Second Finance Minister Tharman Shanmugaratnam is expected to announce a 2 per cent hike in the Goods and Services Tax (GST) tomorrow on Budget Day in Parliament. This bitter medicine will be prescribed after only minimal public consultation, and with the mainstream media heartily promoting the Government’s line that it is a move in favour of the poor, despite the fact that the GST is inherently regressive.
I have been reading the memoirs of former top civil servant Ngiam Tong Dow, A Mandarin and the Making of Public Policy. In interviews he had with The Straits Times in 2003 (which were re-published in his book), he commented about the GST, which was hiked to its present 5 per cent in 2004. In response to the question, “Is (the PAP’s) social compact with the people in need of an update?”, he said:
“I don’t understand the urgency of raising the GST, which effectively increases the tax on the lower income people. Why tax the lower income, and then return it to them as an aid package? It demeans human dignity and creates a growing supplicant class who habitually hold out their palms. That is not the way to treat people. Despite the fact that we say we are not a welfare state, we act like one of the most welfarish states in the world. You should appeal to their sense of pride and self-reliance.” (pp 25-26)
Mr Ngiam, an EDB pioneer and former Permanent Secretary (Finance), is no bleeding heart liberal. In fact, he is a hard-nosed fiscal conservative. He made these remarks in the context of warning the Government not to “dance to the tune of the gorilla”. What he meant was that the Government should not breed a mentality where people depend on it for everything, including “dispensable items”. He felt that the Government should “just concentrate on helping the poorest 5 or 10 per cent of the population, instead of handing out a general largesse.”
“Forget about asset enhancement, Singapore shares and utility shares”, he said.
I still maintain that the Government can explore many other sources of additional revenue, as outlined in my earlier post. In that post, I suggested 6 areas in which this could be done:
1. Use the capital gains from Net Investment Income
2. Further increase vice taxes
3. Collect more taxes from tourists
4. Impose a luxury tax
5. Stop giving election handouts to promote partisan interests
6. Work harder at reducing government administration expenditure
Let’s see what offset packages for the lower income group are announced by Minister Tharman tomorrow. They are unlikely to be as permanent as the GST hike, and even if they are — like Ngiam Tong Dow says — it still demeans their human dignity by making them permanently dependant on government handouts for survival.