Ms Hazel Poa, Non-constituency Member of Parliament from the Progress Singapore Party (PSP), during the Budget 2023 debate on 23 February 2023, highlighted the challenges facing Singapore as it grapples with the trade-offs between affordability and sustainability in public housing, as well as the need for a fairer and more sustainable tax system that balances the needs of individuals and companies.
Ms Poa expressed concern about the impact of increasing grants for resale HDB flats on the affordability of public housing, noting that it could create a price spiral that would necessitate higher taxes.
Deputy Prime Minister and Finance Minister Lawrence Wong announced on 14 February in his delivery of Budget 2023 that the Central Provident Fund (CPF) Housing Grant for resale flat buyers would be raised by S$30,000 to S$80,000, for eligible first-timer families buying a four-room or smaller resale flat. For first-timer families buying a five-room or larger resale flat, the grant will go up by S$10,000 to S$50,000.
“This is exactly the price spiral I spoke about during the debate on public housing 2 weeks ago,” said Ms Poa.
“The resale grant will push up demand for resale flats and therefore increase resale prices, which would later necessitate a further increase in resale grant, feeding into a continuous price spiral.”
Ms Poa argued that the root of the problem lies in the way the government treats land sales proceeds. Under current practice, the proceeds from the sale of land are put into reserves, with the government arguing that doing otherwise would reduce the value of the reserves.
However, Ms Poa noted that this approach may have made financial sense when land was sold on a freehold basis, but it needs to be reviewed now that land is sold on a leasehold basis.
“The land sale proceeds is payment for the use of the land over the lease period,” said Ms Poa. “This is similar to rental payments which is also payment for the use of land over a fixed period, albeit a shorter one. Whether the use of the land is given on a 3 year basis, 20 year basis or 99 year basis, the same principle applies.”
Ms Poa proposed that land sales proceeds should be treated as revenue divided over the period of the lease, which would provide a more stable revenue stream and avoid placing unnecessary tax burdens on taxpayers.
“If the land sale proceeds were taken as revenue, higher land costs mean higher revenue which can fund the higher subsidies and grants without needing higher taxes,” said Ms Poa. “There is inherent stability in this approach and the concept is sound.”
Fairer and equitable tax system
Ms Poa also highlighted the need for a fairer corporate tax system. She noted that the current system allows the most profitable companies to pay the lowest percentage of their profits as taxes, which she described as highly inequitable.
“Companies earning between $10m to $100m in profits paid on average 5.1% of their profits as tax,” said Ms Poa.
“For companies earning between $100m to $1bn in profits, 2.8%. For companies with profits beyond $1bn, 0.9%. Companies with the highest profits actually pay the lowest percentage of their profits as tax”
Ms Poa gave an example to illustrate the inequitable nature of the current tax system: “A company making $2m in profits pays 9% of its profits as taxes. This is 10 times the rate of a company that makes $2bn in profits, i.e., 1000 times the profit.”
“This is highly inequitable,” said Ms Poa.
Ms Poa called for a review of tax incentives and treatments for companies earning profits beyond $10 million, arguing that they should pay a fairer share of their profits as taxes.
“We should review the tax incentives and treatments given to companies earning profits beyond $10m so that they pay more taxes,” said Ms Poa.
“If companies earning above $1bn in profits pay just 3% of their profits as taxes instead of the current 0.9%, the additional revenue raised would be about $5bn per year”
Ms Poa also urged a thorough review of policies on property and transport to bring down costs, in light of the 2% GST hike and MOF’s paper warning of further tax increases.
She emphasized the need to find ways to address the high cost of living in Singapore and make it an attractive investment destination even after the global minimum corporate tax is implemented.
“Even in the absence of any global agreement, this is something we should do, not because we are forced to and it need not be tied to any global timetable,” said Ms Poa.
“We have traditionally used low corporate tax as a means to attract investments. With the loss of this tool, it has become even more urgent for us to find ways to address the high cost in Singapore.
With higher corporate tax revenue, we can use that to lower business cost and cost of living to offset the higher effective tax rate thereby making Singapore still an attractive investment destination and provide relief to Singaporeans,” she added.
“Proceeds on the sale of leasehold land is income generated from land reserves, similar to the investment returns from our Sovereign Wealth Funds. Treating the proceeds from sale of leasehold land as revenue is thus similar to NIRC,” said Ms Poa.
“We should not be placing unnecessary tax burdens on taxpayers when there is a more sustainable way to fund subsidies and grants for public housing.”
