In his New Year Message PM Lee Hsien Loong said that “the Government will have to start moving on the planned hike in Goods and Services Tax (GST) in Budget 2022, given that the economy is emerging from Covid-19”.

To quote state media:

The Government must have reliable and adequate revenues to carry out its social programmes, said Mr Lee, adding that additional revenues are needed to fund the expansion of the healthcare system and support schemes for older Singaporeans.

“Those who are better off should contribute a larger share, but everyone needs to shoulder at least a small part of the burden,” he said.

”This is the rationale for raising a broad-based tax like the GST, coupled with a comprehensive scheme of offsets to cushion the impact on lower-income households.

“The GST forms one important component of our system of taxes and transfers that also includes income and wealth taxes. Overall, our system will remain progressive and fair,” he added.

“We have seen this need coming for some years. Now that our economy is emerging from COVID-19, we have to start moving on this. Budget 2022 will therefore lay the basis for sound and sustainable government finances for the next stage of Singapore’s development.”

LHL has asserted that tax rises are needed to provide additional revenues to fund the expansion of the healthcare system and support schemes for older Singaporeans. However he has provided no evidence to support this conclusion.

Far from needing additional revenues, by my calculations the Government should be sitting on upwards of $2.6 trillion in reserves. Howver my calculation was made in March 2021. Since then markets (with the exception of China) have risen sharply so by the time LHL made his New Year address the main US index, the S&P500, had risen nearly 20%. The MSCI China technology index by contrast, to which we know Temasek to be over exposed due to their huge weighting in Chinese technology stocks, fell 22% in 2021. Nevertheless the value of the total reserves net of debt should have increased and reached possibly in excess of $3 trillion.

How much extra revenue will the Government raise by increasing GST to 9%? In Budget 2021 Finance Minister Heng forecast that GST revenues would recover from the pandemic and reach $11.34 billion in 2020. A simplistic calculation without taking account of what economists call the multiplier effect of a rise in taxes in reducing GDP as well as substitution towards non-GST expenditures, suggests the rise in taxes could raise slightly more than $3 billion in additional revenue.

This is not much more than a rounding error on the reserves amounting probably to not much more than 0.1%. In addition, as I have pointed out for years, claimed deficits using the Government’s Budget framework have actually been substantial surpluses.

The Finance Minister does not use the conventional Budget framework advocated by the IMF which is based on that used by other countries like the UK and the US. This would require the Government to show the wider public sector surplus including the net cash flows of Government-Linked Companies (GLCs) and statutory boards, the total profits of GIC, Temasek and MAS and revenue from land sales.

Even using the Government’s own fake accounting the Finance Minister practises a number of fraudulent tricks to make surpluses disappear. Ever since the Net Investment Returns Contributions (NIRCs) were introduced successive Finance Ministers have allocated all, or nearly all, of the NIRCs to top up existing endowments and trust funds or set up new ones, which seem to be multiplying at a rate that if it were babies would solve Singapore’s population woes overnight (Budget 2021 was the sole exception) Only a fraction of the money allocated to Top-ups is actually spent. In 2020 $17 billion was allocated to Top-ups to Endowments and Trust Funds but only $5 billion was spent, and part of that seems to have been double-counted by being included in Other Transfers.

On 11 January 2022 in Parliament Indranee Rajah defended the GST increase and echoed her master by saying that the Government had already set aside $6 billion by adding to the GST Voucher Fund in Budget 2020 to cushion the impact of the rise in GST on lower income Singaporeans. Indranee Rajah appears to have misled Parliament by falsely claiming that Singaporeans would be protected for the next five years from the impact of the GST increase and by ten years for lower income groups. Yet the Government’s own Analysis of Revenue and Expenditure for Budget 2021 shows that spending from the GST Voucher Fund was only $867 million in 2020 or less than 8% of the revenue raised in 2021. After the GST increase this year it will probably be less than 6%.

Indranee’s lies are just one example of the way LHL and his Government continually mislead Singaporeans treating them as though they are of subnormal intelligence. LHL claimed in his New Year address that the tax system “will remain progressive and fair.” Every Economics student knows that GST is a regressive tax since it will constitute a higher proportion of less well-off Singaporeans’ income.

This would be less egregious if Singapore had a progressive tax system in other regards. But the top rate of income tax is only 22% and this takes effect at a much higher level of income than in most countries with similar income levels. In most of the developed world the top marginal rate of tax is over 40% (in much of the US when state and local taxes are added to federal tax) and over 50% in many countries. If LHL was desperate for revenue he would raise the top rate to 30% which is unlikely to have much of a disincentive effect on Singaporeans or in discouraging foreigners from working in Singapore. Working mothers also enjoy a tax deduction starting at 15% of earned income but going up to 25% on the third child (total tax reliefs are capped at $80,000) which is grossly slanted in favour of higher earning women. It is a thinly disguised eugenicist carrot enacted because of LKY’s concerns that graduate Chinese women were not having enough babies.

