which increase the overall cost of living, such as the GST. In this regard, I urge the government to continue to look at ways to introduce more progressivity into our tax system for the well-being of our society and the nation as a whole.
Budget 2013 Speech – MP Sylvia Lim
By MP for Aljunied GRC, Sylvia Lim
[Delivered in Parliament on 5 March 2013]
Evolving Singapore’s tax system – progressivity as a tool to promote cohesion and to mitigate the cost of living
This year’s Budget makes several important statements about the need for social cohesion amidst rising inequality. While income inequality is also large in other global cities, the government has explicitly recognised that “further steps to temper inequality” must be taken, because we are not just a city but a nation (Budget Statement (BS), para B14). Indeed, the concept of being a nation implies a people with a common identity, bound together psychologically in community; after all, we are all in the same boat.
While some inequality is useful to provide incentives to invest and to work, high levels of inequality are undesirable. Apart from the socially devastating effects of high inequality, there may be negative impacts on economic growth itself. An IMF Staff Discussion Note in 2011 observed that high income inequality was associated with shorter spells of economic growth; the authors found that countries were better able to sustain growth over longer periods of time when levels of inequality were reduced (Berg, A.G. and Austry, J.D. (2011). Inequality and unsustainable growth: Two sides of the same coin? IMF Staff Discussion Note SDN/11/08, April 8, 2011. Washington D.C.: International Monetary Fund.)
We face the twin challenge of needing to improve lives and yet keeping our country cohesive. What makes a society a “good” one? The influential philosopher John Rawls argued that a good society redistributes its wealth so that all its citizens have the same opportunity for future success in the form of equal access to public goods, such as quality education and health care. To this end, it is widely acknowledged that key government responses to inequality should include targeting subsidies to those who need it, and a progressive tax system (Berg and Austry, 2011).
This year’s Budget continues to target subsidies to households to mitigate the rising cost of living. These include higher WIS (Workfare Income Supplement) payouts, double GST vouchers for lower and middle-income households this year, and S&CC rebates. These are in principle good measures. The government has also indicated that it is thoroughly reviewing the financing framework for healthcare. The stated aim of this review is stated is to bring down Singaporeans’ out-of-pocket share of medical costs while the Government takes on a larger share (BS, para D84), again focused on the lower to middle income groups. This is welcome. The issues of healthcare costs and healthcare inflation are indeed uppermost in Singaporeans’ minds, especially with our aging population; it is also a topic I have spoken about in previous Budgets. I look forward to the fleshing out of the directions of the review as promised.
The other strategy which is key to mitigating inequalities is a progressive tax system. Simply put, a progressive tax system should aim to require those who have more to contribute more to the national coffers, which will then be used as general revenue and for re-distribution to those in need. I believe Singaporeans on the whole see the wisdom and need for this, including those who are better off. There should be a fair contribution towards our fellow citizens and to the country as a whole.
In my speech, I wish to urge the government to continue to look for ways to make our tax system more progressive and suggest that there is still room to do so, without unraveling our economic strategies.
Benefits of progressive tax system
What would be the benefits of making our tax system even more progressive? Besides the benefit of mitigating inequalities through re-distribution, having a more progressive tax system is symbolically and psychologically important at the national level. It signifies that Singaporeans are journeying together as one people towards the future, with the stronger helping the weaker.
There was a recent study of 54 nations by social psychologist Professor Shigehiro Oishi and others entitled “Progressive taxation and the subjective well-being of nations”. The study analysed data from 54 countries, including Singapore, and concluded that progressive taxation was positively associated with a nation’s sense of well-being. (Oishi et al (2012). Progressive Taxation and the Subjective Well-Being of Nations. Psychological Science 23(1) 86–92.) It was shown that, generally, countries with higher degrees of progressive taxation had citizens showing more satisfaction with their lives, as they evaluated their lives at higher scores.
According to this study, Singapore was rated in the lower half of the countries surveyed in terms of progressivity of the tax system i.e. more than half of the other countries’ tax systems were rated as more progressive than Singapore’s. As for life satisfaction, Singaporeans ranked their lives less optimistically than those in many developed jurisdictions such as Israel, United States and countries in Europe. Though the study measured a subjective index viz. citizens’ sense of well-being, this measure is important. One’s sense of well-being would affect one’s morale and confidence in the future; these would in turn affect one’s desire to procreate, something high on our national agenda.
