From the small eyes of a small chinese boy

My experiences when i walk through life, my thoughts and of course my condescending brand of humor.

Thursday, November 16, 2006

GST HIKE, from 5% to 7% - My thoughts and feelings

There are only 2 things for sure in life: Death and Taxes. A few days ago PM Lee Hsien Loong announced there was going to be a GST increase of 2%. He claimed that the increase was neccesary to fund packages for the poor. Well, in fairness, the money has to come from somewhere.

There are 3 kinds of taxes, Corporate Taxes, Personal Taxes and GST.

Corporate Taxes - PM Lee was reluctant to raise corporate taxes, possibly because Singapore has to maintain low corporate taxes to attract foreign investment. If taxes are too high, they will act as a deterent to foreign investments and Singapore will lose out. Hong Kong also has very low corporate taxes. (Fair enough)

Personal Taxes - From what I gather, you only get taxed if you earn above 2k. This probably means most of Singapore's population doesn't pay taxes (at least 60% not kidding). PM Lee was reluctant to raise personal tax because he doesn't want to de-motivate the higher earners of the workforce. If taxes are too high, people won't be as motivated to earn more, since they get taxed more.

GST -- GST (Goods & services tax), is a form of indirect tax. Unlike the previous two, no one can avoid GST, unless you don't eat and don't go out. Basic necessities like bread and eggs will be affected by GST.

The irony is...

It's quite ironic that the Govt raise GST when it's the only tax that affects the poor. So in other words, we are taxing the poor and giving back to the poor. GST has also been referred to as a REGRESSIVE tax, which means it taxes the poor more than the rich.

"How can this be?" You might ask yourself. Surely the rich will contribute more GST since they buy more luxury goods. While it is true that in absolute terms richer people may pay more, it doesn't paint the full picture. Proportionately, poor people have a much smaller income, they are also unable to regulate their spending like the rich can. (E.G Rich man doesn't need to buy a plasma-TV, but the poor can't possibly not buy bread).

THE SOLUTION

Create a scope of basic goods and write-off GST. These goods may be milk, bread, salt, cooking oil. etc etc. Health Minister Khaw Boon Wan has already stated that wards B & C are exempt from GST to aid the poor, so why not conceptualise this idea? Where is the uniformity in the system?

Conclusion

This is a very simple analysis of the situation. Infact, there are far more discrepencies in my thinking. Singapore and Hong Kong have two of the lowest corporate taxes in the world, going by the law of economics, we should have an immense supply of foreign injection. But its not happening is it? WHY? Obviously corporate taxes are not the only determinant for foreign investment. The image of the country counts too, and after the whole IMF, no one would dare to say we're the most popular country around.

You see, everytime the government lowers the cost of something, the cost of something else, will inadvertently rise. (I feel we are paying the price for low COEs). In anycase, the drop in COEs has nothing to do with low income Singaporeans, cause they can't afford to drive. The new step of buidling more 1-room rental flats are a good idea, people will look at poor ppl and say "well, they have a roof over their heads and they have rice to eat, so they won't die."

*SHAKES HEAD*. We love to call ourselves a developed country. Yet, instead of thinking of ways to help the poor move out of the poverty gap, we seem content to talk about basic survival, doesn't matter if they stay poor as long as they have food to eat. How far have we come over the last few decades?

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