Singapore

The GST spin and the whole truth

Part 2 of the series on the GST hike

Continuing from my previous post, this post will highlight some of the spin that the government and the mainstream media has been putting out to soften the blow of the GST hike announcement. It will also explore some other possible reasons for the government’s decision, not all of which have been publicised.

In most other developed countries, a two per cent increase in consumption tax – which will impact every single resident in the country – would be cause for a huge public outcry. In Hong Kong, the government’s mere proposal to introduce a 5 per cent GST sparked huge protests in August by 3,000 to 10,000 Hong Kongers, including local businesses operators, traders and retailers.

Unsurprisingly in Singapore, where street protests are banned, the shock announcement has been met with meek acceptance by MPs and the mainstream media, and a sense of resignation by the general population.

The spin

The government and the mainstream media are fond of comparing figures with other countries to show how much better off Singaporeans are. TODAY’s report (15 November) dutifully did a “consumption tax comparison” between Singapore and other countries. It cited how Australia, Europe, the UK and New Zealand have GSTs of between 10 and 17.5 per cent.

The sales tax in the US was listed as being “up to 9.4 per cent”, but the report conveniently omitted the fact that some states like Oregon, Delaware and Montana don’t even have sales tax. In New York city, although the sales tax is 8.325 per cent, essential items like groceries and clothing under US$110 are exempt.

The report also failed to mention that these countries are all welfare states (to varying degrees) which spend a higher proportion of government revenue on public assistance and health care than Singapore. Australia, for example, spent A$17.1 billion or 2.3 per cent of its GDP on just welfare services in FY2002-03. In contrast, the Singapore government’s total expenditure on health and community development, youth and sports in 2005 took up only 1.28 per cent of that year’s GDP (assuming that all of it goes to public assistance, which it certainly doesn’t.)

On the other hand, Japan, a developed economy just like Singapore, has continued to maintain its 5 per cent consumption tax. Hong Kong, which has a corporate tax rate that is 4 per cent lower than Singapore’s, has yet to even implement their proposed 5 per cent GST.

Local blogosphere hasn’t been so acquiescent in its reaction to the GST hike announcement. It is one of the hottest topics on local blogs, with article after article (some say too many) slamming the GST as a regressive tax which will hurt the poor.

The mantra that the government is singing to Singaporeans is that the GST hike is about “tilting the playing field in favour of the poor”. Coming hot on the heels of the tragic suicide by a Singaporean in financial crisis and the Wee Shu Min affair, the government has probably calculated that the best way to sugar coat this bitter pill is to emphasise that most of the additional revenue collected will go to help the poor.

The whole truth (well, at least some of it)

The actual reasons for the increase are not as clear cut as the sound bites portray. Firstly, the government is trying hard to balance the budget, which is currently in deficit. Between FY2002 and FY2006, the government accumulated a net overall budget deficit of $4.23 billion. (Note: This figure does not factor in additional inflows like capital receipts from statutory boards – more of this in my next post.) In certain circumstances, a large and prolonged budget deficit could lead to higher inflation and interest rates (although not necessarily so).

Secondly, the GST hike will give room for the government to further lower corporate and top bracket personal income tax rates to increase economic competitiveness. As globalisation and Singapore’s high operating costs are resulting in more and more multinational companies (MNCs) relocating to lower cost countries like China, the government is desperately trying to boost the incentives for these entities to remain in Singapore. Slashing direct taxes for high income earners and MNCs is seen as key to achieving this.

Thirdly, with the elections over (but not too recently) and the PAP receiving its “strong mandate”, there is no better time than now to feed Singaporeans the bitter medicine so they will have more time to forget its unpleasant aftertaste before the next elections in 2011.

Lastly (and this is what the government is emphasising), with an ageing population, growing income inequality and more populist pressure to increase social spending, the government is embarking on a policy shift to provide a little more financial assistance to the needy. Someone will have to pay for this “Workfare” assistance.

However, it is unlikely that the entire $1.5 billion expected windfall from the GST increase will be used to fund social assistance programmes. Institute of Southeast Asian Studies researcher Terence Chong told TODAY (15 November) that he “doubt(s) the full amount will be used purely for assistance programmes. Some of it may go into research and development costs, some may be used to fund education.”

Conclusion

Despite the concerted efforts by the government and the media to paint a rosy picture behind the GST hike, it is clear that the announcement is not going down well with most Singaporeans, except the fiscal conservatives who dominate the Establishment. Keeping in mind that it is still three months before Budget 2007 is officially announced, I would not exclude the possibility that the government might back down slightly under pressure on the GST hike. Singaporeans might either see a very gradual increase in the GST rate or generous offset packages to help them cope with the hike.

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Coming up next….Some suggestions on how the government could balance the budget without hiking the GST.

Is GST really a fairer tax for the poor and SMEs?

This is a first in a three-part series of commentaries about the impending GST hike. In this first part, I will examine the impact of GST on the lower income earners and small businesses. Part 2 will analyse the government’s and media’s “spin” accompanying the announcement of the hike. In Part 3, I will explore some of the alternative sources of revenue that can be used to increase social assistance to the poor yet balance the budget, as well as ways to cushion the impact of the GST hike for the poor.

