The overall tax schedule may not be as progressive

Mr Tharman said that our income tax schedule is highly progressive with 55% of Singaporeans not paying any income tax and with Workfare acting like negative income tax, our income tax schedule actually runs from -30% to 20%. This is accompanied by charts [2a], [2b], [2c] which show that the lower income pays less in income taxes, less in all taxes and gets more benefits.

Given that Singapore has been shifting from income tax to goods and services tax, any discussion on progressiveness would be incomplete without considering goods and services tax (GST) and other taxes. This is all the more so when we consider that the $8.82 billion [3] GST collected in 2012 was higher than the $7.65 billion [3] income tax collected in 2012.

We can work out the benefits received less all taxes paid for each population decile as shown below:

1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th
All taxes (%) 4% 3% 4% 5% 6% 7% 9% 11% 15% 37%
All taxes ($ billion) [4] 1.1 0.8 1.1 1.4 1.7 1.9 2.5 3.0 4.1 10.2
Benefits (%) 12% 17% 13% 12% 10% 10% 9% 8% 7% 4%
Benefits ($ billion) [5] 0.7 0.9 0.7 0.7 0.5 0.5 0.5 0.4 0.4 0.2
Benefits – all taxes ($ billion) -0.5 0.1 -0.4 -0.7 -1.1 -1.4 -2.0 -2.6 -3.8 -10.0

We can see that possibly all except the second lowest decile paid more in all taxes than they received back in benefits and that the starting point for the overall tax schedule may not be as negative as -30% [4].

Mr Tharman also highlighted the ‘quirk’ of the lowest decile receiving less benefits and paying more taxes than the second decile. He used this ‘quirk’ to contrast with the US and Europe where retirees end up better off than workers, a phenomenon which he describes as looking progressive but actually bad and unfair. But this observed difference can be due to other reasons other than the supposed superiority of our tax system over theirs. For example, all else being the same, if we compare a country where only the rich can retire against another country where both poor and rich can retire, then naturally, wealth and property taxes will lead to the lowest decile paying more in the former country but not in the latter country.

In other words, the observed difference between Singapore and the US / Europe could simply be due to the fact that in Singapore, only the rich can afford to retire whereas in US / Europe both poor and rich alike can retire.

[1] Straits Times, Progressivity ‘not for its own sake’, 8 Mar 2013

[2a]
Who pays income tax

[2b]
Who pays all taxes

[2c]
Who gets benefits

[3] Budget 2013 Annex C, FISCAL POSITION IN FY2013 (also shows revised 2012 figures)

[4] Total up the various tax categories found in [3] and then multiply by the respective deciles’ share of all taxes paid found in [2b]. Some tax categories may be born by both individuals and corporations. Information on the exact percentages may not be publicly available so some estimation has to be made. In this case, 80% of asset taxes, motor vehicle taxes, vehicle quota premiums and stamp duties are assumed to be born by individuals. 100% of GST and 50% of betting taxes are assumed to be born by individuals. Results will differ with other assumed percentages. For example, even when GST contribution from individuals are reduced to 80% and contributions to all other tax categories mentioned above are reduced to 50%, the result will still be the same, only the 2nd decile receives more than it pays, the rest of the 90% pay more than they receive.

[5] Singstats shows there are 1,152,000 resident households and average household size of 3.53 in 2012. Singstat’s “Key Household Income Trends, 2012”, page 10, table 7 shows that the government transferred $1,336 per household member in 2012. Total transfers = 1,152,000 × 3.53 × $1,336 = $5,432,924. After that, multiply by the respective deciles’ share of benefits in [2c] to obtain the respective deciles’ benefits received.

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One Response to “The overall tax schedule may not be as progressive”

  1. cremora Says:

    is it really just individuals who pay GST?

    don’t, say, companies also pay GST for the goods they buy from an importer? so they settle their bill, and the importer hands over the GST portion to the govt. so the companies have paid GST, no?

    isn’t there also a 2nd round of GST – on the same items? this being when the individual pays the GST. after all, the companies will sell customers the items. GST is part of the customers’ bills. isn’t this second round of GST then also handed over to the govt?

    all this is presuming there are no middlemen between the importer and the company who eventually sells the items.

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