Crucial to strengthen social compact after toll of pandemic years
Singapore focuses on both fair and efficient tax collection, and spending for progressive, value-for-money outcomes, says minister.
BUDGET 2022's focus on strengthening the social compact is particularly crucial given how the Covid-19 pandemic has caused inequality to widen, said UOB head of research Suan Teck Kin at the ST-BT Budget Roundtable 2022, organised by The Business Times and The Straits Times.
Both in Singapore and around the world, the pandemic has caused some segments of society to fall behind even as others were able to do well, said Suan.
"That we are able to tackle this strengthening of the social compact is very important, because that will ensure social stability," he added.
Progressivity was one distinctive aspect of Budget 2022, said the panellists, who included Finance Minister Lawrence Wong himself.
Said Wong: "This Budget is really the first in a series of moves that we would like to make to strengthen our social compact, and build a fairer, greener and more inclusive Singapore."
Moderated by ST associate editor Vikram Khanna, the discussion included a look at the social impact of fiscal policies and Budget 2022 announcements, including the much-debated upcoming goods and services tax (GST) hike.
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The GST will rise by 1 percentage point in 2023 and another 1 percentage point in 2024 to reach 9 per cent, up from 7 per cent now.
National Trades Union Congress (NTUC) Secretary-General Ng Chee Meng observed that most GST-centric discussions focused on collection of taxes, rather than the distribution of tax revenue - which goes mostly to lower income groups.
"If you just look at the collection part of (taxes), we have one view," said Ng. But for every S$1 collected in taxes, "S$4 goes down to the lowest income (groups) in Singapore", he said, in forms that include free education and subsidised healthcare for the elderly.
Looking at both collection and distribution thus completes the story, he said: "Having succeeded in society, what are you willing to do to build the inclusive society that we desire?"
Singapore does pay attention on both fronts, added Wong: to collect revenue in a way that is "fair and effective", and to spend to "achieve good value for money outcomes" and such that "those with greater needs get more".
While one common criticism of the GST hike is that it will hurt the poor, Wong said the objection is not valid in Singapore due to the permanent GST Voucher, which has been "significantly enhanced".
Through it, the government is able to "effectively neutralise the impact of the GST increase for the low income groups", he said.
Conversely, while some taxes may seem progressive, they might not prove so in practice. A net wealth tax, for example, would be ideal but is "very hard to implement" in practice, said Wong.
"Wealth is mobile and if there are differences (in taxation) across jurisdictions, wealth can and will move," he said.
"Ideally, the top end pays the net wealth tax, but in fact, the burden falls... on the middle income because they don't have the ability to move their monies around, whereas the top end do."
This is the same challenge faced with estate duty, said Wong - those who should pay the most are also those who are most able to avoid it.
Singapore did away with the estate duty in 2008. The country's experience, said Wong, had been that "the disproportionate part of the burden was borne by the middle and upper-middle income groups, whereas the very top-end could tax-plan estate duties away."
Suan added that the amount collected in estate duties then was "quite small", due to the rich's ability to avoid taxes through tax planning, trust creation or gift giving.
Collecting only from the middle and upper-middle income groups was "not going to move the needle in the grand scheme of things", he said.
Fairness in the labour market was another topic of discussion, in relation to the Budget's announced rise in S Pass and Employment Pass (EP) qualifying salaries.
Khanna noted concerns that this could contribute to wage inflation. But these and other foreign labour changes aim at ensuring fairness. Said NTUC's Ng: "The key principle in this is to have a fair system, where Singaporeans can see that it's a level playing field for them."
The new Complementarity Assessment Framework for EP applicants, for instance, provides more transparency, he said.
"It's fair to the employer, helping them see beyond the short term into a sustainable system, and also fair to Singaporean PMEs (professionals, managers and executives) that have the skill sets (and are) willing to upgrade - that they be given a fair chance."
A "fairer, more equal and more inclusive" society is what Wong envisions: "Everyone will be able to give their best, but with the assurance that they will not be left to fend for themselves when times are bad. And we will always be there for them, having their backs and moving forward together as one people."
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