20150222 GST – how ordinary Singaporeans will enrich the wealthy with another GST hike

Much has already been written about our inverse Robin Hood GST but to what extent the PAP has enriched the wealthy has been underestimated.

The fact is our GST has effectively transferred billion$ from ordinary Singaporeans to the wealthy and filthy rich and contributed to an increasing income disparity.

Singfirst’s proposal to scrap the GST and replace lost revenue with increased taxes on the wealthy, reinstating estate duty, etc will benefit low- and middle-income Singaporeans. But expect lots of resistance from many irresponsible wealthy citizens and the PAP to reject it by painting a doomsday scenario.

GST was introduced on April Fools’ Day in 1994 and has increased from 3% to currently 7% while the “maximum personal income tax rate of 33% was progressively lowered to 20%”. Below are the income tax rates for YA1987 to 1993, YA 1994 and from YA 2012 onwards. (for reference)

(Bear in mind there’s a limit to CPF contribution for ordinary wage, which fell from $6,000 to $4,500 and is currently at $5,000 ie no CPF contribution for dollar earned above $5,000. There’s also an Additional Wage Ceiling (AWC) of $85,000 for CPF contribution ie CPF contribution for bonus + ordinary wage < $85,000. In the 1990’s, the AWC was slightly higher at $100,000. Using this figure ($100,000) and a personal tax relief of $15,000, the income tax payable pre-GST by 3 income groups is calculated and shown in the table below.)

Pre GST income tax payable

. A B C
INCOME $30,000 $400,000 $1,500,000
CPF (EMPLOYEE) $6,000 $20,000 $20,000
TAX RELIEF $15,000 $15,000 $15,000
CHARGEABLE $9,000 $365,000 $1,465,000
TAX RATE 4% 33% 33%
TAX PAYABLE $360 $120,450 $483,450

After tax rates were slashed post-GST:
– A has tax savings of $360
– B – $47,450
C – $190,450
(see table below)

Tax savings in 2014

. A B C
TAX PRE GST $360 $120,450 $483,450
2014 TAX RATE 0% 20% 20%
TAX PAYABLE $0 $73,000 $293,000
TAX SAVINGS $360 $47,450 $190,450

Thanks to our 153th press freedom ranking, most ordinary Singaporeans have not even realised the PAP has been enriching the wealthy at our expense.

Obviously, the above is only the gross savings because consumption will now be taxed. Realistically, A would not have any savings due to our high cost of living as his entire disposable income is likely to be spent on necessities. Only high income earners like B and C will be able to save part of their disposable income which is conservatively estimated at 30%. (see table below)

. A B C
INCOME $30,000 $400,000 $1,500,000
CPF (EMPLOYEE) $6,000 $20,000 $20,000
TAX PAYABLE $0 $73,000 $293,000
DISPOSABLE INCOME $24,000 $214,900 $830,900
GST 7% $1,680 $14,980 $58,163

As can be seen, a reduction in tax rates with a corresponding increase in GST has left ordinary citizens poorer. It has resulted in tax savings for the wealthy which are 2 times more than the GST levied on the disposable income. (table below)

. A B C
TAX SAVINGS $360 $47,450 $190,450
GST 7% DIS INCOME $1,680 $14,980 $58,163
NET RESULT ($1,320) $32,470 $132,287

GST has benefited B and C by at least $32,000 and $132,000 respectively while A is out of the pocket by ($1,320).

Because the PAP had created a permanent issue with the introduction of GST, it recently came up with a permanent solution – GST Voucher scheme. The scheme has 3 components – cash , Medisave and U-Save. The maximum payouts are $250, $450 (85 years old and above!) and $260 (1-and 2-room HDB) respectively represented by the equation:

$960 (maximum per person) GST voucher scheme = Cash ($250) + Medisave ($450) + U-Save ($260)

As usual, all the ‘maximum’ figures look good on paper but on average, A will receive only about $400 in GST vouchers. Medisave payout applies only to citizens aged 65 and above. Even when GST offsets are included, the PAP has actually profited from ordinary citizens by almost $1,000 ($1,320 – $400).

