By Roy Ngerng and Leong Sze Hian
Due to the overwhelming response that we had received for the 10-part article on the tax comparison between Singapore and the Nordic countries, we have compiled 2 more articles to summarise what we have discussed so far and explain the significance of these articles.
- Singaporeans might pay the lowest personal income tax, but when looking at comparable expenditure as to what the citizens in the Nordic countries do, we actually pay the same amount as they do, and lose a much larger proportion of our wages than they do.
- The Singapore government spends the lowest on social protection, as compared to the Nordic countries.
In this article, you will be able to see a snapshot of how much tax Singaporeans are really paying. Click on the links if you would like to read more.
Low-income Singaporeans have a lower purchasing power than high-income Singaporeans, as they would need to pay 36% of their wages into tax (zero tax) and CPF, whereas for a high-income earner who earns say $20,000 a month, his total tax (10.4% – $20,750 tax payable before reliefs) and CPF (15.3% – maximum $30,600 contribution on income of $85,000) rate is a much lower 25.7% (Chart 1).
We have been told that Singaporeans pay one of the lowest taxes in the world, and when we look only at personal income tax as a proportion of the total government revenue collected, indeed, it does look like Singaporeans pay low taxes – personal income tax forms only 9.6% of the total government revenue, whereas it forms between 34.3% and 54.7% in the Nordic countries (Chart 2).
However, when you look at how much Singaporeans pay into personal income tax, as well as CPF, you will see that what Singaporeans are paying isn’t actually that low. Personal income tax and CPF would form 40.5% of the total revenue collected in Singapore, while in the Nordic countries, it isn’t that far off – personal income tax and social security form between 56.2% and 62.3% of total revenue (Chart 3).
In fact, do you know that even though personal income tax is low in Singapore, the CPF contributions collected by the government is 323% times the personal income tax collected, whereas the social security revenue collected in the Nordic countries is only between 4% and 82% of the personal income tax collected (Chart 4) – so overall, what we are really paying is 3 times more than the personal income tax.
Next, in the Nordic countries, the citizens can obtain next to free healthcare and free education, as well as much higher retirement funds. However, in Singapore, Singaporeans still have to use our own money to pay for healthcare, education and retirement. We have to pay an additional $4 billion for healthcare, $6 billion on education and $19.7 billion for retirement, or a total of $29.7 billion. And if you look at how much this $29.7 billion is, as a proportion of what we pay into personal income tax and CPF, Singaporeans actually pay a whooping 91.6% more (Chart 5). Note that in the Nordic countries, all they have to pay is into personal income tax and social security, and would receive almost everything for free.
If we add the out-of-pocket expenditure of $29.7 billion into what we pay into personal income tax and CPF, Singaporeans would be paying $62.1 billion. In comparison, the citizens in the Nordic countries pay between $89.7 billion and $168.2 billion. If you look at how much each citizen would pay, a Singaporean would pay $16,260 on average, whereas the citizens in the Nordic countries would pay between $17,305 and $22,336 (Chart 6) – Singaporeans actually pay the same personal income tax and social security rate as the citizens in the Nordic countries! We don’t have the lowest taxes!
Next, if we look at how much each government spends on social protection, the Singapore government spends $22.4 billion on social development, and $11.7 billion is withdrawn from CPF by Singaporeans – a total of $34.1 billion in social protection. In comparison, the Nordic governments spend between $122.8 billion and $228.9 billion. On a per capita basis, you would see that the Nordic governments would spend between $23,699 and $33,421 on social protection, but the Singapore government spends a much lower $8,492 (Chart 7).
But what is more important is that when you compare what the governments spend for social protection, with what the citizens pay in personal income tax and social security, the Singapore government only spends 105.4% of the personal income tax and social security, whereas the Nordic governments would spend between 136.1% and 149.6% (Chart 8) – or in other words, the Nordic governments spend 36 percentage points more than the Singapore government is willing to.
But, as discussed, Singaporeans spend an additional $29.7 billion out-of-pocket, or $7,774 more per person. Thus if you add this up with what we pay in personal income tax and CPF, Singaporeans are actually paying $16,260. And compared to what the government spends in social protection, the $8,942 is only 55% of what we pay (Chart 9) – in other words, the Nordic governments would spend almost three times as much as what the Singapore government is willing to pay. Not only that, the Nordic government would spend more than what they collect from its citizens to subsidise for its citizens, but in Singapore, the citizens have to pay more to subsidise for the government instead!
Next, when we compare direct and indirect taxes, we get another revelation. Singaporeans pay an additional $27 billion in indirect taxes. When we combine the direct and indirect taxes, Singaporeans would pay $23,334 on a per capita basis. This is in comparison to the $26,125 and $35,826 that the citizens in the Nordic countries would pay (Chart 10). So, you can see that even though Singaporeans supposedly pay the lowest personal income tax, when you add the indirect taxes, Singaporeans actually pay as much tax as the citizens in the Nordic countries do!
But can the Singapore government increase its expenditure to provide free healthcare and education for Singaporeans, and increase our retirement funds? According to the International Monetary Fund Special Data Dissemination Standard, Singapore has $36.1 billion in surplus. If the government would spend another $29.7 billion to cover for what we pay as out-of-pocket expenditure for healthcare, education and retirement now, there would still be $6.4 billion left in surplus.
Finally, if you really calculate, the low-income are not paying only 36% into their personal income tax and CPF – their actual wage loss is 315.5% of their wages. This is compared to between what the 0% personal income tax and social security that the low-income Danes pay and the 30% that low-income Swedes pay (Chart 11). The 315.5% that Singaporeans lose is significantly higher than what the citizens in the Nordic countries pay.
For the high-income Singaporeans, instead of the 20% personal income tax and social security that they would pay, they would actually lose 47.1% of their wages. And when compared to the high-income earners in the Nordic countries, they would pay between 51.7% and 60.6% in personal income tax and social security –much higher than what the high-income earners in Singapore would pay (Chart 12).
As we had also shown, for a cleaner in Singapore, as compared to his/her counterparts in the Nordic countries, he/she would go into a debt of $$1,370 in a year, after deducting for personal income tax and social security, and spending for food, transport, housing, healthcare and education. However, in the Nordic countries, cleaners would still be able to save, at between $7,846 and $24,676 – because healthcare and education is free (Chart 13).
In the end, the question that we have to ask is this – if Singaporeans are actually paying the same tax and social security as the citizens in the Nordic countries, should we also be receiving free healthcare and education as they do? More importantly, because the low-income earners in Singapore have to pay more than what they earn and have to go into debt, should Singapore restructure our cash-flow structure to ensure that the poor in Singapore are still able to save?
Clearly, it is no longer an excuse to claim that because Singaporeans pay the lowest taxes, that the government cannot increase subsidies. First, it has been shown that Singaporeans pay as much in tax and social security as the citizens in the Nordic countries. Second, the Singapore government has a much higher surplus of $36.1 billion, than has been declared. As such, there is more than enough for the money to be reshuffled to provide for free healthcare and education, and ensure that all Singaporeans are protected, and not only a select few.
The income inequality and poverty rate in Singapore – the highest among the high-income countries needs to be immediately resolved, and has been shown, can be easily done. Right now, what we lack is political will and commitment to the protection of Singaporeans.
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.