Response Speech by Second Minister for Finance Indranee Rajah to Adjournment Motion on "Taxation for a Dynamic and Fair 21st Century Economy"01 Nov 2021
Mr Deputy Speaker, I thank the Member for his suggestions in the speech.
1. What we have in Singapore today is one of the most progressive system of taxes and transfers in the world.
2. This is possible because we have a competitive, fair and sustainable tax system, painstakingly built up by the Government over the years, which not only raises revenue, but keeps our economy dynamic, builds an inclusive society and enables a greener future.
3. Consider this:
a. Almost half or 50% of our workers do not need to pay any Personal Income Tax. Of those who pay, the top 10% of individuals account for about 80% of the total revenue;
b. At the same time, real income has grown over the years;
c. Over 60% of the net GST from households and individuals is estimated to be collected from the top 20% of resident households, foreigners residing in Singapore and tourists;
d. And when we consider the entire system of taxes and transfers, for every dollar of tax a Singaporean household around the middle pays, they will receive around twice the amount in benefits1. Lower-income households receive even more - about $4 in benefits for every dollar paid. The redistribution of tax revenue is done pursuant to our goal of a fair society.
e. This compares favourably with other jurisdictions, such as the UK and Finland, where middle-income households receive only $1.25 of benefits for every dollar of tax paid.
4. Our overall tax burden is low. Our taxes as a percentage of GDP are only 13%, much lower than the OECD average of 34% and the Asia-Pacific average of 21%2.
a. This matters. Why?
b. It keeps the tax burden on our people and businesses low, letting them retain most of what they earn;
c. It keeps the economy dynamic and thus creates good jobs for our people.
5. It is not easy to keep the overall tax burden low, as any Government will tell you.
a. But we have been able to do so because we manage our spending effectively and get as much value as we can out of the tax dollars collected for the benefit of Singaporeans.
b. We have achieved good outcomes in many areas, including healthcare and education, for every dollar of spending.
6. Perhaps most uniquely of all, we have the Net Investment Return Contribution (NIRC) to supplement our revenue.
a. The NIRC is already our largest revenue source – around 3% of GDP in revenue a year on average. In fact, for every dollar we spend, 20 cents comes from our reserves.
b. Because of NIRC, Singaporeans pay lower taxes than they would otherwise have to. This is unlike many developed countries which - not having something like the NIRC - have to borrow to meet their spending needs and use tax revenues worth 2-3% of GDP each year to service their national debt.
7. In addition, we have the reserves as a failsafe in times of crisis.
8. This is where our tax system is today. But we cannot and will not stand still. We are continuously reviewing our tax system not only to meet the needs of today, but the challenges of tomorrow.
9. What are these challenges? We have many but these are the 3 most pressing, structural ones:
a. First, a rapidly ageing population – about one in four will be 65 and above by the end of this decade. We can expect Government healthcare spending to rise significantly, from 2.2% of GDP in 2019 to 3% of our GDP by 2030. 3% of GDP is comparable to what we currently spend, as a proportion of GDP, on defence.
b. Second, climate change. We must redouble our efforts to make sustainable investments to green our economy and mitigate the impact of climate change. Protecting our coastlines against rising sea levels alone will cost about $100 billion.
c. Third, renewing our social compact. This means more investments to reduce inequality and promote social mobility, for instance in building more preschools and improving opportunities for lifelong education.
10. Yet, even as our structural spending needs continue to increase, our revenue streams are becoming increasingly uncertain.
a. We cannot be constantly depleting our reserves. Our investment returns from our NIRC will face significant headwinds in a more challenging global investment environment.
b. And global tax developments under the Base Erosion and Profit Shifting, or BEPS 2.0, will have an uncertain impact on our revenue streams.
11. Clearly, we cannot be status quo. But whatever we do must strike the right balance among raising sufficient revenue, maintaining competitiveness and progressivity, and being sustainable. We have a concrete revenue plan to achieve this. We have already made some changes, and have announced others:
a. First, we have continually been raising and enhancing the progressivity of our income taxes. We also tax wealth and have been raising asset-related taxes like property tax, stamp duty and additional registration fees, for higher-end cars or residential property. We will continue to review these.
b. Second, we are currently reviewing the carbon tax. We will update at next year’s Budget the carbon tax level for 2024, and what can be expected up to 2030.
c. Third, we have indicated the need to raise the GST rate sometime between 2022 to 2025, subject to economic outlook. This will raise revenues of around 0.7% of our GDP. But even as we raise the GST rate, we are committed to cushioning the impact for Singaporean households, including the middle-income.
12. Assoc Prof Jamus Lim, I think, has focused on wealth taxes today.
a. Broadly, we are not in disagreement, in the sense that we are constantly looking for ways to be able to supplement our revenue, but to do that in a way that strikes the right balance.
b. So on wealth taxes, it is not about having more types of wealth taxes per se. Rather, what matters is having wealth tax policies that work in the context of each jurisdiction.
c. For example, Switzerland has a net wealth tax, estate duty and property-related tax. In total, their wealth tax revenue is about 1.9% of GDP. This is comparable to Singapore’s wealth tax revenue at about 1.8% of our GDP.
d. As mentioned, we will continue to review wealth tax. The question has never been one of whether we want to tax wealth, but a practical one of how to do so effectively such that it cannot be avoided easily.
e. At the end of the day, we do not have any issue with wealth taxes per se. We want to make sure that whatever we put in place actually works.
f. Because I think that the Member suggested that companies may no longer look at the tax rate. And that it’s not one of the factors that they take into account. But it is not something that can be discounted completely. Businesses and individuals will still look at tax rates and it must be remembered that wealth can move; talent, both Singaporean as well as foreign, can move; companies can move.
g. We have to tax in a way that is competitive and allows people and companies to generate revenue in order to encourage them to stay here and that revenue can be used and allocated and redistributed.
13. Just one last point, the Member spoke about GST and said that it affects the lower and middle income disproportionately more.
a. I think that is something which the Worker’s Party repeats very often. That standalone line in itself is fair enough. But what must always be accompanied with that line, and I do hope that the Assoc Prof and his colleagues will remember the accompanying balance to that line, is that in Singapore, the way we have designed our GST system is that we have tilted more in favour of helping the middle income and the lower income.
b. What we have said is that as and when the GST has to be raised, we have set aside an Assurance Package of $6b and this will be able to see through the middle income for the GST increase for 5 years, and the lower income for the next 10 years.
c. We also have in place the GST Voucher system, as well as a comprehensive social support system that is targeted at helping those most in need.
d. We have also said that we will absorb the GST on publicly subsidised healthcare and education.
e. I just want to reinforce that when talking about the GST, one must not talk about the impact of middle income and low income alone. But to be fair, it is very important to also look at what we do to support and buffer the middle and lower income in order to take away any of the additional burden that falls on them as a result of the GST, and then that way we make it a fairer system.
14. In conclusion, Mr. Deputy Speaker, let me just wrap up by saying this. Today, we have a tax system that is fair, as everybody contributes to meet our collective spending needs. Those who have more contribute more. The government reallocates the revenue to support those who have less. It is also fair across generations, and can withstand the test of time.
15. It is dynamic as it places a low tax burden on workers and businesses and allows them to retain the fruits of their labour. We care about competitiveness, not for the sake of competitiveness per se, but to promote growth for the benefit of all.
16. It is sustainable, both fiscally and environmentally.
17. And this is what a well-designed 21st century tax system should look like, and we will continue to refine it to make it even better.
 Based on MOF data in 2019
 Based on OECD’s data in 2019