Singapore's journey towards an inclusive society
By Ong Siok Peng, Director of Taxes and Avik Bose, Tax Director at Deloitte Singapore
This article was first published in Singapore Business Review Online on 14 February 2013
‘An inclusive society’ – one of the most frequently cited goals of the Singapore Government and one of the themes of the 2013 Budget. While this is a wide-ranging goal, the principal message behind it is one of reducing the burden on the poor through progressive taxation and providing greater support to those in need in areas like education and healthcare.
The early seeds of this platform sprouted in previous Budgets long before 2013 and many initiatives and programmes have been undertaken to address the various challenges that exist. But how successful have recent Budget undertakings been in creating this more equitable Singapore through social development expenditure?
Reducing the cost of medical care for the elderly
One key area of expenditure in this regard would be healthcare: in the 2013 Budget, there were indications that healthcare financing would be reviewed and further schemes implemented to help the elderly in their retirement years and it is clear that the Government has taken action.
While the full 2013 figures are not yet available, projections based on the expenditure up to the end of Q13 suggest that healthcare spend will increase in the region of 18% over 20121. By comparison, in the same period, the resident population aged 65 and above grew by 6.8% according to Government statistics2. The aging group would likely be the main beneficiary of the increase in healthcare expenditure.
Promoting social mobility through education
In 2013, the Government mentioned that it will take further initiatives to enhance opportunities for lower and middle income pupils in the education system. However, while this is still in its early days, the available data on expenditure in the education system suggests that spending has remained fairly constant over the last few years.
Perhaps the decrease in the resident population of the young (aged 20 and below) by 1.7%2 means that the expenditure per student may have increased slightly – again, the available data makes this difficult to tell. It is worth noting that education expenditure was already high – much higher than healthcare expenditure – so while there has not been a significant increase, the level of expenditure has remained strong.
A more progressive fiscal system
In recent years, the Government has taken a number of steps to try to mitigate inequality by skewing taxes and benefits in favour of lower and middle income groups. This is a challenging task, without tampering with Singapore’s attractiveness for investments by increasing personal or corporate taxes. It is a fine line to ensure that only those who can afford the extra burden are encumbered with increased dues.
In doing so, the Government has tried a two-pronged approach: on the one hand, maintaining personal tax rates fairly constant (with slight adjustments in 2012); but on the other hand, adjusting the taxation system around high cost assets such as property and vehicles.
Interestingly, while the income tax rates for individuals have remained fairly the same in recent years, tax collection increased in 2012 (the last available year of data) – it seems that the number of resident taxpayers in the income categories above the S$20,000 threshold has increased.
However, the majority of the tax burden is still borne by a select few: resident top income bracket group (those with assessable income over $300,000) comprised just 3.7% of resident taxpayers in 2012 and yet contributed approximately 57% of the total tax collection of resident individual taxpayers.
In 2013, the Budget speech promised increased property tax rates for high-end residential properties, with the largest reserved for investment properties (i.e. those that are not occupied by their owners) and these new rules will be phased in over two years starting from 1 January 2014, with full effect from 1 January 2015.
For vehicle taxes, the Government continues to focus on making the most of the desire of wealthy residents to own luxury cars – since March 2013, two more tiers for the Additional Registration Fee were introduced, allowing the Government to hone in on those buying the most expensive cars and tax progressively with an ARF of 180% on cars with an open market value above S$50,000.
While it remains to be seen what the upcoming Budget allocates to education and healthcare, progressive taxation should be balanced carefully: getting the higher income group to pay more taxes whilst at the same time, ensuring that the fiscal policies do not result in the wealthy rechanneling investments outside Singapore.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.