Tax cuts may hurt govt's social programmes, says Ravi Philemon.

Tax cuts not the way to go

As the government prepares for next year’s budget, our writer Ravi Philemon ponders on the possibility of tax cuts and what that may result in.

Ravi Philemon / Writer

I am concerned that another round of personal and corporate tax cuts may leave the government unable to play its essential roles in promoting the common good and preserving essential community services and support.

Although these tax cuts may seem attractive in helping to draw more foreign talents and investments especially in these times of economic slowdown, the cuts should be avoided as these taxes should be the main means of supporting social welfare. Further to this suggestion, the government should also not raise GST further and should pare down the use of GST for providing public assistance.

The Minister for Community Development, Youth and Sports, said in an exchange in parliament on March 9, 2007: “We can always do more (in providing public assistance) and we can always raise GST further.”

The raising of GST further, will put a huge tax burden on the poor. Some studies show that the lowest 20% of the population pay more than 15% in taxes, while the top 1% of the population, merely pay less than 5% in taxes. As the poor or the “new poor”, typically spend all their money on everyday necessities, the further increase of GST will be regressive.

Although people tend to shrug off GST as there is no tax-return or large lump-sum payment involved, further increases to the GST should be avoided as it is a myth that GST is fair because it taxes consumption.

Although perhaps 80% of Singaporean families now have refrigerators, stoves, color TVs, telephones, radios, VCRs or DVD players, microwave ovens, washing machines and cell phones, prosperity cannot be measured by how much food you have stored in your refrigerator or by how many DVDs you have stacked on the shelf. Prosperity is but a sense of financial security and peace of mind. And by that measure only a small percentage of the middle class (or the “sandwich class” as the Prime Minister acknowledged in his National Day rally 2008) enjoy it today, and certainly none of the poor.

Some studies suggest that 25 percent of “sandwich-class” families are at a high risk of slipping out of that class entirely and another 44 percent don’t have what they need to remain securely in it. There is a sense that social mobility is reversing as the cost of essentials outpace actual income.

The 2009 budget has to ensure that the lower-income have enough help to move up and that “sandwich class” gets back its economic footing, without which any talk about shared prosperity is feint.