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GST Hike - An Incredible Tale Of Taxing The Poor To Help The Poor

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  • syntaxerreur
    ####################################################### A. Another Post Election Bad News ####################################################### Singaporeans
    Message 1 of 1 , Dec 1, 2006
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      #######################################################
      A. Another Post Election Bad News
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      Singaporeans woke up one Tuesday morning in November 2006 to a
      nightmare which the Opposition had forewarned during the General
      Election in May 2006.

      Prime Minister Lee Hsien Loong announced in Parliament that the Goods
      And Service Tax (GST) will be elevated to 7% sometime in 2007, up from
      the present 5%.

      PM Lee justified that the GST hike was necessary to finance the
      enhanced social safety nets to help the lower-income group. He further
      exclaimed that "it's better to do this now when the economy is doing
      well."

      He opted not to elaborate which class of Singaporean is benefiting
      from the economy.

      The last increase in GST was from 3% to 4% in January 2003, and then
      rapidly from 4% to 5% in January 2004. Singapore was then barely out
      of the economic downturn and pushing a lingering high unemployment rate.

      Clearly, the government decision to raise GST rate has nothing to do
      with the state of the economy.

      The 2006 annual report from the tax agency IRAS revealed an intake of
      $10 billion in income tax, and $3.5 billion from GST. The increase of
      2% will mean an additional $1.5 billion each year in GST revenue, or
      more if the economy improves for the high earners.

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      B. Why GST Hike Hurts The Poor More
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      The GST is called a regressive tax. It is a fixed tax which is applied
      to every person equally regardless of their state of financial
      well-being. That means the less money you have, the bigger the
      percentage of your income paid to this form of tax.

      This is unlike the income tax which is a progressive tax where people
      with more disposable income pay a higher percentage of that income in
      tax than do those with less income.

      Consequently, the GST will actually hit poor people harder. It is
      ironical that the government should adopt a measure to ostensibly aid
      the poor by taxing the poor proportionately more than the rich.

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      C. Is The Government Broke?
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      On the last count, the Singapore Government Investment Corporation
      (GIC) has over US$130 billion in Singapore's foreign reserves
      (including gold).

      According to a GIC disclosure in 2006, the investment has an annual
      return of 9.5% in US dollars for the past 25 years. The annual return
      in Singapore dollars was 8.2%.

      Similarly for Temasek Holdings, the government's direct investment arm
      with over US$80 billion in its grasp, the 'good news' to the
      shareholders was a "robust" total shareholder's return (TSR) of 18%
      annually over the last 30 years.

      The government is also yielding a generous surplus from such
      activities as the sale of state land to property developers and posh
      investors (like the Integrated 'casino' Resort operators), the
      Electronic Road Pricing (ERP), the Certificate of Entitlement (COE),
      and an assortment of fees, charges, and levies on almost every
      conceivable aspect of life in Singapore.

      The astounding net revenue coupled with the government's regular
      assurance of prudent expenditure should not necessitate the GST hike.
      Yet, beyond explanation, the government does not think Singapore's
      accumulated wealth should be utilised for a good social cause. Nor
      does the government think it has enough revenue.

      Every call to tap prudently into the bloating reserves to assist the
      poor is met with harsh accusation of reserves-raiding and apocalyptic
      fairy tales of how Singapore will sink into some imaginary hardship.

      One of the giveaway signs of dubious investment returns is the regular
      need for more capital injections through an increase in tax on the
      population. And the GST hike bears that uncomfortable signature.

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      D. Is The Government Prudent On Expenditure?
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      So where is the money entrusted by the people to the government?

      The money usually becomes more obvious during an election period,
      packaged as an inducement by the incumbent to "buy" the votes of
      taxpayers (as the Prime Minister admitted) - Baby Bonus, CPF top-ups,
      shares, direct rewards for National Service, and more.

      But government expenditure is evident daily, reported in the
      newspapers and seen around housing estates and downtown.

      It suffices to think about the ultra-million dollar projects - Sports
      Hub, Marina Downtown, Orchard Remaking, the mega Kallang-Marina
      makeover, Jurong Island Underground Oil Cavern, Liquefied Natural Gas
      storage terminal, Circle Line, overseas industrial parks, funds to
      build infrastructure to support the population explosion resulting
      from influx of Immigrants, and more.

      It is also useful not to forget the questionable spending of
      hard-earned public funds through a few useful examples - $7million
      project to win an uneatable Olympic gold medal for Singapore, $400,000
      exercise resulting in Marina Bay being renamed "Marina Bay", the $630
      million Esplanade which requires an injection of about $40 million
      government fund each year to cover recurring operating losses, $208
      million new Supreme Court Bldg designed by a "renowned British
      architect" commanding an expensive fee (a design commonly mistaken as
      a shopping centre with a revolving rooftop restaurant and viewing
      gallery), $250,000 image-survey to find out what people think of the
      Land Transport Authority (LTA) after the Nicoll Highway incident, and
      more.

      It is even more dutiful to respect the fact that the Singapore Prime
      Minister earns in excess of $2.3 million a year, higher than the
      COMBINED salary of the President of the United States of America, the
      Prime Minister of the United Kingdoms, and the Prime Minister of
      Australia. And it is also pertinent to think about the remunerations
      of other Ministers (including 2 Ministers without portfolio in the
      Prime Minister's Office), some of whom are eligible for both a salary
      and a generous state pension when they attained 55-years old. And
      taxpayers' money will have to upkeep the President, Senior Minister,
      and Minister Mentor of the land.

