Taxing the poor and then handing out aid packages "demeans human dignity"

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.

Author: Gerald Giam

Gerald Giam is the Member of Parliament for Aljunied GRC. He is a member of the Workers' Party of Singapore. The opinions expressed on this page are his alone.

14 thoughts on “Taxing the poor and then handing out aid packages "demeans human dignity"”

  1. For once Gerald, I have to say I agree with you. I would classify myself as a fiscal conservative, socially run of the middle person. I do understand the necessity of the GST hike. We are currently running budget deficits and if the analysts are right, the reduction in corporate taxes (will cost $1B) will be more than offset by the GST hikes ($1.5B). Also lower corporate taxes make it more attractive to drive growth. Together with the good economy, there is a good possibility that we will be back in the black after 7 long years of deficits. On the face of it, the economist in me tells me that the GST is also a better way of not penalizing growth but more of consumption.

    However, to state the obvious, the GST does hit the lower classes much more severely. I have always believed that giving hand outs to the poor is a short term solution and does nothing to improve the situation and only makes them more stuck in their current quagmire. What people desire is upward mobility, something which the old Singapore had but seems tougher and tougher to achieve today. The bifurcation of social classes today is only being exacerbated by the foreign influx (who tend to be of the upper classes). I realize what the government is doing to promote Singapore’s growth but I’m a little worried by the end game outcome. Will Singaporeans (particularly the lower income people) take to the new social stratum passively? or will there be a backlash? I digress; this is for another discussion.

    To your solutions, I would add the solution of having basic foodstuffs and medication made tax free. Why should we be taxed on what are necessities?

    I applaud you for giving solutions but I have to disagree with point 1. Short term solution at best. 2.)Vice taxes. Agree 3.) Disagree. Tourists are not dumb. 4.) Possible. 5.) Agree. Can’t believe that election strategy works time after time. Are we the electorate that dumb? 6.) Definitely. But frankly a lost cause if you read enough history :)

  2. Seems like I’m going to be wrong about going to 6%, it’s almost certainly 7%.

    Let me follow-up with another bold and stupid prediction then. No progress package will be announced tomorrow.

  3. gerald, you said “prescribed with minimal public consultation”.

    i think there was none.

    On the flip side, Singapore’s success indeed would depend critically on foreign investments – we need those businesses to make Singapore Inc (emphasis on the “Inc”) prosperous.

    What we dont hear is quite possibly GIC, Temasek have not been doing well in their investments.

    i think taking the GST hike was the easiest solution with the least resistance (very arguable point i’m bringing up though), as opposed to your other suggestions.

    increasing vice taxes may just lead to more contraband – and it could be more expensive to police it.

    Tourist taxes – having a higher govt tax for 5-6 star hotels, the casino hotels, as you suggested… that makes sense actually.

    Yeah – i like the idea of reducing govt expenditure. its been far too long that they overcome rising costs by passing it on to the people. and the funny thing is – Singapore is one of few countries where govt bodies like LTA and HDB are profit centres.

    aygee

  4. I would love to get hold of the Temasek prospectus when they were trying to sell some bonds. is this prospectus public? will check on Temasek website now…

    aygee

  5. Well, the Budget speech is now over. GST up 2% from July.

    Anon – You said, “What people desire is upward mobility, something which the old Singapore had but seems tougher and tougher to achieve today.”

    I wonder why this is so?

    thor – Wait till 2011. Progress Package and NSS are for Elections, remember?

    aygee – Yes. Officially, there was no consultation, except with “unions” and “employers federations”, which we all know are part of the “tripartite” system with the Govt at the apex. I guess the Govt’s thinking is, “Why bother consulting when you know they are going to be against it but we want to do it anyway?” I guess the casino consultation taught them that lesson.

  6. I too agree wholly with Ngiam’s take on the GST. The whole 2007 GST exercise also reminds me of a govt that is trying to create more work for itself. (Perhaps to justify its own pay hike later?)

    The other aspect that we dont know because we dont get to see it are off budget items. There is opaqueness here.

  7. If the poor can’t keep up with the rest, everything would be seen as regressive and envy politics.

    The GST does not only includes Singaporean citizens, it also includes foreigners in Singapore and they have alot of spending power. And Singapore is increasing its population with globalisation. So the GST is indeed for the long term considerations.

    Why do “former” people still don’t get it?

    “like Ngiam Tong Dow says — it still demeans their human dignity by making them permanently dependant on government handouts for survival.”

    Then they can choose not to accept the handouts like some others if they are so proud and full of dignity. But the complaints from them never end. If they are so capable, work hard to survive and not complain.

