Jamus believes that raising GST at a time of generalized inflation is foolhardy.
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It’s worth making a subtle point about the incidence of taxes that will help explain why the
#workersparty adopted the position that GST exemptions on essential items will make things easier for those in the middle class.
Those who have taken an introductory economics course will be aware that, when a tax is introduced, it doesn’t matter whether the tax is charged to the firm or the consumer. What matters is the relative responsiveness of demand and supply (what is called the elasticity) that determines the burden borne by each party. The bottom line is that, inasmuch as the effort to get merchants to absorb the GST increase may be appreciated, it is largely irrelevant, from the point of view of policy. As long as a GST is being charged, the party that can less afford to alter their behavior—this would generally be the consumer, since these items are, after all, essentials—will feel the pinch of the increase.
That’s why an exemption at the level of the government makes sense. If there is no GST being charged, then there is no GST burden to be borne by any party, directly or indirectly. There’s no need to putz around with rebates, which the middle classes and above don’t enjoy, anyhow. And since these are essentials that everyone buys, there’s a simple moral case for why everyone should enjoy the relief.
That said, the critique embedded in my earlier post was actually simpler: that the argument that it is impractical to exempt essential items because of the difficulty in defining necessities (a claim that, incidentally, remains on the MOF website; see here:
https://www.mof.gov.sg/.../9-why-don't-we-exempt-basic...) was always a tenuous one.
Oh, and might the Committee Against Profiteering (CAP) be able to short-circuit this transmission of GST to higher prices? Alas, it is an almost impossible task. The scope of the CAP is limited by the ability to pin a disproportionate price rise to the GST hike, and the GST hike alone. I had asked once, in Parliament, how the CAP could be expected to distinguish between a price rise that opportunistically used the GST hike as an excuse to raise prices by more than 1 percent, versus one that was genuinely premised on increases in, say, costs due inflation. I never got a satisfactory answer, nor do I expect one (if you have a good way to identify the decomposition, let me know, we can work on a research paper together). The difficulty is why I believe that raising GST at a time of generalized inflation is foolhardy.
#makingyourvotecount
(Image cribbed from Economics Online, although you’ll find a comparable chart in almost any textbook).