Enhancing progressivity in Singapore’s tax system
What is the state of progressivity of our tax system currently? According to IRAS data, the top 11% of earners already contribute almost 80% of total tax takings in Singapore (A/Prof Chia Ngee Choon, “How Progressive is the New Tax Structure”? The Straits Times, 28/2/13). It was noted by Assoc Prof Chia Ngee Choon that Budget 2013 makes a further progressive move, by implementing a ‘decisive shift’ towards taxing wealth viz. luxury cars and homes, rather than just taxing incomes (ST 28/2/13). Despite these new moves in the progressive direction, I would like to highlight two areas which I believe will make our tax system fairer and more progressive.
First, our regime of personal income taxes. Currently, our personal income tax system is already progressive. For instance, those earning less than $20,000 per year do not pay any income tax. Thereafter, there is a tiered system, where higher rates of taxes apply to income earned above certain thresholds. Finally, at the top end, those earning an annual income of more than $320,000 are taxed at 20%. It has been noted by several economists that there is room for further tiering above the $320,000 threshold, as the current tiering catches a wide range of income earners in this top bracket – ranging from a university professor who just makes it to this bracket and a banker who earns millions of dollars a year. I understand that this cut-off of $320,000 has not been adjusted for around a decade, while in the meantime, incomes at the higher ends have soared. There is clearly scope to have more tiers and higher rates, say up to 25%, for those who earn above certain higher thresholds. For instance, those earning above $320,000 and up to $500,000 could continue to be taxed at 20%, those earning between $500,000 to $700,000 at 22%; between $700,000 to $1m at 24%, and above $1m – 25%. Even at a maximum income tax rate of say 25%, such a top rate would still be low globally. While some may argue that such a move might reduce our attractiveness as a destination to high-earners, I believe Singapore would still have major selling points to them, such as the ease of doing business and low corporate tax rates.
My second point relates to one of this year’s Budget proposals - the move is the introduction of tiered property tax for residential properties.
For owner-occupied homes, higher tax rates are being introduced that raise the tax rates for homes from the current top rate of 6% to a new top rate of 16% by Jan 2015. It was stated (BS, para D60) that “most retirees will end up paying less property taxes”. I would like to ask for clarification about the basis of this statement about retirees. Is it based simply on the fact that only 12,000 residential homes fall within the annual values which will now attract higher taxes? (BS, para D64). Or is the statement about retirees based on some analysis of the age of persons currently living in the higher value homes? The Budget attachment entitled “Measures for Households” states that owner-occupied homes of Annual Value of less than $59,000 will enjoy lower property taxes (Budget 2013 Key Initiatives 2 – Measures for Households para B5). I am advised that the cut-off Annual Value of $59,000 for higher taxes could conceivably include an older home in a good location, which retirees may have purchased long ago or which they themselves may have inherited. The government has explicitly acknowledged in the Budget Statement (D60) that there are retirees who are not cash rich, though they may live in homes of significant value. Some consideration and concession should be given for this.
For non-owner occupied residential units, this Budget will replace the current flat rate of tax of 10% to introduce a tiered rate based on the Annual Value of the property, ranging from 11% to 19% from 1 Jan 2014, and from 1 Jan 2015, 12% to 20%. This tiered system being introduced is admittedly more progressive than the status quo. However, as noted in the Budget Statement, the increase will only be significant for investment properties at the high-end (BS, para D68). In addition, the tiers proposed also expose a potential loophole which can be exploited. It assumes that wealthy people will invest only in high-end properties, and does not address the fact that a wealthy person could well buy multiple units of mid-range properties which enjoy lower tax rates. A wealthy person may well do this as mid-range properties may be easier to rent out. Under the proposed tiers of property tax, it seems that a person’s potentially vast cumulative property wealth falls under the radar and will be taxed at a lower rate than someone who has just one high-end investment property.
Would it not have been fairer, as a wealth tax, to assess a person’s cumulative property interests rather than to have a per-property, stand-alone approach? While it may require more administration, I believe the relevant government land registries have exhaustive records of who owns residential properties and in what proportions.
Conclusion
To sum up, I acknowledge the government’s attempts in this budget to introduce further progressivity into our tax system and its focus on targeted help, which will go some way to mitigate the inequalities faced by Singaporeans.
What is of utmost concern to most Singaporeans is worry over the rising cost of living. This should give us even greater incentive to have more progressive taxes, which will reduce the need to raise other kinds of taxes which increase the overall cost of living, such as the GST. In this regard, I urge the government to continue to look at ways to introduce more progressivity into our tax system for the well-being of our society and the nation as a whole.
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