ALL HOPES OF Singapore's next prime minister being a transformative one, endowed with mettle and prescience to take Singapore in a different direction just went up in smoke – the announcement of planned tax increases in Budget 2018 saw to it.
The Finance Minister's expenditure estimates and the questions that ensued from the Committee of Supply debates were relegated into background noise, all garbled by four words: GST, hike, nine, percent.
The government spent much time in and out of Parliament trying to justify its decision to up the tax because the people were spending much time trying to figure out why.
At a time when a tottering economy seems unsure of its next steps, when employment figures are not singing Happy Days Are Here Again, and when our reserves are estimated to have ballooned to more than $1 trillion, it seems entirely reasonable that the inhabitants of a city that is already the world's most expensive would be, to use a polite term, incensed by the announcement of a further GST increase.
Why can't the government, many ask, just raise taxes on the opulent and leave those lower down the economic totem pole alone? There's only so much juice you can continue to grind from ordinary folk who are, by now, pulp dry.
But calls for reinstating the estate duty, imposing a capital gains tax, increasing the GST for luxury items, or upping income tax for the highest earners were swatted away with commendable quickness.
Minister of State Indranee Rajah took to the airwaves to explain why raising taxes on the wealthy cannot be done: billionaires and millionaires would be frightened away (this is a no-no as the PAP wants Singapore to be a centre where the super-rich can park their wealth while paying little to no taxes, in not so many words, a tax haven), they are savvy enough to get around the taxation, and the revenue stream would not be big enough.
So what's the alternative? Impose the GST by the same rate on everything for everyone. This, Ms Indranee insists, is the most “sustainable” source of income.
But how is taxing an already financially overstretched middle-class and working poor sustainable?
The GST, everyone agrees, is a regressive tax. The poor pay more, as a proportion of their income, than the rich. Singapore is already one of the most unequal societies in the developed world when it comes to wealth and income divide. How hard is it to see that a regressive tax like the GST adds to, not alleviates, this problem?
And just so that we are all clear, extremes in income inequality doesn't just hurt the poor. Economists Andrew Berg and Jonathan Ostry with the International Monetary Fund found that income inequality is a drag on economic expansion.
The pair studied the Gini coefficient indices of various economies (including Singapore’s) between 1950 and 2006 and tracked them over periods of economic growth. They noticed that as income inequality increased, growth periods lessened.
Equality, on the other hand, “appears to be an important ingredient in promoting and sustaining growth. The difference between countries that can sustain rapid growth for many years or even decades, and the many others that see growth spurts fade quickly, may be the level of inequality. Countries may find that improving equality may also improve efficiency, understood as more sustainable long-run growth.” (Inequality and efficiency, International Monetary Fund, September 2011)
In case you missed it, here's the last sentence again: “Countries may find that improving equality may also improve efficiency, understood as more sustainable long-run growth.”
There's another problem. Young Singaporean couples say that the high cost of living is their number one deterrent to having children. The deterrent is so potent, in fact, that we have the lowest Total Fertility Rate in the world. The high cost of living is also the reason why too many Singaporeans emigrate – or indicate a desire to.
This twin problem of an anemic birthrate and the hollowing out of our talent is what is causing our population to age rapidly and prematurely. It is a situation that the government has acknowledged as grave. (For a more in-depth discussion of this issue, please read Create, problem, exacerbate problem, then make people pay for problem.)
So did our ministers ponteng class when problem solving was taught? The first lesson is that when you are trying to get out of a hole, stop digging. How is raising the GST helping to reduce the cost of living? And if living expenses keep going up, less babies are born, more people leave, and population ageing quickens. How on earth is this sustainable?
Happy or not, here we come
But what about Ms Indranee's claim that the wealthy will head for the nearest exit if we levy too much taxes on them? There is truth to such an observation, we don't want a tax regime that is on the other extreme and leads to making everyone equally poor.
Even if we upped income taxes for our top earners closer to the 30-percent mark, we'd still have one of the lowest rates among advanced economies.
Many of these countries also have capital gains tax, estate duty and a tiered GST where luxury items are taxed more than essential goods. None of them exist in Singapore.
It also shouldn't escape anyone that the Gini coefficient for these countries are all well below that of Singapore's.
Coincidentally – or not – these countries are the happiest ten listed in the World Happiness Report of 2018. Singapore comes in at 34th.
So how do these countries survive – prosper even – if they don't try to attract and/or retain individuals with serious money to burn? Answer: they rely on citizens who don't have serious money to burn. That is, instead of jumping through hoops to catch the attention of the uber-wealthy – and, in the process, pervert their socio-economic structures – these economies focus on enhancing productivity and innovation, two qualities that are as alien as snow in Singapore.
(Note well also: Switzerland, like Singapore, is a financial centre and is widely acknowledged as the world's number one wealth management centre. Yet, its top income tax bracket is 40.4 percent, practically double that of Singapore's, and it has a Gini coefficient less than 30 while ours remains in the mid-40s.)
The decision to raise the GST and the reasons behind it are the clearest signals yet that the PAP and, more saliently, its young ministers don't get it. They seem not to recognise the looming problems, much less demonstrate the capability to tackle them. Groupthink has bitten in hard.
They continue, instead, to rely on a model that extracts wealth from the masses to prop up an oligarchy, a model long past its prime.
Even if they see the problems, they may be constrained by bouts of laryngitis. As former head of civil service, Mr Ngiam Tong Dow once offered: “When you raise ministers’ salaries to the point that they’re earning millions of dollar, every minister – no matter how much he wants to turn up and tell Hsien Loong off or whatever – will hesitate when he thinks of his million-dollar salary. Even if he wants to do it, his wife will stop him.”
This is not the kind of leadership that Singapore can afford at this or any time in the future. What we desperately need in the next prime minister is someone with foresight and fortitude.
So when Mr Lee Hsien Loong assures us that his successor is very likely already in the cabinet, we can only hope he's kidding.