On Monday, Prime Minister Lee Hsien Loong announced that Singapore’s Goods and Services Tax (GST) will be increased to 7 per cent in 2007, from the current 5 per cent.

The decision to increase in the GST requires much greater scrutiny by the public, consumer groups, small businesses and the Opposition. The government needs to stop its political spin and be fully transparent with Singaporeans on this issue. It needs to explain clearly why the GST hike is necessary, whether any alternative solutions have been explored, and outline exactly what it intends to do with the increased revenue from this tax increase.

So far Singaporeans have been told by the government and the media that the extra revenue will be used to fund increased social assistance programmes that will benefit the lower income groups.

While it is laudable that the government intends to increase public spending to help needy Singaporeans, it is disingenuous to put out a message that this tax increase will benefit the poor.

The GST, unlike income tax, is widely recognised as a regressive tax. This is because it taxes both rich and poor for all items, including essential goods and services such as clothing, food, utilities and transport. Since the poor have less disposable income, the GST effectively takes a higher percentage of income from the poor than the rich.

Impact on businesses and the economy

The GST hike will also negatively impact the bottom line of small businesses. Currently, businesses with less than $1 million in revenue a year cannot pass the GST costs of their goods purchases (their “input GST”) to their customers if they are not GST-registered (which most aren’t). So a mama shop owner (a small sundries retailer) will be paying 7 per cent tax for all the goods he purchases from wholesalers, but will not be able to collect any of it back from his customers.

An increase in consumption tax will also reduce consumer spending. While this may be good for individual savings, will be bad for many businesses and could impact the overall economy of the country.

The Singapore Chinese Chamber of Commerce & Industry (SCCCI) issued a statement yesterday expressing “great concern and disappointment” at the impending GST hike. SCCCI added that “the proposed hike is likely to have an immediate and detrimental effect on local spending, and add to the cost burden for many local companies. Our long-term competitiveness will also suffer.”

The GST has been pitched in the past as “a fairer tax”. But fairer to whom? If the government is really keen on improving the lot of the poor and small businesses, a GST hike is certainly not the best way to go.

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Coming up next…Putting the “spin” on the GST hike.

PAP MP calls for less restrictions on mainstream media

PAP MP Baey Yam Keng, in his first speech in Parliament this week, urged the government to amend Singapore’s media legislation so as to promote greater media freedom in the mainstream media (MSM). (Extracts of his speech are reproduced below.)

In his speech, Baey noted that new media’s impact on the young has been “massive”. He pointed out that the government should not hold itself responsible for what the people see or read, otherwise Singaporeans may lose the ability to think, evaluate and judge for themselves. In observing the vastly different viewpoints put out by the MSM and new media, Baey wondered if they were from two different populations talking about two different countries. He went on to state that he did not think that the reality is “mostly positive” as portrayed in the traditional media nor is it as negative as what the new media describes it.

In contrast to what the Second Minister for Information recently said, he called on the government to relax regulations on traditional media to allow people to vent grouses and frustrations, without always demanding for constructive suggestions. He said this would enable Singaporeans to then engage openly in meaningful, level-headed discussions without fear of prosecution.

This is probably the first time that a ruling party MP has so openly advocated greater media freedom — tight media restrictions are a sacred cow for the PAP. Equally significant is the fact that he was a former director in the Ministry of Information, Communications and the Arts (MICA), the very ministry in charge of regulating – or some say censoring – the media.

It is heartening to note that at least one MP is listening to issues percolating from the ground by reading blogs, rather than just believing everything the Straits Times and Zaobao put out.

Baey gave a good example of Wikipedia’s self-policing mechanisms as the way of the future. Journalist Thomas Friedman had also cited community-driven websites like Wikipedia as one of the “ten forces that flattened the world” in his book, The World Is Flat. He compared how Microsoft Encarta, the world’s “best-selling encyclopedia” had just 36,000 entries, while Wikipedia had almost 900,000 articles by end 2005. The Singapore government cannot afford to be stuck in its traditional mindset of how information is disseminated and digested if they desire to see our country progress and keep pace with this globalised world.

Baey pointed out that unlike the MSM, new media often portrays issues in a negative and critical manner. There are good reasons for this. Bloggers try to find a niches that are not covered by the MSM. Because the MSM in Singapore is so skewed towards the ruling party’s viewpoints, it doesn’t make sense for the bloggers to echo the praises the MSM heaps on the PAP and the government. If the MSM were to be a bit more balanced when reporting on local political issues, perhaps bloggers would start see less of a need to play an adversarial role all the time.

Having said that, it is important to point out that the new media contains very diverse viewpoints – both for and against the government. Many are just independent analyses, which when compared to the Straits Times, naturally appear “anti-government” when they are in fact simply independent. It is unhelpful for political leaders to constantly paint the new media as being full untruths, because this may become a self-fulfilling prophesy. (More comments on this issue in my earlier post, From broadsheets to blogs.)

