Tax and not spend in Singapore
Rich island state plans to hike taxes despite a booming economy, budget surplus and national credo that links social spending with failure and sloth
By almost any measure, 2017 was a good year for Singapore’s economy.
Gross domestic product (GDP) growth hit 3.6%, exceeding the government’s own predictions. While other global countries accumulated eye-watering levels of public debt, the wealthy island state turned in a budget surplus of S$9.6 billion (US$7.2).
Finance Minister Heng Swee Keat has proudly said the nation already has “sufficient resources to meet our spending needs till 2020.”
It would appear, then, an odd time to raise taxes. But alongside all the good economic news, Heng also unveiled government plans to raise the Goods and Services Tax (GST) from 7% to 9% sometime between 2021 and 2025.
“This GST increase is necessary because even after exploring various options to manage our future expenditures through prudent spending, saving and borrowing for infrastructure, there is still a gap,” he said in his budget speech.
It’s not entirely unreasonable. Singapore faces rapid demographic change: by 2030, it is expected that there will be 900,000 citizens over the age of 65. The island nation’s current population is 5.6 million, with an estimated 3.4 million Singaporean citizens.
That greying demographic will bring new costs, including the development of elder-friendly infrastructure, higher expenditures on healthcare and a smaller number of working adults with taxable income.
Singapore currently spends 50% of its expected net investment returns, including from its rich sovereign wealth fund Temasek Holdings, squirreling the rest away into national reserves. The government says this allocation is prudent, allowing for the reserves to grow with the economy. But commentators are starting to question the logic of that financial management.
“There’s nothing scientific about spending just 50% of the investment returns. Why not 60%, or even 70%? We’d still be adding to the principal of the reserves,” wrote economist Donald Low in a recent public post on Facebook.
Such an increase would likely be able to cover the amount the government seeks to raise in increasing the GST, without increasing any financial burden on citizens, he argued.
The government has long drawn a link between increased social spending and higher taxes. Eschewing the idea of the welfare state—assumed to lead to sloth and a sense of entitlement—Singapore’s leaders prefer to emphasize self-reliance and responsibility.
Both the individual and the family are expected to take care of their own needs. Laws and policies are in place to ensure this: working adults are expected to contribute part of their wages to the Central Provident Fund, a forced savings scheme that can later be used to pay for retirement, housing and healthcare.
The Maintenance of Parents Act, meanwhile, allows Singaporeans above the age of 60 who are unable to adequately maintain themselves to sue their children for support. Means testing—based on household income—is used to determine one’s eligibility for financial assistance.
“Spending is popular, but raising money to pay for it is not. The Singapore approach targets help where it is needed, without imposing a heavy tax burden on all,” the government says on its website.
“Right now, how well universal needs like housing, childcare, healthcare and long-term retirement security are met depends greatly on individual’s income from employment and their maintaining a particular family form over their life course,” says sociologist Teo You Yenn, author of the book This Is What Inequality Looks Like.
One effect of such policies is the country’s rising dependence on migrant domestic workers. Arriving from less prosperous neighbouring countries, hiring a migrant domestic worker is often seen as the more economical way to cover one’s household and care needs.
Paying a domestic worker a salary of as little as S$400–S$500 (US$300-US$380) a month means having someone to do household chores and even provide childcare or eldercare.
“The government predicted that the domestic workers’ population is going to increase to 300,000 by 2030, an implicit acknowledgement of our dependency on domestic workers, and our demographic challenges and the care work involved,” says Stephanie Chok, head of research at the Humanitarian Organization for Migration Economics, citing a 2012 White Paper.
Finance Minister Heng announced during the recent budget debate that the levy employers are required to pay when hiring a migrant domestic worker will be raised in all cases from April 2019, except where families meet the requirements for levy concessions.
Concessions will apply to families who have young children, aged parents or someone living with disabilities. The increased levy was explained as a move to “avoid an over-dependency” on migrant domestic workers.
Eschewing the idea of the welfare state—assumed to lead to sloth and a sense of entitlement—Singapore’s leaders prefer to emphasize self-reliance and responsibility
But with the combination of a high cost of living and shrinking family sizes, Singaporeans will find it harder and harder to meet everyone’s needs. Low income families, who are unable to afford hiring help to cover care gaps, are particularly likely to struggle—a challenge that is often made more stressful by stigmatized attitudes towards seeking financial assistance.
Awareness of the situation is growing, however. Since the publication of her book in January, Teo says she has received many responses from Singaporeans concerned about inequality and fairness in the country.
“Many see that our system is not fair and that the merits of hard-working people are going unrecognized or under-rewarded,” Teo said. “To truly meet people’s needs and bring about greater well-being for everyone, and to alleviate inequality, Singapore will need to move toward a more universalist model of providing public goods.”
It will be a big step for a country and a government that continuously extols the virtue of hard work, meritocracy and self-reliance—a school of thought instilled since national founding that a Singaporean’s inability to provide for oneself is viewed first and foremost as personal failure.