  8. I understand the rationale for restructuring revenue collection to be more consumption based rather than income based, so as not to “punish” hard work. But I don’t like how this going. 5% was acceptable. Now 7% is pushing it. In 2 years’ time, will you be willing to pay 9% GST like in most Western countries?

    The Govt says that the way forward is to “grow the pie” rather than “divide the pie”. By this rationale, then by growing the pie, the overall revenue collected will also increase, and there will be less people on welfare because everybody is richer. So it does not automatically mean that in order to fund welfare for those left behind, they have to raise GST.

    whybegay – You’re right that the GST will, in absolute terms, tax the rich (and foreign talent) the most. But I think you’re missing Ngiam’s point. I think he is of the view that any form of welfare demeans human dignity to a certain extent, so why deliberately increase costs for the poor then give them a welfare package to cope?

    It is also not fair to say that if the poor are so full of dignity they can refuse to accept the aid package. If I were earning $700 a month and had a housewife and 4 kids to feed, I would take any aid, regardless of how demeaning it is.

  9. Hello Gerald!

    My name is Pearly, and I represent a group of final-year students from Nanyang Technological University, Wee Kim Wee School of Communication and Information. For our final year project, we are conducting an academic study of online practices and political perceptions of Singaporeans and would like to invite you to take part in this project.

    Your participation in this study is voluntary and you may withdraw from the questionnaire at any point. However, your participation is very important and we hope you will complete the questionnaire. We also hope you can help us publicise this and get your friends to participate as well.

    You will automatically be entitled to our lucky draw upon completion of the questionnaire. There will be 3 draws of S$100 each.

    The online questionnaire will take no more than 20 minutes to complete. Please click on the link below to start the online questionnaire:
    http://www.ntu.edu.sg/home2003/tayp0001

    Please be assured that your personal information will be strictly confidential and will not be used for any purpose other than this study. For any further enquiries, kindly contact Derek at tanc0006@ntu.edu.sg or 9007 9489 (HP) or me at 9339 9704 (HP).

    Thank you very much for your support and participation!

    Regards,
    Pearly

  10. Pearly,

    I’ve helped u with your survey, but it would have been better if you emailed me directly instead of posting your request as a comment. My email address is on the right column.

    cheers,
    Gerald

  11. I thought this is interesting reading.

    An article was published in South China Morning Post today, Hong Kong’s main english broadsheet.

    A columnist was giving his views on a former govt official’s column in the same paper. The govt official was comparing Singapore to Hong Kong and what Hong Kong can learn from Singapore. I won’t post the full article but here’s a gems…quite a few points that make interesting discussion.

    aygee
    ————–

    “A corporate tax cut announced in its [Singapore’s] latest budget will be balanced by a 2 per cent GST increase, apparently because the government puts corporate investors ahead of the retail and tourism industries.”

    More than apparently, madam. Let us also have it clear that the corporate investment largely comes from abroad while retail and tourism are domestic industries. These tax changes tell you that Singapore puts foreigners ahead of its own citizens. Is that what you would like us to do in Hong Kong too?

    “For example, Singapore decided that at least 25 per cent of its economy must be in manufacturing; so it pulled out all the stops to lure multinationals that could bring in technology and high-skilled jobs.”

    What high-skilled jobs? Manufacturing jobs in technology are technician jobs. The high skill in technology is in devising the machines on which the manufacturing technicians push buttons and Singapore imports these machines. It also imports the workers who operate them. Twenty per cent of its population is non-resident.

    Thus the wages leave Singapore from the bottom while the dividends leave Singapore from the top of these largely foreign staffed and foreign-owned operations. Singaporeans get little from the government’s obsession with technology. Do we want to copy this?

    “We have always had a hard time competing with Singapore in enticing biotech or semiconductor manufacturing giants because of our inability to offer free land, direct investment or other subsidies.”

    If only it were true that we do not throw away public land and public money on technology delusions. The likes of Cyberport and Science Park tell us otherwise.

    But when you talk of giant and technology in the same breath in Singapore, you can only be talking of the regular giant losses of Chartered Semiconductor. Yes indeed, that would be the one owned by the Singapore government. The foreigners don’t lose money like that. They just take the money and run.

  12. Thanks aygee. Wow, that is indeed sobering stuff.

    Do you have the link or copy of the full article? I might want to write a post based on it.

  13. i actually wanted to email you about it…but forgive me, i cant seem to find a link to your email from your blog.

    In the earlier part of the article, he challenges Fraser Institute’s view of Singapore as one of the free-est economies in the world.

    aygee

  14. hi aygee,

    my email is sgpatriot[at]gmail.com. It’s actually on my right panel under “Welcome”. Thanks!

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