Budget debate: Simplistic and divisive to tax the rich, big firms instead of GST hike, says Lawrence Wong

SINGAPORE - Making various groups in Singapore pay more tax instead of raising the goods and service tax (GST) is "simplistic and divisive", said Finance Minister Lawrence Wong on Wednesday (March 2).

He was responding to Workers' Party and Progress Singapore Party MPs who said that Singapore does not need to raise the GST and that groups such as the wealthy, large companies and future generations can afford to pay more in taxes.

"I can understand why they think these alternatives are politically more attractive options to offer. But I'm afraid they are too simplistic and divisive and will end up creating more problems for our society."

Rounding up the debate on the Budget speech on Wednesday, Mr Wong said that Singapore's fiscal system is fair, provides support for all, but is tilted towards those who need it more.

He noted that Singapore cannot sustain a tax system where the bulk of the burden is borne by a small group of people at the top end.

"It will not be possible to hold our society together if only a small group of people are required to pay more taxes all the time, while the rest simply get to piggyback on their contributions to enjoy more benefits," he said.

A broad-based tax like the GST is vital because it makes a direct link between the demands of Singaporean voters and their responsibilities as citizens, said Mr Wong.

Breaking this link would encourage irresponsible lobbying and playing to the gallery. This is akin to having someone else "pay for good things in life", he warned.

Singapore has a system of collective responsibility where everyone contributes towards the cost of delivering services, which in turn benefits everyone, but those who have greater means bear a higher burden, as they draw less government support while still enjoying some benefits, said Mr Wong.

At the same time, while those with less means carry a lighter share, they still have to contribute, but they will receive more benefits compared with how much they put in, he added.

"In this way, we all do our part to help ourselves and one another, and we strengthen the trust that binds us together as a society. This is a fair and inclusive system," he said.

In his speech, the minister laid out the benefit-to-tax ratios for Singaporean households. The bottom 20 per cent of households receive $4 in benefits for every tax dollar they pay, while the middle 20 per cent receive $2 in benefits. The top 20 per cent of households receive 30 cents in benefits for every dollar in tax.

Achieving these ratios is "no mean feat", said Mr Wong, who assured the House that the Government will continue to work hard to maintain this principle in the coming years.

Singapore’s system of taxes and benefits continues to be fair and highly progressive said the Finance Minister, pointing out that retirees, on average, receive $6,900 in net benefits per member.

The net benefits are significant among Singaporean employed households, at $5,900 per member for the bottom decile, he added.

This means that for a typical household, the benefits amount to about 90 per cent of their household income.

“Put another way, government benefits will nearly double the amount of resources for these households. It is a significant and tangible form of support,” he said.

As people earn more, such net benefits are correspondingly reduced, and the higher-income are net contributors who give more than they receive.

But they benefit as well, reaping gains from Singapore’s political stability, social cohesion and the overall environment the country provides, said Mr Wong.

Noting that some MPs have asked if enough was being done for the sandwiched middle-income group, Mr Wong said that those in the 40th to 60th percentiles of household income continue to receive more benefits than their taxes.

For those in 60th to 90th percentiles, they pay some taxes after taking into account the subsidies and transfers they receive.

Mr Wong acknowledged that this group faces pressures, highlighting how the caregivers among them bear a heavy burden financially, emotional and physically. 

This is why the Government has expanded its broad-based support in areas such as education and healthcare, he said. 

“We have also increased healthcare and caregiving-related subsidies and support, to relieve the load on these families, especially for those who care for young ones and elderly parents,” said Mr Wong.

Extra care has also been taken to make sure that the middle-income continue to have a low tax burden - one that is currently significantly lower compared with other cities. 

Said Mr Wong: “For the relatively low amount of taxes they pay, they enjoy many benefits in Singapore – affordable public housing and healthcare, beautiful parks, excellent infrastructure, quality pre-schools, schools and tertiary institutions with highly subsidised fees.”

Singapore has no issue with people doing well and achieving success. Its tax system must never discourage hard work, but at the same time, stark income inequalities or social stratifications have to be avoided, said Mr Wong.

It is for these reasons that the system of taxes and transfers here will be continually reviewed to achieve a balance between rewarding enterprise, innovation and work, and reducing social inequalities.

The Budget has something for everyone and has been designed to provide opportunities for all in Singapore to succeed, said Mr Wong, adding that a significant part of social spending will go towards ensuring access to important social provisions, such as quality housing, healthcare and education, which will support the aspirations of all Singaporeans.

"We will continue to review our eligibility criteria and schemes, so that support is sufficient and targeted towards those in need," he said.

"So we are continuing with this emphasis in the Budget to provide generally for all, but to tilt the support towards those who need them more."