In 2007, the government announced a GST Offset Package which would cost about $4 billion over 5 years/$800 million annually. In 2013, this amount went up to $1.2 billion only because it included a special payment. It is still less than $1 billion today.

To put this in perspective, the PAP collected $1.5 billion in GST in 1995. 20 years later, this amount had ballooned to about $10 billion. Meanwhile, GST offset package has remained below $1 billion without special payments. How are ordinary Singaporeans being helped? Or is the PAP helping itself to our money?

Ex PAP MP Tan Soo Khoon was spot on when he described the GST as a goldmine for the PAP in 2002 before it was increased to 5% in 2003.

With inflation, GST offset package should have already been increased to, say, at least $4 billion. How is the PAP helping low/middle income with the same quantum of assistance 2 decades ago? Is GST revenue neutral as PAP has claimed or just another half truth which citizens die-die must accept?

As with other government assistance schemes, almost 50% is channeled into CPF (Medisave). How does this help when necessities are paid for in cash? Why is the PAP so desperate and keeps channeling billion$ into GIC?

In 2013, PAP assisted Singaporeans by channeling almost $2 billion into CPF.

The tax burden in every society has to fall on the wealthy but PAP has implemented an inverse Robin Hood. The PAP does not have any supporting statistics to confirm it has not shifted the tax burden to ordinary Singaporeans.

According to Gintai, Law Minister Shanmugam said “the top 20% income earners, companies, and non-Singaporeans pay 84% of the total taxes in Singapore (2011) to finance our $52 billion (?) government budget expenditure.” ie:

top 20% income earners + companies + non-Singaporeans = 84% total taxes
no figures + $11 billion + 2 million persons but taxes ??? = $36.5 billion (total $43.4 billion for 2011)

Why did the Law Minister not offer concrete numbers instead of throwing smoke?

Not only that but the smoke should be challenged. Total tax revenue comprises:
– other taxes – $3.2 billion
– stamp duty – $2.1 billion
– betting taxes – $2.4 billion
– motor vehicle taxes – $1.7 billion
etc.

The figures simply don’t add up. Since Gintai’s figures were not corrected, the conclusion is Minister Shanmugam did not have the facts. : ( Should citizens believe in smoke?

Ordinary Singaporeans must be aware that PAP will continue to profit from our ignorance if we allow them to. The next stage of GST increase has already been set 2 years ago in “GST hike ‘more likely’ if Govt needs to raise revenue for new initiatives” when PM Lee said “all good things must be paid for either by raising taxes or cutting other spending…”. So did PAP cut social spending because it did not raise taxes for ‘good things’ like past ministerial salary increases?

The PAP is not interested to shift back the tax burden to the wealthy. If it did, ordinary Singaporeans would not have been forced to enrich the wealthy since 1994. What’s worse, another increase is already on the horizon.

Conclusion

Lower-and middle-income Singaporeans are worse off after the introduction of the GST. GST offsets are only a fraction of GST revenue.

The net benefit to a high income earner runs into tens of thousands of dollars every year. Those earning in excess of $1.3 million, including PAP ministers and many part-time PAP MPs, benefit by at least $100,000. The tax burden has been shifted to ordinary citizens right under our nose by the PAP.

More than a decade ago, GST was already a goldmine for the PAP. Expect ‘gold mining’ activities to pick up to perhaps 10% if the PAP still dominates parliament after the election.

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8 Responses to 20150222 GST – how ordinary Singaporeans will enrich the wealthy with another GST hike

  1. Xmen says:

    Another good piece of work!

