According to Minister Shanmugam the top 20% income earners, companies, and non-Singaporeans pay 84% of the total taxes in Singapore to finance our $52 billion government budget expenditure. The rest pay only 16% of the total taxes.
— Gintai blog, 16 June 2012, My meeting with Minister K Shanmugam Sc, Link.
I think when Shanmugam flung those numbers out like so many rose petals at a wedding, he was expecting people to appreciate how the government cares for the “common man”. Perhaps the numbers might blunt some of the criticism that there is not enough redistribution?
It didn’t work on me. His numbers floated in a vacuum. I searched high and low for contextual figures, but found none. Without context, what to make of his numbers?
First of all (and assuming the Gintai blog recorded his comments accurately) it’s hard to parse “top 20% income earners, companies, and non-Singaporeans”. Did Shanmugam mean the top fifth of income earners, plus all companies plus all non-Singaporeans? Or did he mean the top fifth of the comprehensive set of income earners, companies and non-Singaporeans?
Whether it is the former or latter, does “84% of the total taxes” represent much progressivity? It depends on what percentage of income is earned by the “top 20%”. If the “top 20%” earn 95 percent of all income earned, and they contribute only 84% of all taxes collected, that won’t sound very progressive, will it?
It’s not far-fetched to expect that the “top 20%” has such large slice of the pie. For example, just today I came across this graph on Facebook showing that in the US, the top 20 percent of households command about 85% of wealth (note: wealth, not income).
I should state however, that the study upon which the above chart is based has been contested, but the precision of the figures is not essential to my argument. I’m just using it to indicate that having the topmost 20 percent of individuals command over 80% of wealth, income or the like, is not that unrealistic, especially as Singapore’s Gini Coefficient of household income is not far from the United States’.
So straight away, saying that the top 20 percent pay 84 percent of all taxes doesn’t sound so impressive.
Furthermore, taxes include excise taxes on cigarettes, alcohol, petrol and diesel, and the 7% Goods and Services Tax. The immediate payer of tax to the government may be companies – and as far as alcohol, petrol and diesel are concerned, almost surely among the largest companies – but in actual fact the taxes are passed directly to the consumer, some of whom are rich, some poor. I doubt if there is any data as to which consumer is within which income bracket. That being the case, how does our government arrive at the simple statistic of 84% of taxes paid by “top 20%”?
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Another thing we should be careful about is the notion that the higher the percentage of taxes paid by the top 20%, the better it is. Should we be happier if the top 20% paid 99% of all taxes? Consider, if that were the case, what it might imply of a society:
1. Income inequality is so wide that 80 percent of the people are so poor that they cannot afford to pay any taxes at all, that’s why 20 percent of them shoulder 99 percent of all taxes. Or,
2. Income inequality is not all that wide, but the taxation system is designed to lurch from a no-tax position for the lower and middle income earners to a steeply progressive one for earners above the 80th percentile, thus the top 20% end up paying 99% of taxes.
In other words, without contextual numbers, just saying “the top 20% pay 84% of all taxes” tells us just about nothing. It’s a statement in a total vacuum.
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For the ordinary citizen to make sense of such numbers, he must have access to additional information. For example, we’ll need to know
- Income share by decile or quintile for (a) individual persons and (b) corporate persons;
- Tax receipts by type of tax;
- For each type of tax, what fraction is paid by individuals (split by income bands) and by corporations (also split by income bands)
- and probably some other kinds of information as well
How to get this kind of information? As things stand, there is no institutionalised way. One can try asking, but the government can simply refuse to provide an answer.
And here is where I reiterate: We need to have a Freedom of Information Act, under which the government shall be obliged to provide such information when requested.
One final observation: For a government that likes to advertise itself as highly rational and pragmatic, making decisions based on objective criteria, it is remarkably guarded about sharing information. It keeps on saying “trust us, we act according to the facts” yet consistently choose to keep facts under wraps. From time to time, they dangle a shiny bauble of data such as the above (top 20% pay 84% of taxes), and hope that people will nod and accept them as evidence that theirs is a rational, compassionate, fact-based approach to governance.
I say: if you’re so sure that you’re making the best decisions based on the facts, why are you so afraid to reveal the facts?