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13/11/2022
Trends, Community Sentiment

GST Hike: Necessary Evil or Own Goal?

Taxation policy is one of the most difficult policies to formulate and implement. Indeed, taxation has profound effects on governments and citizens. Liz Truss recently resigned as Prime Minister of the United Kingdom, in part due to staunch opposition against her proposed corporate tax cuts. Yet, on 7th November 2022, the Singapore Government passed a bill to raise the Goods and Services Tax (GST) from the current 7% to 8% in 2023 and 9% in 2024. 

Progressive vs Regressive Taxes

Taxes such as GST or Value-Added Taxes are examples of regressive taxes. They are named as such as the monetary amount of taxes paid does not account for the person’s income level. Regressive taxes hit lower-income earners harder. 

To illustrate, an SGD 100 product currently has an SGD 7 GST imposed on it. A person earning SGD 5,000 or even 1,000 per month will pay the same amount for GST, which is SGD 7. Clearly, for lower-income individuals, the monetary amount of GST represents a larger proportion of their income, hence the term regressive.

Progressive taxes such as income tax consider the income earned. A higher-income earner will pay higher income taxes compared to lower-income individuals. In several countries, low-income earners pay no income tax. 

Singaporeans prefer progressive taxes

Given the nature of taxes, it is understandable that Singaporeans would view GST hikes with disdain and be more supportive of taxes geared towards the wealthy. Back in February 2022, Blackbox conducted an annual post-Budget poll. Budget 2022 was marked by the confirmation of the implementation timetable of the GST increases. From the poll, only 34% of middle-income earners expressed positive sentiments towards the then-proposed GST hikes.

Critically, tax increases tend to affect middle-income earners the most compared to low or high-income earners. Low-income earners tend to be recipients of significant government transfers and other social safety nets to cushion the effects of tax increases while high-income earners tend to be more immune to tax increases, having connections and information to safely protect their wealth. For middle-income earners, bearing a greater tax burden joins a laundry list of economic issues such as stagnating wages, job insecurity and the global inflation crisis.

Singapore’s Middle Class in Danger

Even as Covid-19 lockdowns and other measures were progressively rolled back, new concerns such as skyrocketing energy prices, the lack of recovery in the ‘just-in-time’ production and supply chains, and the war between Russia and Ukraine have placed global economies and people under significant inflationary pressures. In Blackbox’s mid-year poll, cost of living and inflation were the biggest concerns threatening Singaporeans, especially among the middle-income earners.

One potential danger of losing Singapore’s middle class is the potential knock-on effects on lower-income earners. Seeing the difficulties so many middle-income Singaporeans face, lower-income earners might turn away from improving their position, instead remaining within the lower-income bracket and continuing to receive government support during this difficult time. The lost aspirations will be detrimental to Singapore’s future.

A pertinent national crisis for Singapore is the decline in national identity among middle-income earners. In the same mid-year poll, 81% of Singaporeans felt that the city-state had become an unaffordable place to live in. 53% and 56% of Singaporeans earning SGD 2,500-6,600 and SGD 6,600-9,100 respectively felt Singapore’s fall into unaffordability. It is difficult to argue with such sentiments given news about housing unaffordabilityincome inequality and employment concerns. For many middle-income Singaporeans, they might not see a future living in Singapore.

Conversations about taxes

Despite the negativities surrounding taxes, it is not as though Singaporeans do not see why taxes are necessary. Singapore is experiencing an ageing population and with it comes increases in healthcare expenditure, public infrastructure, and education. In fact, Singapore’s healthcare expenditure is set to rise to over SGD 25 billion come 2030. 

Yet, most of the negativity surrounds the timing of the GST increases. Singapore is currently experiencing record levels of inflation. Prices of household goods and services have been climbing. Even with the added $1.4 billion to the Assurance Package to help Singaporeans cope with the GST hike admit inflation, most Singaporeans are understandably sceptical that this will help. 

Some Singaporeans, especially opposition Parliamentarians have raised questions about delaying the GST hike to favourable times instead and consider other tax revenues such as raising income taxes for the wealthy. Instead of constructive problem-solving, debates within Parliament over the proposed GST hike have devolved into less useful political arguments with little economic relevance. 

Taxes will affect us all and constructive conversations to ensure fiscal expenditure can yield the best outcomes for all Singaporeans needs to be held. To learn more governments can address taxation concerns and better communicate with constituents, get in touch with us at connect@blackbox.com.sg.

Author: Blackbox Research Team

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