Tax hike may be implemented just to maintain “extravagant public savings rates”: Ex-GIC chief economist


Former GIC chief economist Yeoh Lam Keong has postulated on Facebook that the impending tax hike here may be implemented “to maintain one of the most extravagant public savings rates in the world” while the government continues to under-spend on social and infrastructural investments.

Yeoh’s post is in response to Prime Minister Lee Hsien Loong’s confirmation last weekend that higher taxes are inevitable when he stressed that it is a matter of when and not whether taxes will be hiked.

In announcing the impending tax hike, PM Lee indicated that the hike is part of the government’s effort to plan for the future:

“They are a vote of confidence in Singapore’s future
“Just as our forefathers saved and invested to build what we, the current generation, are enjoying today, so too we must plant trees so that our sons and daughters, and their sons and daughters, can enjoy the shade.”

Calling the practice of “spending considerably less, yet still raise taxes in the name of fiscal prudence to maintain one of the most extravagant public savings rates in the world” a “kia su” one, Yeoh pointed out that the large fiscal savings Singapore has accumulated is an “excessively unhealthy level of national savings” according to the International Monetary Fund.

The Bigger Fork in Our Long-Term Fiscal Policy RoadTo be fair to PM Lee, both the MOF and he have clarified that…

Posted by Lam Keong Yeoh on Wednesday, 22 November 2017

In case you cannot read his text above:

“The Bigger Fork in Our Long-Term Fiscal Policy Road

To be fair to PM Lee, both the MOF and he have clarified that consistent with DPM Tharmans 2015 remarks, we do not have to raise taxes before the end of the decade.

So there’s really no need to get our fiscal knickers into a twist about GST or income tax increases till after the next GE folks..

IMHO what’s really at stake are larger, more important policy issues and related fiscal choices over the longer term.

What PM was talking about and trying to tell the public was that in the longer term after 2020, tax increases might be needed given inevitable rises in social spending and infrastructure needs in the more distant future.

Actually I really hope that in the end he’s right but from an entirely different angle.

My reason : our current fiscal headroom is so large that were we to truly need higher tax revenues, this would mean that much needed increases in social spending would finally finally have been funded first. Given our current paltry current social policy spending levels, ( much lower than OECD averages as a share of GDP for healthcare, education and social protection) this would be an excellent policy development!

Consider first that we have a 5-7% GDP structural budget surplus ( calculated by global fiscal policemen the IMF no less) – that’s $20-30 bn extra a year. (I don’t want to get into technicalities of how that is a valid number here – please read my previous posts ).

Second, the formula for using net investment returns contribution or NIRC only uses only half of expected long term real returns leaving official reserves to grow by about 2% in real or about 4% in nominal terms for future generations. This could potentially contribute at least another $14bn to the budget or 3.5% of GDP currently.

This 50% spending rule for NIRC itself is a questionable division of investment income from official reserves and a shows a strangely skewed social time preference. Shouldn’t a more reasonable time preference be to use more of the investment income ( not even the real principal mind you ) for the pressing problems of the present generation in this current decade?

Surely the needs of current citizens who have built modern Singapore through very tough times and have serious remaining problems with absolute poverty, inadequate retirement finances, no universal long term or primary chronic health care, underspending in primary and secondary education relative to OECD norms, inadequately planned and funded industrial policy and a badly underperforming public transport system needs this spending now and over this coming decade. Much more so than the uncertain problems of significantly richer coming generations in the much longer term future.

I suspect though, that in the end, we might just be left Singapore daydreaming.

Rather than first spend this hard earned, exceptional fiscal largesse on pressing social and infrastructure needs of the day, then raise taxes only if necessary afterwards, I suspect that our policy makers would instead tend rather towards raising taxes first, partly to keep this implicit huge fiscal savings largely intact ( by the way the IMF thinks that this is an excessively unhealthy level of national savings ) for the rainy day in the even more distant future!

So here is what I think is the really important fork in our long term fiscal and social policy road:

Either we will finally spend enough on social and infrastructural spending – another 8-10% of GDP over the next decade – or we will continue in the kia su practice of spending considerably less, yet still raise taxes in the name of fiscal prudence to maintain one of the most extravagant public savings rates in the world.

All this while continuing to expand social policy at decidedly suboptimal levels that does not really meet our social policy needs sufficiently in all the above key areas.

To do the former means stepping out of current incrementalist, anti – welfare and state intervention mindsets and boldly reshaping, refitting and reinvesting in social policy in healthcare, education, social security, public housing and transport and industrial policy to make these key areas truly future ready for our citizens. This is what we did so successfully and innovatively in our first 30 years of independence.

Please keep in mind that at this much higher level of spending we will merely be at the lower bound of OECD public spending as a share of GDP and roughly on par with developed East Asian economies. We would also be close to true budget balance ie not structurally in fiscal deficit or running up debt. Yes, that’s how extremely conservative our current long term fiscal position is.

The latter, however ( largely status quo), means kicking the can down the road through incremental rather than transformative changes that are likely to end up being constantly behind the relentless curve of economic instability arising from globalization, technological change and worsening demographics. And perversely maintaining the highest and fastest growing fiscal resources in the world.

No prizes for which I think is the more likely scenario on current trends. Which fork we finally take and when, however, depends on both the boldness of political leadership and citizen political awareness to push for a new social and fiscal policy regime that will truly cater to our well being in a more reasonable and balanced but still sustainable way.”

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“Profligate spending and irresponsible, unsustainable plans require you to raise taxes” – PM Lee in GE2015


  1. Singapore has the highest debt to GDP ratio and public debt ratio in Asia. We are the only Asian country in the top 25 of the most indebted countries in the world. Most being Europe and the Americas (North & South America)

  2. I billion dollars budget for PA to promote community bonding. Now who is going to pay for them? Simple raise the GST from 7% to 10%. Who really benefits from this community bonding expenses? The ruling party of course because they are using these bonding thing to enhance their profile for the next GE. So when you get a good bag…. please take not it comes from the GST you paid.

  3. Seems like we get taxed, pay fees for this and that and yet we are kept in the dark of what is really in the kitty and also what Temasek and GIC have made or lost. Some of us have to make a tremendous leap of faith to believe the so-called reasons for increased taxation. And someone made a good point about the high spending by the People’s Association which essentially serves as Public Relations and Customer Relations organisations for ruling party.

  4. IRAS, don’t worry. Please wait for Chinese 7th month. Allot of tax payers most willing pay you thousands folds in taxes. Prepare a huge giant warehouse to house them for these white termites to spend in their next life!

  5. What nonsense is this? Everyone just work harder, faster, cheaper & contribute CPF to ensure multi-million Dignity for PM Lee, his Ministers & friends. Nothing else is important.

  6. not surprised at all.. just look at all those govt buildings and white elephants that had been built. not to mention those million dollar ministers. of course the upkeep is damn high

  7. Just increase our local wages to citizens lah – $1500-$2000 how to survive maintaining a family , pay new BTO , have a decent life here. Make a viable middle class , then we don’t need your lousy handouts and social help – just pay us decent to 1st world countries !!!! Then decent taxes can be paid to the nation as well

  8. Save some more. Save 90 per cent. Save until we all forage for fruit and nuts in run-down parking lots. Make us secure. Plan for the future we won’t have.

  9. We are so far given very vague answers of the increased spending on social programs. They should announce and start implement of these social programs before the increase in taxes kick in

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