Tax Part 8: Singaporeans Pay Higher Proportion Of Our Wages Into Tax Than Nordic Citizens

By Roy Ngerng and Leong Sze Hian

This is a 10-part series which will analyse the tax that Singaporeans are paying, in comparison with the Nordic countries. It has been said that Singaporeans pay one of the lowest taxes in the world, and that the Nordic countries pay one of the highest taxes in the world. This series would explore this matter in greater depth, and seek to have a better understanding of what the truth really is.

In brief:

  • Singaporeans pay the highest proportion of our wages into taxes, as compared to the Nordic countries. This is because citizens in the Nordic countries earn much higher wages than Singaporeans do, and the citizens in the Nordic countries can thus have much higher purchasing power than Singaporeans.

Over the past few weeks, we have shared with you how Singaporeans are paying almost as much as the citizens in the Nordic countries pay into taxes, social security/CPF and out-of-pocket expenditure for basic necessities.

But that still isn’t the full picture. This is.

What we have not taken into account is how much Singaporeans are actually being paid, and if we actually paying similar amounts into social expenditure as the citizens in the Nordic countries, what does that mean as a proportion of our wages?

As we have shown in part 2 of the article, Singaporeans receive the lowest wages among the Nordic countries – the median wage in Singapore is the lowest.

Also, Singaporeans seems to pay one of the lowest personal income tax and social contribution/CPF rate – we pay 20.8%, as compared to between 12.79% and 50% in the Nordic countries.

But really, when it comes to how much we actually pay out, as compared to our wages, how much is that?

As we had mentioned, on top of taxes and social security/CPF contribution, Singaporeans have to pay additional out-of-pocket for health, education and retirement. These are things that the citizens in the Nordic countries don’t have to. They need to only pay personal income tax and social security and receive next to free healthcare and free education and get back higher retirement funds than Singaporeans do.

Thus when you compare what we pay into personal income tax, CPF and these out-of-pocket expenditure, and compare to what they pay only into personal income tax and social security, Singaporeans pay almost the same amount as they do. Singaporeans pay $16,260, as compared to the $17,305 to $22,336 that the citizens in the Nordic countries do.

But what happens when you compare this to our wages? The median wage for Singaporeans is $3,000 monthly or $36,000 annually. For the citizens in the Nordic countries, it’s between $4,627 and $8,631 monthly or between $55,524 and $103,572 annually.

When you look at what we pay into personal income tax, social security/CPF and out-of-pocket expenditure (for Singaporeans), this is when things get really interesting.

For the Nordic countries, they only pay between 21.6% and 34.5% into personal income tax and social security. However, for Singaporeans, we actually have to pay a much higher proportion of 45.2% of our wages into personal income tax, CPF and out-of-pocket expenditure (Chart 1)!

Slide1

Chart 1

We are paying 16 percentage points more of our wages than what the citizens in the Nordic countries pay to get back the same as what they do!

But what if we look at direct and indirect taxes, and out-of-pocket expenditure?

As discussed, Singaporeans pay $22,334. This is compared to the $26,747 to $38,080 that the citizens in the Nordic countries do.

And when you look at it as a proportion of wages, the citizens in the Nordic countries pay between 36.8% and 59.7% of their wages. In comparison, Singaporeans pay 64.8% – higher than any of these countries – of our wages into direct tax, indirect tax and out-of-pocket expenditure (Chart 2)!

Slide2

Chart 2

We actually pay 18 percentage points more than citizens in the Nordic countries do!

So, it really doesn’t matter that Singaporeans are paying slightly lower nominal amounts than the citizens in the Nordic countries do into taxes and social security, because when you look at it as compared to wages, we actually pay the most! We actually pay more than they do!

By now, you would have realised that even though Singaporeans have been told that we pay one of the lowest personal income taxes in the world, but when you really add it all up, what Singaporeans pay into taxes and social security, as well as for out-of-expenditure is actually the same as what the citizens in the Nordic countries pay only into taxes and social security, and get back as much, and even more than what the Singaporeans do.

But, there’s still something else which we have left out. Do you know that the current expenditure isn’t at its most optimum? There is still some lost expenditure that has not been spent, because the poor cannot afford or assess the basic public services.

And how much more is this? Check out our next article to find out more.

You can read the other parts of the article here.

*****

In the aftermath of the transport fare increase, and in the face of the pending increase of the MediShield premium and Medisave contribution rate, do you have something to say about how the government apportion budget for Singapore?

Do you think the $1,000 wage that the government wants to legislate for cleaners is enough? Do you think more workers should earn a minimum wage and do you think the minimum wage should be higher?

Come join us at the Pre-Budget 2014 Forum, where we would be discussing these issues and sharing with you our recommendations and proposals. This event is jointly supported by MARUAH, Function 8 and Workfair.

You can find out more about the event at the Facebook event page here.

pre budget 2014 conference

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15 comments

  1. Vote against PAP in 2016!

    Most Singaporeans do not need to pay income tax or pay very low of it possible around 5-10% of their income which is one of the lowest, possibly after HK who is the lowest income tax in the world.
    We pay 20% of our income to CPF which means we have to feed ourselves using our CPF after retirement.
    And we pay a much higher indirect tax or price like housing, cars which are mutiple times more expensive than most developed countries. So in short, Singaporeans have alot of tax to pay mostly indirect and have to take care of himself unlike developed countries where their countries will take care of them when they retire.

  2. Pingback: [Tax Infographics Part 8]: Singaporeans Pay Higher Proportion Of Our Wages Into Tax Than Nordic Citizens | The Heart Truths
  3. Jammie Wong

    Roy,
    If you calculate CPF as Tax, would you not HAVE TO consider that:
    – people who pay for their HDB flat entirely using CPF ..as receiving ‘FREE’ housing?
    ..and that HDB flats’ price should be nett off payment from CPF (i.e. only cash component is what people pay)?
    – people who pay their insurance using medisave ..as receiving ‘FREE’ medical insurance?
    – whatever-left in CPF after retirement ..as retirement benefit from the government?

    in short, if CPF is tax then it should be considered “gone” (paid to government) ..and any utilisation of it will be “benefit” from government.

    • Roy Ngerng

      Hi, will be talking about this in a later article.

      People think that the CPF is their money, but the devil lies in the details.

      The short answer is this – if CPF is our money, why can’t we take our money out to retire? Why do we have to work long past retirement age?

      And if we can’t take the money out, is it really still our money?

      Will discuss this in a later article.

    • Roy Ngerng

      And I’ve written before – for healthcare, the government is only spending 1.8% of the total amount in the 3M, which means that if we increase the spending by just 10 times, to make up less than 16% of the total amount of 3M, we would be able to full cover all Singaporeans and still have more than 80% in surplus.

  4. Sgcynic

    If you treat the case of people who pay for their HDB flat entirely using CPF ..as receiving ‘FREE’ housing from the government, then you HAVE TO keep in mind that this “benefit” is subjected to the people’s own ability to pay – it is not ‘free’ from the largess of the PAP government.

    • Roy Ngerng

      The HDB-CPF equation in complicated – I will write an article about this in a later article.

      But you are right – it hinges on the ability to pay. So, it doesn’t quite matter whether it’s free or not, like you say, as the prices are the flat are set by the government anyway, so if they set a high price which allows your CPF to be effectively wiped up, it might be “free”, but it leaves you with nothing – nothing else to retire on, nothing else to save.

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