    Incidentally, I posted a similar comment at the TRE in response to Jman –

    Jman: “After all that is said and done, Singaporeans are not likely to foot the bill to pay cleaners and security guards the kind of pay these professions fetch in Northern Europe. Many netizens say we should pay them Northern European salaries to attract them, but the same netizens are so contradictory they openly admit they are unwilling to foot higher maintenance charges for both HDB and private estates.”

    Let me try to answer the “nonsensical/circular debate” you alluded to above.

    First, Northern European (NE) countries are among the most equitable in income distributions while Singapore is on the opposite end of the spectrum as measured by the GINI index. In Singapore, you have a group of people that are taking the lion’s share of income (e.g. Ministers) while the MAJORITY are earning less than their peers in NE countries. Mind you, Singapore per capita income is probably similar or higher than those of NE countries. And if you believe what the government tells you, that you pay the LOWEST taxes in developed countries, then you should have even MORE disposable income.

    So a big difference between Singapore and NE countries is the concentration of wealth and income at the top. This is a direct result of government policy. NE countries choose to have their income broadly distributed while Singapore decides otherwise. If the MARJORITY of Singaporeans (between 20% and 80%) are making 30% more income, for example, they will not mind paying more for cleaning and other basic services. The lowest 20% will see their income rises and many will make enough to escape poverty. The only group that “loses” is the top 20% (e.g. Ministers), but they are making far too much money anyway. To attain the same GINI index as the NE countries, the top 20% will probably have to given up 70% of their income. Even then, they still have a lot of income so don’t feel sorry for them. LOL.

    http://www.tremeritus.com/2015/02/21/allow-blue-collar-jobs-to-be-taken-by-foreign-workers/

  2. phillip ang says:

    : )

  3. Anonymous says:

    You forget the absence of capital gains tax which benefits the filthy rich. And of course the supreme leader’s ‘generosity’ in donating his ill-gotten millions from defamation actions to charity which entitles him to tax deduction.

  4. Anonymous says:

    While I do not disagree with your computations, you are basing your assumption that it is fair to tax higher income earners with higher tax rate. Do you think it will be fairer to make every income earner to pay at 33%, no matter what his income is? Furthermore, your computations are based on the assumption that the older tax code to tax 33% for high income earner should be the standard. Is there any reason not to make it higher or lower?
    How about a system that mandates everyone should not own more than, say, 10 millions, in his lifetime. Anything more than that should belong to the country. Do you think it will be fairer this way?

    • phillip ang says:

      When I was paying a relatively high tax rate, it felt fair to return to society by way of higher taxes. : ) If higher taxes are really a pain and unfair, most Europeans would have migrated to Singapore/Hong Kong.
      The article is about high income earners benefitting a disproportionate amount from GST introduction. And the amount is obscene for a leader who was earning $3.9 million in 2009. What about DBS CEO’s $9.2 million pay package? Isn’t there an issue with PAP’s redistribution of wealth with its tax restructuring?
      I was only using the old tax rate as reference but if it should be reduced, the quantum should be transparent. Govt should not try to confuse citizens with all sorts of claims about GST being revenue neutral or the wealthy has contributed more to GST. The subtle transfer of wealth cannot be clearer.

      • Anonymous says:

        I think your computations of all the income taxes are wrong. Those are marginal tax rates. You may want to recheck them, though the corrected values may still support your arguments.

      • phillip ang says:

        Thanks. Have checked. 🙂

  5. wongcheokwan says:

    Good article,written through great effort,blood n tears.

    After reading the title,the rich might argue ” MAN, I DON’T MAKE A CENT BY PAYING GST

    THOUGH I PAY MUCH LESS BY PROPORTION”.

    This is how the regime operates–provide subsidy or incentive scheme to a small targeted group;

    FINANCED BY A BROADBASED COLLECTION. GST is a broadbased collection.Can you

    remember when it was announced that cleaners were to have a minimum wage of $1000;

    all HDB conservancy charges went up? They have about 50 schemes;so the victim group

    have been squeezed so many times.

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