The Bill before us is an omnibus one that includes a slate of proposed amendments meant to effect policy changes associated with the 2023 Budget, along with almost as many that improve tax administration and align policy objectives. The Workers’ Party has already expressed its reservations with respect to several components of this year’s budget—especially the continued insistence on an increase in GST, along with our concerns over the design of working mothers’ child relief—which we continue to hew to. We had also expressed our support on other elements that we believe are net positives—including tax incentives for research and development, and an increase in the CPF monthly ceiling—that will go toward improving the business environment, while also supporting workers.
In light of this, I will focus my remarks first on thoughts related to the non-budget measures proposed in the Bill. I then go on to address an issue within the spirit of the Bill: the use and timing of taxes for fulfilling economic objectives. I will first offer an assessment of our current economic situation, before explaining why I believe that rebating taxes in full is not only a responsible policy choice, but the only right thing to do.
Some comments on the proposed nonbudget amendments
Mr Speaker, I have two comments on the proposed nonbudget amendments.
Clause 23 of the Bill proposes the introduction of fixed expense deductions, or FEDR, for self-employed delivery workers. This is, of course, a positive development, especially since a segment of delivery workers may be among the lower-income segments of society.
But I wonder if these FEDRs will require these workers to claim these exemption(s) themselves, or if any such claims will be automatically filed by their companies when they report their employee earnings. I understand that this approach would be unusual, but if certain delivery riders are less tech and tax savvy, they may be unfamiliar with the intricacies of claims for tax exemptions. I also say this because, at least based on Clause 44 of the Bill, the entire point of the amendments related to self-employed persons is to simplify the tax filing process, and a complicated claims procedure would surely go against that purported aim.
Clause 46 of the Bill further amends the interest rate peg charged on the refund of income taxes from the Prime Lending Rate (PLR) to the Singapore Overnight Rate Average (SORA). This is a welcome move because, as the Ministry has itself acknowledged, the relevance of the PLA has been diminished, and it makes eminent sense to tie returns to a credible and robust measure such as SORA.1 Clearly, MOF recognizes the importance of ensuring that only credible interest rates are used as benchmarks.
But this reminds me of other increasingly-obsolete rates, those for short-term fixed deposits and saving accounts, from which CPF ordinary account interest rates are derived.2 In the local context, the problem with these rates is that they have, similarly, increasingly become removed from the rates that banks genuinely offer for their customers. Even setting aside short-term teaser rates, the yield on 1-year Singapore Government Bills—about as riskless a rate as one can command—currently stands between 3.7 and 3.8 percent, several multiples higher than the miserly 0.7 percent for the major local bank average rate, and still more than a full percent higher than the CPF floor of 2.5 percent. Even the Singapore Overnight Rate Average (SORA) itself has transacted at between 3.6 and 4.0 percent over the past month.3
My honorable friend and Sengkang teammate, Louis Chua, has repeatedly banged on this drum in the past, and I continue to bang that selfsame drum, urging the government to reconsider the peg for CPF interest rates, especially that which applies to that paid on accounts held by retirees, who cannot enjoy any upward revision in their incomes to account for higher inflation eating away at the purchasing power of their hard-earned savings.
Give a chicken wing, take back a chicken
Sir, the Income Tax (Amendment) Bill recognizes that taxes generate powerful incentives that can shape the subsequent economic behavior of agents in the economy: that is, you and I. While I agree with the thrust of the measures proposed, I would also like to put it to this House that the long-term considerations that are the preoccupation of much of the Bill should also take into account shorter-term matters that concern the regular folk in our country.
Indeed, coffeeshop chatter often likes to speak about how this government gives out chicken wings, only to take back a whole chicken. While pithy, I do not particularly enjoy this characterization, because I understand that the essential functions of government include redistribution and public good provision, for which raising taxes are ultimately a part and parcel of meeting expenditure needs. So, in a sense, the government is always in the business of giving and taking back chickens.
