A bird’s-eye view of the budget — Addendum 2

A comment by haveahacks to the post A bird’s-eye view of the budget pointed out that the government gave a 20-percent rebate on personal income tax in several years. As a result, the data pertaining to the trending of personal income tax have to be adjusted to reflect this factor.

While I couldn’t locate the statement about rebates in Years of Assessment 2008, 2009 and 2011 on the Inland Revenue Authority’s website as haveahacks said, I did see a report in the Straits Times that corroborated haveahacks’ comment.

The newspaper reported:

Taxpayers will get a one-off personal income tax rebate of 20 percent this year but the handout will be capped at $2,000.


Taxpayers enjoyed a similar windfall in 2008 and 2009.

— Straits Times, 19 February 2011, Tax rebate to help middle-income earners.

This does not mean that the government had forgone 20 percent of the personal income tax collectible. Only about half of those taxpayers enjoyed the full 20 percent rebate; the other half  by my estimate would have income tax assessments exceeding S$10,000, and so their rebate would be capped at $2,000. My back-of-the-envelope calculations indicate that the government forwent about 13 percent of the Personal Income Tax they might otherwise have collected.

Furthermore, I don’t think rebates applied to Withholding Tax, so the government passed up on only about 11.5 percent of the Personal Income Tax + Withholding Tax subtotal.

Thus, I am adjusting the figures for 2008, 2009 and 2011 by increasing the numbers by 13 percent (reciprocal of 11.5 percent):

As haveavacks said, the comparable totals for Personal Income Tax + Withholding Tax now show a dip in one year.

This probably indicates the recession’s effect on middle- and high-income earners. The rebate is a better explanation for the consistently upward trend in the budget collection figures than my earlier suggestion that the rich could make themselves immune to economic cycles.

* * * * *

Now, here’s another thought, perhaps one that readers will find particularly provocative. My readers are most likely themselves to be from the middle and upper-classes of Singapore society.

Of all the points I made in the post A bird’s-eye view of the budget, they seemed most concerned about just this one: that the mid and high-income group did not suffer the recession. Most of the readers’ comments relate to this speculative point I made. While I was probably wrong — their earnings stagnated or were rolled back too — yet it somehow seemed that they were inordinately eager to prove  that Indeed, We Suffered Too!

By contrast, my other, and I think more important, point received not a single comment. It was that we can discern from five or six budgets an inconsistency of fiscal transfers to the worse-off. This is the table (from the earlier post) I am referring to:

It is a criticism I am making of the government’s budgetary philosophy. The very flat Goods and Services Tax is permanent, but the figures show that relief from its regressiveness is ad hoc, more dependent on election cycles than any concern for the less well-off. 2006 and 2011 were election-year budgets, and these were the two budgets with the highest quantum of transfers. As soon as an election is over, transfers plunge, as in 2007, which was also the year when the GST rate was raised by two percentage points.

It is a criticism made by several opposition parties too, and my figures bear them out.

Let me ask now: Is it possible that my middle- and high-income readers are only all too aware that greater budgetary equity for the less well-off can only mean higher taxes, and/or a more progressive overall tax slope, and this background awareness prompts readers to rush forward to say “But we suffered too!” rather than “Yeah, we should do more for the less well-off”?

That self-interest may be at work here?

10 Responses to “A bird’s-eye view of the budget — Addendum 2”

  1. 1 Charles 22 February 2011 at 20:12

    In my years in Singapore I have heard a lot of “the pap should do more, but not increase taxes”
    A point or two of GST could be transferred to higher brackets of income tax.

  2. 2 Charles 22 February 2011 at 20:15

    Also a lot of potential is lost in the CPF: having EVERYONE save that much amount of money in medicate in case they get sick is counter productive: medical risks should be mutualised and more money would flow back into the economy, there would be less need for other govt redistribution.

  3. 3 Stngiam 22 February 2011 at 21:59

    Apart from the MOM data on income, IRAS also gives breakdowns of taxpayers by income in their annual reports. From the home page, About IRAS > IRAS’ Organisational Profile > Annual Report. Historical tax rates (and rebates) are under Quick links/Tax rates.

    In 2009 there were 3,600 people who earned over a $1 million, 5% fewer than in 2008. Unfortunately, unlike MOM, IRAS doesn’t provide the data in excel format, so it will take some work to look at shifts in the whole income distribution over time.

    Over the long run, there’s no doubt that income distribution has become more skewed. Even govt doesn’t deny it. What to do about it ? That’s a good question. I would start by imposing capital gains tax so that work is not penalised relative to passive income or speculation. That would also make the tax system more progressive because high income people are more likely to have capital to invest.

