SINGAPORE - A system of universal benefits where the government pays for everyone will lead to greater inequality and an increase in taxes for the middle class, said Senior Minister Tharman Shanmugaratnam.
Addressing calls to change the way Singapore taxes citizens to boost revenue, Mr Tharman said it may seem appealing but in fact, such a system will widen the gap between the haves and have nots.
Speaking on Tuesday (July 7) during the PAP's Straight Talk series, he said: "Because if the Government has to pay for everyone, it means the better-off people get the same benefits as the poor. And it also means, and we've seen this in so many societies, that you end up with higher taxes on the middle-income group."
The rich can pay more taxes to fund such a system, Mr Tharman added, but "there's no way in which the sums will add up without also raising taxes significantly for the middle-income group".
He said that is what has happened in some advanced countries, which people sometimes think of as "some sort of dream society".
Mr Tharman, who is also Coordinating Minister for Social Policies, said the Singapore way is to keep to a system where taxes on the middle class remain low.
Taxes will of course go up as society gets older, "because our healthcare expenditures will go up", he added.
But the idea is always to "try to keep taxes as low as possible on the middle class, and use government revenues to help those who need it most, which is the poor, the lower middle-income group, and to some extent, the middle-income group as a whole", he said.
If the Government has to pay for everyone's healthcare, or if it has to subsidise all manner of other social schemes, these costs are not just passed to the Government but passed on to everyone as "nothing is free", he added.
In his speech, which was livestreamed on Facebook, Mr Tharman said: "Don't just raise taxes across the board (so that) the Government should pay for everything. It's a very important point. Some promises look appealing, but they actually lead to greater inequality over time."
The average Singapore worker currently pays about zero or 2 per cent income tax rate, and the goods and services tax, which is at 7 per cent, he said.
But in advanced countries, the average person ends up paying more than one-third of his income to the government every month in taxes, with those in Scandinavian countries paying well over 40 per cent, he added.
The Singapore Democratic Party (SDP) and other opposition parties have suggested that the Government increase taxes on the wealthy so that more money can be spent on people.
For the same reason, opposition parties have called for GST on luxury goods to be raised as well.
Mr Tharman - who is leading the PAP team contesting in Jurong GRC - said Singapore's system is one of collective responsibility, which means that everyone shares risks and no one is left on their own.
He said: "Think hard about the need for a fair system, a progressive system, and a sustainable system. And that's basically what we're trying to achieve in Singapore."