But where the aphorism rings true is when there is a perceived imbalance between what taxpayers fork out, and what they believe they are getting back in benefits and entitlements. To be clear, our system is largely progressive, and so those in the lowest income undoubtedly get more than they put into the system.
But this is the case in virtually every high-income country in the world. It would be an exceedingly low bar to benchmark our expectations of government as one that does not engage in regressive taxation, on net.
Rather, we should ask ourselves if the government is doing enough to support the least fortunate in our midst, or if it can do more. If the squeezed middle class is receiving crucial support, especially when costs of living are rising at a rapid clip, and Singaporean households are feeling increasingly squeezed. If society can ask those who have been the luckiest in the economic sweepstakes to give more back to the system that they have benefitted so much from.
Hence it is not so much about chickens or chicken wings. It is about whether the people are getting support today at a time when they need it, or if they are being asked to sacrifice more at a time when finances are already exceedingly right.
The current economic situation
So is it a good time, then, to be asking for chickens? Or should the government be giving out more chickens at this time?
Although we managed to avoid a recession thus far, Singapore’s economy remains fragile. In the second quarter, we grew by a mere 0.1 percent, a harrowing brush with a (technical) recession, given the 0.4 percent contraction in the first quarter.4 Further headwinds are to be expected, given the downturn in the global electronics cycle,5 on which our manufacturing sector remains heavily dependent. The general weakness in growth is acknowledged by both the government and private sector. The Ministry of Trade and Industry downgraded its full-year GDP forecast, to a range of between half a percent and 1.5 percent, from 0.5 to 2.5 percent.6 The median GDP forecast among respondents to the Survey of Professional Forecasters was just 1 percent in September, down from 1.4 percent in June.7 Concomitantly, the labor market appears to be cooling, with labor demand falling for the fifth consecutive quarter, and a dip in job vacancies.8
Prices are still rising faster than is comfortable. Headline inflation still clocks in at 4 percent,9 twice as high as the MAS target.10 Looking below the hood, inflation in key survival sectors—food, accommodation, and transport—are even higher, and the recent inflation picture has been a little flattered by collapsing energy prices.11 Moreover, the recent and impending price hikes on S&CC,12 electricity and gas tariffs,13 postage,14 and public transport15 will likely apply additional upward pressure on inflation, going forward.
Taken together, Singapore’s economic situation appears fragile. We may yet avoid a recession, but are heavily dependent on international economic conditions, which are weak in both China and Europe, two key engines for global growth. In spite of this softness in the real economy, inflation—while down from the peaks of last year—cannot yet be regarded as tamed.
Rebating nominal surpluses isn’t about generosity, it is a moral imperative
Taken together, it is hard to fathom why we would want the fiscal impulse from the government to be a further drag on the economy. Estimates are that fiscal revenues rose by 0.7 percent of GDP as a result of the GST hike alone.16 This is even before the anticipated increase, by another percentage point, for GST come January next year.
It is this context that I had previously stressed the importance of rebating back, as much as possible, any surpluses the government will earn arising from the simple fact that tax revenues—much of which is levied in percentage terms—would almost certainly rise in absolute terms due to inflation.
At the time, DPM Lawrence Wong stated unequivocally, in response to our claim that a surplus would likely emerge, that (and I quote) “I wish that were so, but unfortunately, we do not have any surplus”.17
Yet in his National Day Rally this year, PM Lee announced the $7 billion Majulah package, which he stated would be funded from “resources from this term of government”.18 Of course, part of this would have been from unspent expenditures accrued due to careful spending, as well as additional receipts due to unexpectedly vigorous economic activity, especially in the real estate sector. But undoubtedly, a nontrivial part of this is also the fact that, simply, tax receipts are elevated because inflation has been elevated, resulting in greater nominal receipts.
