Heng Swee Keat Studied Economics With Me at Cambridge. Yet These Days He Seems to Have Forgotten Most of What He Learnt in His Eagerness to Parrot His Master
Recently I put out a blog article questioning why PM Lee needed to raise taxes, “Hey Lee Hsien Loong, Where’s Our Money Dude”. I pointed out that given the size of the accumulated surpluses it was difficult to understand why the Government needed additional revenues. Furthermore infrastructure spending should not come out of current revenues.
Like that old joke from the Singapore Herald (which was the last independent newspaper when LKY shut it down in 1971), headlined “His Master’s Voice”, showing LKY’s words being echoed by his ministers in a line, Heng has now been rolled out to talk about the need for tax increases, this time at the State Times Global Outlook Forum 2018.
Heng studied economics with me at Cambridge University in the early 80s. He did not get a First but he still must be able to recognize how ludicrous it is to talk of the Singapore tax system being “fair and progressive”. Our top income tax rate is 22%. In most of Europe it is 50 to 70%. In the UK it is 45%. Even in the US both the Senate and the House versions of Trump’s tax cuts do not envisage reducing the top rate below 38%. On earned income alone how can our tax system be called progressive?
But it is the other tax loopholes that make our tax system extremely unfair. There is no tax on investment, interest or dividend income or on remittances from abroad. There is no capital gains tax. The reason why there have been no revelations about our Familee or other ministers in the Panama Papers is that there is no need to set up trusts in tax havens to shield income.
One of the first principles of economics is that taxes should not distort decision making by taxing all forms of income at the same rate. Yet Singapore’s system means billionaires choosing to reside here pay no tax while workers on modest incomes pay much higher rates. CPF is a form of regressive tax because it forces Singaporeans to put their savings into one asset class, housing, which is overpriced as a result, and which the Government is virtually the monopoly provider.
Even the taxation of employment income is riddled with loopholes such as the Working Mothers Child Relief, which enables high earners to claim relief of $50,000 per child. The relief reflects LKY’s eugenic and racist thinking, because he wanted to encourage graduate mothers, presumably the highest earners, to have more children while low income earners, whom are more likely to be ethnic minorities, would not get any help and hopefully discouraged from breeding.
Heng seems to have forgotten these principles but more likely as a multi-millionaire he is happy to go along with the Orwellian charade of calling our tax system fair and progressive.
Worryingly when asked about the reserves and whether they could be used to fund spending (they should be used for infrastructure spending if the Government was striving for any accuracy at all in the balance sheet of assets and liabilities it publishes every year with the Budget) Heng said he “would be very cautious about making statements about how big our reserves are.” Since conservatively there should be about $600 billion of net assets (or nearly $200,000 per Singapore citizen) it is puzzling why we still need to save for future generations who will be much richer anyway at the likely rate of technological progress. Heng spoke of a very different demographic but since the old are reliant on their own CPF savings and there is no state pension this does not make any sense as the reason why taxes have to go up.
However Heng did speak of the country having to ready itself for revenue risks in the light of technological changes and evolving business models. I have written in previous blogs about how the US plan to reduce the corporate tax rate to 20%, coupled with new provisions against using tax havens to transfer income out of the US, would spell difficulties for the Singapore model, which has largely been about generating fake GDP growth a la the Irish model.
In order to counter the US corporate tax rate cut, it is clear Heng is planning to slash the corporate tax rate to close to zero while hiking the GST rate to compensate. GST is a highly regressive tax since it accounts for a much bigger share of the incomes of the less well-off than the wealthy. The PAP alway claims that it returns the GST to the less well off in the form of vouchers but this accounts for only a small fraction of total revenues raised through GST. In 2017 corporate taxes are estimated to raise about $13 billion while GST is expected to bring in $11 billion. If Heng slashes corporation tax by 50% he is going to have to increase the GST rate to 10-11% to compensate.
When this happens Heng will no doubt tell Singaporeans that the tax system continues to be fair and progressive. He will present a Budget that hides just how much of a surplus the Goverment is really making and say that there is no more money for social programmes if Singapore is to avoid bankruptcy. He, like the other PAP multi-millionaire and billionaire ministers, will pretend to be in the same boat as the majority of Singaporeans. And you will believe him.