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.
- Because the poor are unable to afford healthcare and education, there is lost expenditure in Singapore that is not spent.
- Singaporeans pay the same as the citizens in the Nordic countries do.
- Singaporeans also pay the highest proportion of our wages than the Nordic countries into what they would pay similarly into tax and social security/CPF.
By now, you would have realised that when it comes to the taxes, social security and out-of-pocket expenditure that Singaporeans spend on basic necessities, we actually spend about the same amount as what the citizens would pay into taxes and social security, to get not only what we have, but more in return – next to free healthcare, free education and higher retirement funds.
But do you know that of the current out-of-pocket expenditure that we are spending in Singapore, we are not even yet spending at the optimum level?
This is because there is a proportion of the poor who are not able to afford healthcare, and only 30% of Singaporeans are enrolled into university. Thus there is some lost potential expenditure there, due to the under-consumption of Singaporeans, because a lack of affordability and availability.
And how much is this really?
If so, of the current out-of-pocket expenditure, instead of only spending $4.0 billion on healthcare, Singaporeans should rightfully be spending $6.6 billion. The $2.7 billion underspending would be due to the fact that poorer Singaporeans are not able to afford healthcare, and have thus chosen not to spend.
And when we look at education, only 30% of each cohort of Singaporeans are able to enter universities. As compared to the other high-income countries, this would be at about 70%. As such, about 40% more Singaporeans should be entering universities but are not doing so, because there is a lack of universities in Singapore being built. If this is the case, then of the current expenditure that is being spent on university education, there is another $1 billion that is not being spent, because Singaporeans are not able to enter universities.
If so, what we really should be paying into personal income tax, CPF and out-of-pocket expenditure should be $17,221 per capita, instead of the current $16,260 now. This would put up firmly with what the citizens in the Nordic countries are actually paying, of between $17,305 and $22,336 (Chart 1).
This would also mean that as a proportion of our income, Singaporeans are actually paying more than half, or 57.8% of our wages into personal income tax, CPF and out-of-pocket expenditure (Chart 2) – we would be spending 19 percentage points more of our wages than the Nordic countries!
And when we look at what we pay into direct tax, indirect tax and out-of-pocket expenditure, we would be spending $24,295, as compared to the current $23,334 (Chart 3).
What this means is that we are paying 67.5% of our wages (Chart 4) – we would be spending 20 percentage points more of our wages than the Nordic countries!
What these all means is that Singaporeans have a much lower purchasing power than the citizens in the Nordic countries. But that’s not all. As we had also shared in part 1 and 2, the lower-income Singaporeans actually pay a higher personal income tax and CPF contribution than the high-income Singaporeans – low-income Singaporeans pay 20.8% in personal income tax and CPF whereas the high-income pay 16.65%.
Also, for more than half of the poorer and middle-income Singaporeans, most of us wouldn’t be able to save but we will go into debt and never be able to retire. Yet, for the highest-income earners in Singapore, they will however be able to save, and also get to save more than citizens in the Nordic countries.
Thus when we talk about how Singapore’s purchasing power is low, as compared to the Nordic countries, we are really referring to the low- and middle-income Singaporeans. What is happening is that there is such a severe lack of purchasing power among the low- and middle-income Singaporeans that the burden of the inability to pay is being carried by them.
So, by now, you can see that not only do Singaporeans actually pay the same taxes and social security as the citizens in the Nordic countries, when we look at it as a proportion of our wages, we actually pay more than they do! And because there is a large group of poor in Singapore who cannot afford healthcare and education, there is a severe underconsumption and underspending in the utilisation of these essential public services in Singapore.
By now, we have established that the purchasing power of Singaporeans is very poor, as compared to the Nordic countries and other high-income countries, but how bad is it? The high-income Singaporeans actually do have a higher purchasing power than the other high-income countries. So how much actually are low- and middle-income Singaporeans underconsuming, or actually overpaying?
Find out more in the next part of our article – we will take you through the cash flows, and let you have a better understanding of how much “taxes” Singaporeans are actually paying.
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.