The Reaction

Is the reactive rage towards the GST revision premature and myopic? Since the government did not dignify Singaporeans with explanations on how and when GST will be implemented and what type of sweeteners are coated to make swallowing the bitter pill less painful, Singaporeans have a right to be furious to a degree. Furthermore, the "why" behind the hike was laid out but the bad news from a consumer's perspective was poorly marketed in terms of timing and rhetoric.

But why did the government make the teaser announcement now rather than drob the unpopular bomb later in February? One explanation is that the recently elected government expects Singaporeans to be stoic as well as forgetful, or at least numbed about the GST hike by Budget Day. The psyche of the Singaporean "whiner" is such that his or her fury fades and the transgression even forgotten with time. After all, even after the government obstinately rolled out GST hikes in 2003 and 2004, despite public pleas to delay it, the PAP managed to retain its power in 2006. the government presumes that the people will first complain and then eventually forget about it by early next year. The deaf (government) and numb (people) syndrome.

GST as a Regressive Tax and Dismal Government Rhetoric

A reasonable grouse echoed in the blogs is that the government made sweeping statements about helping the needy and implementing GST in a single breath, and somehow forgetting that GST is in almost all circumstances, a regressive tax that hits the lower income most. A similar argument bandied in is that GST is even more regressive if GST is raised to 7%. To be brutally frank, no amount of rhetoric can make people happy with any increase in GST, particularly if Singaporeans really don't know how the GST collected is actually used to fund social development programmes as claimed by this government.

At the individual consumer level, a tax on consumption is a tax on everybody - from the old to the young, rich to the poor and unemployed to the employed. In contrast, income tax can net only the employed and in Singapore's case, only those with declared income of more than $20,000 a year. Hence, GST makes sure that all will pay tax, including those who qualify for workfare bonuses - the very people that the extra revenue collected from the GST hike is supposed to help. Until the government explains it, the irony of it is appalling.

Singaporeans are not buying the story that the GST hike can actually help the poor, and the government must do even more than just promise something like the previous GST offset package.

Making Things Right, Making a GST Increase Less Unacceptable

When will GST be implemented? Would it be in stages e.g. GST raised to 6% in 2007 and to 7% in 2008, or later. What would the offset package be? Something like the last one? Or something creative that balances fiscal and people priorities? The debate lies in how the money is collected and for another time, how the money is used. The government needs to juggle its budget and realistically, revenue collection keeps Singapore going. If more money is to be spent on social development, who is going to pay for it particularly when the government wants to lower corporate tax so that Singapore can be more competitive? Other countries are also thinking of lowering rather than increasing corporate tax to remain ahead.

Back to the main GST hike questions. What kind of offset package can we accept? What kind of offset package is less unacceptable than others?

Exceptions to GST for essentials like in some other countries e.g. health goods and services is a credible path for the government to show that they are putting the people's interests first. Implement the GST hike but allow fundamental livelihood needs, in contrast with lifestyle wants, to be exempt from GST. This gives moral ground to the government not only for this hike, but for future inevitable hikes as well, looking at the GST increase trend in the last 5 years. Consequently, for the heartlander, he can be assured that he can get food, healthcare etc with lowered or no GST. But all other goods and purchases are open to GST. A reasonable caveat emptor.

Moreover, if the government wants to be seriously fair about GST, there could be different bands of GST rates for different types of services and goods, to better reflect the comsumption of necessary to ostentatious products.

One interesting view of a GST offset is not the usual useful HDB conservancy rebates, but GST refund for the needy, something like how tourists to Singapore can get a GST refund. This refund-rebate policy could be based on income declaration-housing criteria, possibly similar to those who qualify for workfare.

Besides, an income tax review might be expedient to refocus revenue collection e.g. introduce more tax brackets above the current $320,000 limit and decrease tax rates for the 5 lower tax bands. Hence, one idea to explore is that those who earn between $320,000 and $640,000 (an arbitrary band) can be taxed at the existing 20% rate but those earning between $640,000 and $1,000,000 (also an arbitrary tax bracket) are taxed at a higer rate, and those more than $1,000,000 a year taxed at an even higher rate. Thus, with the higher income tax rate crafted for the higher bands, it could boost the taxman's coffers. On the other hand, a lowered tax rate for the those earning between $20,000 and $320,000 would win favour with middle income Singaporeans. Another delicate balance with possibly a net increase in tax revenue. The flip side is that any decrease in income tax would not benefit those who earn less than $20,000 annually as they don't need to pay tax. Hence, again adding insult to injury, the lowest income group are thumped with a GST hike but yet do not enjoy the compensation of an income tax reduction.

The debate on the lessening the blow of the supposed necessity of the GST hike is so far confined to creative see-sawing of GST and corporate tax, and less so income tax. But these are not the only form of taxation in Singapore. What about controversially introducing limited capital gains tax, which does not exist in Singapore as we want to attract investments, into the formula so that no single demographic group in Singapore can deem itself favoured or marginalised and all are taxed fairly i.e. those who are better off contribute, within reason and without being punitive on entrepreneurship, more than those with a lower income.

Come February

The eye of the GST controversy storm is approaching and the calm is time for Singaporeans to state what they want and how they want it before February. As the government has not released details on the GST hike yet, this suggests that it is an apt time for us to firmly state what can be put on the table and bartered before the GST raise details are signposted. Send letters to your MP, blog about it, take the debate to the solutions level. The only problem is that maybe the government is not serious about hearing what we want and they are going to bulldoze ahead with the GST hike they way they planned. 2003 and 2004 GST revision deja vu. For example, at the momment, the government seemingly has not even opened a GST feedback channel. See above about the deaf (government) and numb (people) syndrome.

Singapore Angle Contributors on the GST Hike

First World Taxes without First World Governance?
Financial Times on GST hike
GST Upz!
Who should pay for the poor Singaporeans?
Talk about Wasting Political Capital