It gets much worse though because Singapore fails to tax unearned income. There is no tax on dividends or investment income and no tax on income from abroad. The justification is that these exemptions induce the global super rich to take up tax residency in Singapore, people like James Dyson and Eduardo Savarin. But the Government has produced no studies to show that there is a net revenue gain from these exemptions or that there is any benefit to Singaporeans. The likely real reason, along with the abolition of death duties so LHL did not have to reveal the size of his father’s estate, is to benefit the PM and his wife as well as PAP Ministers and their relatives who, together with foreign talent, monopolise most of the high paying jobs in the bloated state sector. Not only by saving them tax but saving the PM and his wife from having to disclose their assets or investment income on a tax return that could be made public.

Undoubtedly LHL and his Ministers think that as much as possible of the tax burden should be borne by what they see as unproductive beneficiaries of state aid. Additionally taxing consumption heavily is part of the Government’s strategy, along with the heavily regressive (because capped at medium income levels) quasi-tax of CPF, to keep consumption low. For a country with Singapore’s per capita income levels, consumption expenditures of less than 40% of GDP is abnormally low. Most developed countries have consumption over 60% of GDP and for the US it is around 70%. The reason for this is to generate a high current account surplus, around nearly 20% of GDP, which in turn leads to a commensurate increase in the level of foreign assets, managed until recently by the PM’s wife at Temasek, who is still on the board, and overseen by LHL, as Chairman of GIC.

The Government’s dislike of consumption by ordinary Singaporeans is shown in Singapore’s relatively low ranking by absolute level of consumption per capita. It is 24th on the list coming in at less than 75% of the level of the UK, Japan and Hong Kong and only about half the level of the US. The comparison would be even more damning if Singapore were compared to cities such as New York, Tokyo, or London. Of course the PAP will argue that consumption is wasteful (unless it is them doing the consuming) and it is a sign of Singapore’s strength that Singaporeans cannot afford the lifestyles of people in other developed countries. Ir is unfortunate that Singaporeans and most foreigners seem to buy into this humbug and believe the PAP’s propaganda that Singaporeans are the richest and luckiest people in the world because of the quality of their (hereditary) rulers.

Indranee and her leader really should have been pulled up more forcefully by the Opposition in Parliament and not allowed to get away with spinning reassuring fairy tales of the kind you tell children before you do something unpleasant to them. There is no good fiscal reason for the GST increase and the amount of extra revenue is minuscule in comparison to the size of the reserves. Unless maybe there is something amiss and we have reason to be scared, very scared, about the reserves and our CPF. In either case Singaporeans deserve the truth not condescending falsehoods.

Links

https://kenjeyaretnam.com/2021/02/27/budget-2021-not-enough-stimulus-in-fy2020-premature-withdrawal-of-aid-in-fy-2021-and-not-enough-help-for-singaporeans/

https://kenjeyaretnam.com/2020/02/22/budget-2020-despite-biggest-threat-to-the-singapore-economy-since-2008-its-deja-vu-as-heng-and-his-master-play-their-old-tricks-of-hiding-the-money/

https://kenjeyaretnam.com/2018/02/20/budget-2018-same-old-cliches-as-heng-makes-your-money-vanish-in-the-uniquely-singaporean-version-of-the-shell-game/

https://kenjeyaretnam.com/2016/04/23/budget-2016-stuck-in-a-car-in-the-fog-who-to-ask-for-directions/

Published by kjeyaretnam

I'm a Singaporean economist who became an opposition activist. I blog to provide an alternative to the porkies that the Pinkies tell. It just so happens that my alternative is the truth. That's why I've never been sued in any civil or criminal court no matter how hard hitting my criticism. I'm quoted and interviewed and asked to speak across the world but largely censored in Singapore in an effort to silence my political opinions. The left hate me because they think I split their vote and because I eschew their outmoded economic models. Models that don't work. The Right and the Conservatives hate me because I'm a liberal. I'm not sure what the middle think of me. I don't think there are more than a handful of people in the middle, here in Singapore. I'm a Singaporean born and bred, dual heritage, my parents Singaporean established here before the State of Singapore was created. I'm not Eurasian. I read economics at Cambridge and could be broadly described as from the Keynesian school but I believe in interventions. I was formerly a successful hedge fund manager. After economics and politics my greatest interests are history, film and Makan. I run but I run so I can eat like a Singaporean. View all posts by kjeyaretnam