The government, in tandem with announcements over the hikes to utilities, also indicated that there will be a cost-of-living package to help offset the increase.19 Some murmuring on the ground has griped about how the packages are only one-off. That’s true, although this is based on a presumption that wages will eventually catch up, thereby making most wage-earning households whole. So far, however, wages have barely kept up—gross salaries grew, in real terms, by only 0.4 percent last year, and in terms of basic wages, they shrank by a percentage point20—and so I would urge the government to stand ready with continued support, should the erosion of take-home salaries persist.
After all, a pass-through of any tax windfall should not be viewed as government largesse, but as arising from the simple arithmetic of how inflation bumps up the nominal price of everything, including tax revenues. Hence, rebating surpluses isn’t about generosity at all, but simply a moral imperative that the government not profit from rising prices.
References:
[1] SORA, in turn, was introduced as a replacement for the London Interbank Offered Rate (LIBOR)-linked SIBOR, which has also being transitioned away from, in favor of transacted rates such as the Secured Overnight Financing Rate (SOFR, in the United States) and the Euro Short-Term Rate (€STR, in the Euro Area).
[2] The formula places an 80 percent weight on the 12-month fixed deposit, and the remainder on the rate for savings accounts, for the three major local banks (DBS, OCBC, and UOB), and computed a 3-month moving average.
[3] Data are available here: https://eservices.mas.gov.sg/statistics/dir/DomesticInterestRates.aspx.
[4] These are quarter-on-quarter (QoQ) numbers. On a year-on-year (YoY) basis, growth was 0.4 and 0.5 percent in the first two quarters, respectively, which—while positive—are very low rates. QoQ figures are more indicative of recent dynamics and less distorted by base effects.
[5] Tang, S.K. (2023), “Slump and Recovery—What Is the Current State of the Singapore Economy?”, CNA, Aug 11.
[6] MTI (2023), MTI Narrows Singapore’s GDP Growth Forecast for 2023 to “0.5 to 1.5 Percent”, Singapore: Ministry of Trade and Industry.
[7] MAS (2023), Survey of Professional Forecasters: September 2023, Singapore: Monetary Authority of Singapore
[8] MOM (2023), Labor Market Report, Second Quarter 2023, Singapore: Ministry of Manpower.
[9] MAS (2023), Consumer Price Developments in August 2023, Singapore: Monetary Authority of Singapore.
[10] This target is based on core inflation, and is “just under 2 percent.” The August core inflation rate was 3.4 percent, down from 3.8 percent in July. See MAS (2018), “What Is the Objective of the Monetary Authority of Singapore?”, FAQs on Singapore’s Monetary Policy Framework, Singapore: Monetary Authority of Singapore.
[11] Electricity and gas grew by -1.6 and -1.4 percent (YoY) in July and August, but the cost of utilities is slated to increase, with the announced water and electricity tariff hikes.
[12] Qing, A. (2023), “PAP Town Councils to Raise Service and Conservancy Charges from July 1,” Straits Times, Jun 1.
[13] Shan, C.H. (2023), “Electricity and Gas Tariffs to Increase in Fourth Quarter Due to Higher Costs,” Straits Times, Sep 29.
[14] CNA (2023), “SingPost Increases Postage Rate for Standard Regular Mail by 65% Amid Rising Costs,” CNA, Sep 19.
[15] Koh, W.T. (2023), “Public Transport Fare Hike: Adults to Pay 10 to 11 Cents More Per Journey from Dec 23,” CNA, Sep 18.
[16] Biswas, R. (2023), “Singapore Economy Continues to be Hit by Slumping Exports,” Economics Commentary, Singapore: S&P Global Market Intelligence.
[17] Hansard (2022) 95(73): Nov 7.
[18] Lee, H.L. (2023), National Day Rally 2023, Singapore: Aug 20.
[19] To be clear, this method—of effecting lump-sum transfers rather instead of rolling out subsidies—is the approach that would be recommended by most economists, and is my preferred approach as well.
[20] MoM (2023), Summary Table: Income, Singapore: Ministry of Manpower.