    You are correct to say that discretionary transfers are not a systemic means of addressing the regressivity of GST. Workfare is a partial solution but it is slanted towards encouraging older workers not to retire rather than just helping low income workers. The new workfare bonus does bring the cash:CPF ratio to about 1:1 and for over 55s, CPF can be withdrawn provided they have already reached their Minimum Sum. Would be interesting to see what percentage of over-55 WIS recipients fall in that category. As for younger workers, the standard answer is always more training, but frankly, most of the money govt spends on training is going down the drain. Unless you’re an approved WDA provider, in which case you’re feeding at the trough. The only effective tool is going to be cutting the number of foreign workers. The catch is figuring out how fast to ratchet up the levies without driving up inflation and killing off businesses.

  4. 4 haveahacks 22 February 2011 at 23:44

    See http://www.iras.gov.sg/irasHome/page04.aspx?id=1190 for the rebates. Thanks to Alex for doing all the calculations including adjusting for the $2,000 cap. Too complicated for me !

  5. 5 Sprechen Sie Singlisch? 23 February 2011 at 01:11

    Ah the elephants in the rooms. How do we deal with the growing income inequality as quantified by the ever increasing gini coefficient? Currently, 42.5.

    But before we approach this I would suggest a quick look at another elephant in another room namely the US budget and its list of entitlements to mitigate these equalities. Nice infograph below.


    Specifically, Social Security, Medicare, Mediaid(in Health) and Income Security. Note they are all mandatory spending. But neither Democrats nor Republicans (especially them) care to tackle those parts of the budget as part of their deficit reduction schemes. It would be political suicide to do so hence the bucket get kicked on to the next Government ad infinitum till something bad happens.

    So in this context, ad hoc income redistribution would make sense to discourage a sense of entitle regarding these benefits. Although I will admit that in our context, they are used primarily as electoral carrots. Is there a pragmatic way of taking care of our poor, sick and elderly without screwing over the fiscal future of our children?

    Further, some income inequality may not be a bad thing if and this is a big if it is couple with substantial social mobility. (Is there a way of quantifying this?) This is especially pertinent in a meritocracy. The training schemes are an attempt to fix the problem, their effectiveness is another issue. On the generational side, do we have the institutional support for kids from low income households to compete with their high income household peers for a chance at moving up the ladder? The emphasis on breeding graduates seem to speak against this.

    Finally, social safety nets reduce saving rates and help to increase domestic consumption. For a predominately trade base country this many not be the best thing.

    • 6 Fox 23 February 2011 at 15:44

      @Sprechen Sie Singlisch,

      The problem that the US is facing is mainly demographic in nature. The dependency ratio is increasing as the baby boom generation is retiring. This problem is more about demographics than it is about social welfare transfer. At the national level, the US is using proportionally more resources to take care of its retirees. This was not a problem in the past because dependency ratios were lower.

      You already have similar problems in Singapore. The dependency ratio in Singapore is also rising as the number of retirees increase. Even if the government spends next to nothing on social welfare, saving rates in Singapore are still going down because as the population ages, it draws down its savings to pay for retirement and it no longer able to generate as much surplus savings as before.

      This is why Singapore is raising the retirement age and increasing immigration. It is trying to slow down the rise in the dependency ratio.

      Don’t forget that the Singapore government derives a significant part of its revenue from its investment income which is generated from investments made with the surplus savings of Singaporeans. As more and more Singaporeans draw down their CPF, the investment capital that the SG government has will be reduced.

  6. 7 Jonno 23 February 2011 at 15:08

    The underlying changes to the Singapore economy is very clear. Singapore vacated the low-end manufacturing to PRC due to its high cost structure. With no clear manufacturing technology or expertise unlike Taiwan, South Korea or Japan, Singapore – other than land & tax benefits and efficient logistics, could not compete in the high-end manufacturing sector either. Clearly, Singapore is now stuck in a SLOW GROWTH situation. Therefore, personal as well as corporate income taxes will also reflect this future SLOW GROWTH.

    Unlike the smooth economic uptrend emerging from Post-Pan-El crisis in 1987/88 and ended by the Asia Financial Crisis in 1997/98. Then, personal income grew exponentially as the economy grew and lahour/management shortages contributed to rapid income rises. This decade (2000-2010) have seen personal income generally impacted by retrenchments,layoffs & wage cuts until 2006; recovered gradually in 2007 but then receded again with the GFC in 2008/09; recovered again with the IR projects coming on-stream. In a nutshell, personal income grew very little in these years and this may clouded the personal income tax analysis

    Incremental growth in the personal income tax is probably due to increased immigration rather than increased income growth. As a high proportion of new immigrants are low to lower middle income earners – they probably attract little or no income taxes. This is where GST comes in – a regressive comsumption based tax which captures tax revenues at the lower end of the economy. As things go, GST revenues will continue to grow either through increasing GST rate or Singapore’s costs [prices] escalates due to its open economy or both!

    It is no coincidence that as personal income tax rates goes down, the GST rate will definitely go up. It is not about “Foreign Talents” coming to Singapore to boost Singapore economy but rather, the overall Singapore economy structure shows a distinct “Economic Downshift” – meaning attracting more lowly paid workers to the growing service industry. With their income levels attracting very little tax – Singapore Government ‘mops’ up the surpluses via GST, Workers’ Levy & various training or some accreditation schemes!

