GST: Don’t tax the poor

Sense And Nonsense by Tan Bah Bah

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Do we need to raise the GST?

Ah, you may be asking the wrong question. Or are we? “We are not raising the GST now but we are giving you notice that we will be raising it by two percentage points from 7 to 9 between 2021 and 2025 – with the final decision depending on the prevailing economic conditions”. So, what is the right question? Frankly, I am a bit stymied though I suspect it has everything to do with the next General Election.

Basically, Finance Minister Heng Swee Keat is saying: “We have done well economically. We have a $9.6 billion surplus. But a number of near-tectonic changes are already upon us, so we have to position ourselves well to deal with them. An ageing society is the most impactful of these and we have to find the money to take care of this very serious problem. We will do everything to stretch the dollar and be frugal so that we spend only what we earn and not burden the next and future generations with bills not incurred by them.”

Yes, indeed. And, as if on cue, up came Infrastructure cum Transport Minister Khaw Boon Wan with his Facebook declaration on Friday that the East Coast Integrated Depot, incorporating three MRT depots and one for buses, will save $2 billion of taxpayers’ money. That’s a lot of saving. If you ask me, whatever is spent on transport would be money well spent anyway as it helps Singaporeans get around for leisure or work without burning their pockets. Transport is also part of the social contract between government and people. Hence, kudos to Khaw. That was a smart taiji move.

Add to all this Prime Minister Lee Hsien Loong’s own Facebook description earlier on Tuesday of the budget as “a strategic and integrated financial plan to build us a better future together”.

While Singapore is on sound fiscal footing, the hike will allow the Government to plan ahead to ensure that “we can always afford to spend what we need”, he said, pointing out that government spending will rise, especially in healthcare, infrastructure and security.

Singaporeans can totally understand financial frugality as well as the soundness of having a whole-of-government approach to solving future problems.

The question is:  With cast-iron commonsense logic on its side, why has the government been so cautious, almost hedging, in announcing the GST hike?

The GST is always a potential political bomb. Anything to do with money in, to use the late Deputy Prime Minister S. Rajaratnam’s words, “moneytheistic” Singapore can be an effective tool for controlling social behaviour if it is fully understood and universally accepted. Fines work, so does the ERP.

But no one likes to pay taxes – whether you are rich, middle-class or poor. Yet, if you are wealthy, small hikes in taxes on everyday type consumption would be like water off your back. No big deal. If you are struggling or living from hand to mouth and are not in the income tax paying brackets and have to feel the pain because of the GST, however, any increase will have an impact: $1,000 a month expenditure suddenly becomes $1,020 a month, and that’s $240 more a year.

Do you then care about external threats, technological changes, demographic shifts, whole-of-government approach, the future economy? Unlikely.

But here’s the dilemma for people who wish to dive into the debate over the GST: Is the GST hike justified, given that we have a $9.6 billion surplus, the largest surplus in 30 years?

The government is careful not to fix the tax increase right now, preferring to wait till 2021 to 2015. It is biding its time, to assess the feedback and keep its options open on the timing. There is also plenty of opportunity to sell the hike to voters, with more softeners at its disposal along the way and nearer the next GE.

And the $9.6 billion surplus? This a double-edged sword for anyone who wants to exploit it. If you push the big surplus too hard, it can be touted as the result of good financial management – to be rechanneled as subsidies to help the deserving – and not be seen as a reason to oppose a GST hike. Should we rather have such a surplus than none, in the first place? Hard to counter that.

What then should critics of the GST hike focus on?

If you have to oppose, oppose it completely in principle on socialistic grounds– since any GST hike affects the lower-income much more than those who are better off. They should not be doubly penalised. Already suffering, they have no means to get out of their trap or overcome the extra burden beyond stretching out their hands for subsidies which would have to come from taxpayers elsewhere.

Look for the money elsewhere. Don’t tax the lower-income.

Sense And Nonsense is a weekly series. Tan Bah Bah is a former senior leader writer with The Straits Times. He was also managing editor of a local magazine publishing company.