      It is often hard to frame the rationality of government expenditure
      within anything but extravagance for the wrong reasons.

      The Economy Drive movement which began in May 2003 had seen some
      noteworthy government savings - $602 million in 2005, $687 million in
      2003, and $736 million in 2004. The Work Improvement Team Scheme
      (WITS) and Staff Suggestion Schemes alone (SSS) saved $435 million in
      public money. And in 2004, the government afforded a 3% budget cut
      across all ministries (except the Ministry of Defence).

      All these show that the government has much to do to optimise
      taxpayers' money before stretching out their hands for more. It has
      the ethical obligation to prioritise expenditure with accountable and
      tangible direct benefits to the citizens, especially to the nearly 40%
      of households earning $2,000 per month or less.

      Without fuller disclosure, the sums on government revenue and
      expenditure simply do not add up to suggest a genuine financial crisis.

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      E. Cutting Corporate Tax Increases Government Burden Of Getting Revenue
      ########################################################################

      Oddly, the government chose to inflict more pain on their fiscal
      difficulty.

      In 2002, the corporate and top personal income tax rates were reduced
      to 22%, with a further cut 3 years later to 20%. The measure was
      implemented in tandem with the increase in GST rate to 5%. The
      government attempted to 'soften' the punishing regime with an aid
      package - Economic Restructuring Shares (ERS), rebates on rental and
      service & conservancy charges (S&CC), full absorption of GST by the
      Government for subsidised healthcare and state education charges, to
      name a few.

      In a fearful rehash of that horror, the government has once again this
      time promised a financial package to placate the people. But short
      term aid relieves the pains only in the short term.

      Minister of Defence Teo Chee Hean argued on behalf of the government
      that reducing the company taxes and personal income taxes would
      "encourage more people to be more innovative and to create businesses"
      and that "with a good growing economy, (the government) will be able
      to deal with the increases that may come with the increases of 2
      percent in GST."

      Besides the incoherent logic and bold assumptions in that statement,
      there was the unmistakable hint of government protection of the rich.

      Corporate tax cut benefits businesses and investors without
      proportionate or assured benefit to Singaporeans. Upping the GST to
      offset the reduction in government revenue hurts the people. There is
      simply no proof that when economy grows, poverty will be linearly
      eliminated. The channel for the distribution of wealth is not a
      well-paved highway.

      Furthermore, while a few big businesses will be affected by the GST
      hike, consumers at the end of the chain will bear the full brunt of
      the GST, often a few times over. Passing the business cost down to
      consumers is a common cost-recovery measure of businesses.

      The other reason why the government prefers to tinker with the GST
      instead of the income tax to fatten their account might rest in the
      realisation that many people are simply earning too little to pay
      income tax. But with GST, income-earners of all levels are taxed one
      way or another.

      Again, it is hard not to conclude that the main aim of the government
      is not to help the poor but rather to favour medium and large
      corporations. To compensate for the loss in tax revenue, they have to
      increase the GST, thus hurting the poor.

      It makes little sense to return to the poor what was reaped from them,
      and then call it charity.

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      F. Pitfalls And Safety Measures
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      The GST hike is a form of "tax and spend", where the government
      conveniently raises tax in a hurry to address immediate spending needs.

      Tax and spend however instils a nasty cyclic habit which will see tax
      rates spiral up as and when the government demands more funds. In this
      case, it means the GST and some other forms of indirect tax will
      continue to increase over the years, justifiably or otherwise. And it
      has been demonstrated to be true.

      Moreover, by responding to public calls to spend more to improve the
      lives and living conditions of citizens (especially of the needy,
      elderly, disabled, and jobless) with fiscal punishment such as a GST
      hike, the government invariably contributes to the deepening of social
      disengagement and social apathy of Singaporean who sooner of later
      will associate social good intention with self-punishment.

      If the government is indeed sincere about building a caring society,
      it will need to be mindful of its actions.

      16 days after the bombshell announcement, Second Finance Minister
      Tharman Shanmugaratnam attempted to whitewash the initial
      justification given by the Prime Minister for the GST hike by brazenly
      stating that the increased revenue collected from the GST hike would
      not entirely be used for redistribution to the needy.

      The speed with which the government retracts its promise is
      disgraceful and insulting. It blemishes their credibility and reduces
      their moral trustworthiness.

      To eliminate the distrust and demonstrate truthfulness, the government
      must address the concern over how the revenue resulting from the GST
      increase will actually go towards strengthening the social safety net
      as initially promised.

      For a start, it has to pledge a binding commitment which goes beyond
      lip services in Parliament and to the media. Next, it must set up a
      public fund to manage the revenue collected from the GST increment.
      And finally, it has to install a disciplined structure of
      transparency, accountability, and trustworthiness to assure the public
      that the entire GST revenue indeed goes to serve its intended purpose
      of helping the low-income.

      Regular public audits must be conducted, and so must the demonstration
      of tangible benefits actually experienced by the target group of people.

      A merry-go-round show of public compassion from the various government
      institutions (such as the promise by the Ministry of Health and NTUC
      to 'fight' for exemption from GST for the needy) only achieves its
      political point-scoring objective and little else.

      The government must above all spend within its means, and prioritise
      its expenditure to fit the needs of the people. It is crucial for the
      government to understand that if it is honest about the true reason
      for the GST hike, it must do all that is necessary to concretely
      actualise their intention.


      (Mr) Law Sin Ling
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