    Singapore is unlike Western Democratic-elected countries like USA, Canada, Australia or UK. The Singapore economic model is skewed towards maintaining the instruments of power – mops up the economic surpluses for its’ (the Government) benefit and discards the write-offs (go figure!) as it goes through a restructure! Social Welfare, Social Security, Medicare, Medi-Aid(in Health) and Income Security – they don’t exist in Singapore with this government!

  7. 8 Jason 24 February 2011 at 00:03

    There need not be any bias of attention on the part of commenters – it could simply have been an attention cascade where the first response leads to the discussion going one way.

    For transfers, not sure how you obtained the numbers. I looked at the financial transfers for budgets 2007 2008 2009 2010, and the special transfers for revised FY2006 FY2007 FY2008 and FY2009 were $3.58b, $2.19b, $7.40b and $5.60b respectively.

  8. 9 Sprechen Sie Singlisch? 24 February 2011 at 01:58

    There is I believe some level of redistribution but none of it is systematic or permanent which I think is what Alex allures to. But I will push forward the position that I loath to admit which is that status quo is mostly acceptable.

    To explain why it make sense to break up the problem demographic into the (non elderly) poor, sick and elderly and see whats on the table in Singapore.

    The poor: If you are working, you get Workfare primarily for your CPF. Still running (permanent?) but funding is by fiat.

    The (working) sick: Government run clinics and hospitals.

    The elderly: None. CPF is a saving plan.

    If your not working and don’t have savings, you fall through the cracks.

    [Jonno] So if we want to change the status quo and implement redistribution we have to talk about implementing a western welfare state model which I would argue against.

    For helping the elderly, our demographic will make it close to impossible to redistribute from the young to the old [Fox]. With a 1.18 reproduction rate it will only get worse. I concede the point about keeping saving rates up. The draw down is inevitable and also explain the emphasis on GST [Jonno].

    For the (working) sick, redistribution possible but medical inflation is well under control.

    For the (working) poor, I would support workfare based on clearer rules (did those payment numbers come from the dreams of an MOM scholar?).

    For those who fall trough the cracks the best approach would be to keeping those cracks as small as possible, i.e. keep unemployment exceptional low. Doable since so much of industry is government linked.

    On the tax base side, capital gains tax [Stngiam], I think is possible but its non-existence is probably the biggest selling point the government uses to attract capital into Singapore. A point hammered in from watching hours of the same commercial selling property in Singapore on an SIA flight.

    • 10 Jonno 25 February 2011 at 15:21

      I’m not idealistic about changes in Singapore. Primarily, when the silent majority continually voted ‘democratically’ for this government in order to be regularly oppressed, trodden down and browbeaten – change initiators or agitators have very little option – either fight or flight! Change agitators (the late JB Jeyaratnam & Chee Soon Juan) have fought gamely but for what? – a lost cause at best.

      Singaporeans love to bitch with the best but when it comes to fighting in the trenches – the old man knows the Singaporean’s weakness. If the majority are a cowardly & fearful lot, what’s the point? The GE is around the corner yet opposition parties cannot get their act together – witness the Reform Party – yet to participate in their 1st election – fragmented even before the nomination date. What kind of confidence does this gives to Singaporeans to vote opposition? Is it Wayang or petty interest or both?

      Just like public-listed companies annual financial reports, government budgets provide an insight into the workings of the country. My analysis shows that all is not right with Singapore. Singapore’s Economic Growth ‘at-all-cost’ policy is no longer working. Personal incomes are not growing (in fact it is receding) & corporate profits are patchy and volatile due to globalization and competition. What is the Singapore government doing besides it’s preoccupation with benchmarking their ministerial salaries to CEOs? In a corporate setting,they would have been voted out of the Board of Directors (government) by shareholders (voters).

      The economic boost that the IRs provided, have glossed over what is currently indeed a very painful economic restructuring in Singapore.

      Everything in Singapore from basic education, transportation to retirement & health care have basic fundamental problems!

      Questions like why have to study so hard but only to find a mediocre paying job?

      Why cost of transportation is so expensive compared to walking & then complaining Singapore workers have poor productivity – after walking where got energy to work?

      Why public transport companies must earn a good profit instead of providing an essential service?

      Why we cannot retire with dignity in Singapore – still have to work as toilet cleaners or MacDonald’s uncle or auntie?

      Why to die in Singapore is better than to fall sick?

      Why Singapore subsidized Class C bills exceeds twice that of Malaysian private hospital bills?

      The Budget shows that the government running costs are rising yet they cannot solve basic problems. In SAF speak, they are ‘chaik leow bee’ – a waste of public money feeding a useless lot of bureaucrats! All I’m asking is for this lot of useless gahment servants to do their basic jobs which is to deliver a balance economic growth strategy & policy which everyone can go about earning good incomes and live with dignity.

      I’m not talking about even implementing a western welfare state model. If Malaysia ‘Boleh’ why Singapore ‘tak boleh’?

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