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Extracts of Parliament speech by MP Baey Yam Keng, 9 Nov 06. Original speech is on the P65 blog:

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Now, I would like to move on to the subject of new media, another means of self and cultural expression. New media’s impact on the young, to say the least, has been massive.

Compared to traditional media, new media is much less structured; it is more informal and also more difficult to control. It is a virtual world with its own parameters, rules and regulations. Its estate or space is both private and public. It has both advantages and disadvantages. It presents new opportunities and solutions as well as new problems. It is a force to be reckoned with and most people in the developed world cannot envision a future without it. We are beginning to see its social, political and economic powers.

It was reported recently that Google UK is poised to overtake UK’s main TV channels in advertising revenue within the year. It is therefore a wise choice that the government has identified interactive & digital media as a new sector to grow. We should harness the power of both new and old media, for instance, in using them for cross communications and marketing to different audiences. The popularity of Singapore Idol and the Idol format around the world was largely due to its ability to leverage on both the traditional TV media and the new mobile media. It manages to engage the audience and turn them into fans who like the power to be able to pick their winner.

The global media scene will continue to evolve. From the ancient days of using smoke signals, pigeons, to print, radio, television, fax, telephony, mobile and now the internet, it does not mean the emergence of one new media will always replace another. The radio continued to survive in the advent of the TV. In fact, it became more accessible with the emergence of the portable radio, then the car radio, followed by the mobile phone radio.

It is a media ecosystem when many can co-exist and will co-evolve. Even The Straits Times has launched STOMP and vodcasts, and Channel News Asia has its BlogTV.sg. One thing is certain, with technology advancement, the speed of evolution will be faster and people’s lifestyles and expectations will also change at a quicker pace.

The convergence of media can pose problems for the conscientious censor. On the other hand, the good citizens of the world can now also play a bigger role in helping to police our virtual space. For example, the Wikipedia is a self-regulating resource. As reported in The Chronicle of Higher Education in Oct 2006, Alexander M.C. Halavais, an Assistant Professor with the State University of New York at Buffalo, slipped in 13 errors in Wikipedia. In less than three hours, all of his false facts had been deleted, thanks to the vigilance of Wikipedia editors who regularly check recently updated entries. On Dr Halawi’s “user talk” page, one Wikipedian pleaded with him to “refrain from writing nonsense articles and falsifying information.”

The differences between new media and traditional media call for different treatments from the authorities. We can allow different platforms for responsible and less responsible expression of views, eg 全民乱讲 is for all citizens to talk nonsense, 全民开讲 allows all citizens to speak their minds，and 全民好好讲 calls for all citizens to have a good discussion. I believe people will know which programme is meant to serve what target audience. What the government should ensure is that there is no masquerading.

The government should not and cannot hold itself responsible for what the people see or read. Otherwise, Singaporeans risk losing the ability to think, evaluate and judge for themselves. The Mr Brown incident illustrates too clearly how new and old media could have engaged each other better. Having driven negative comments or untrue information about the government underground, into the labyrinth of virtual space, the government loses an opportunity to engage the propagators and dispel the erroneous statements.

As I read comments in the newspapers and compare them with those in bl
ogs and online forums, I sometimes wonder if they are from two different populations talking about two different countries. I do not think that the reality is mostly positive like in the traditional media or like what the new media is portraying, mostly negative and critical. I believe the real world is somewhere in between.

We have to accept that it will be very difficult, in fact, impossible to monitor and rebut all negative online comments against the government. We should also consider relaxing regulations on traditional media to allow people to vent grouses and frustrations, without always demanding for constructive suggestions. Singaporeans can then engage openly in meaningful, level-headed discussions without fear of prosecution. Erroneous assumptions, wrong ideas, narrow mindsets, prejudices and biases, loyalties, tolerance and wisdom can all be brought to the light of day and seen clearly for what they are. I believe in the Singaporean’s ability to discern wisely. Even if we may not be able to do so accurately, that is our judgment and that judgment should be given the opportunity to be sharpened.

A few months ago, Lianhe Zaobao and My Paper featured articles about the “strawberry generation”, a description of “soft”, young people with little determination, weak wills and dependent mindsets who are unable to take the slightest of hardship. They are adults but they still turn to their parents for pocket money. They have difficulties holding down a job. I wonder if this reflects, on a micro level, a side effect of our government’s parental style towards its citizens. If our government trusts the general public’s ability to refrain from uncontrolled gambling by allowing casinos, she should also trust its ability to tell right from wrong, black from white, or even grey, on other issues. Thus, I urge the government to consider amendments to our media legislation so as to promote greater media freedom.

This, I believe, would encourage greater creativity in this sector, leading to spill-over effect in other sectors and professions in Singapore. Creativity exists in all sectors and industries. As we nurture creativity in every aspect of our lives, it would become part of ourselves, our DNA, our lifestyles, our identity. Creativity is doing things in a different way which adds value and benefits, which no one else has done before. Creativity is working smart. Creativity is the new cutting edge. Creativity is that which will provide us with the lead over our competitors.

I look forward to the day when creativity is synonymous with the Singapore national identity, the Singapore brand. When that day comes, we can be assured that our survival as a nation is secure and the future, ever the brighter.

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