Tax Finale 2: Singaporeans Pay As Much As The Nordic Citizens But Get Back Way Lesser In Social Protection

By Roy Ngerng and Leong Sze Hian

Due to the overwhelming response that we have 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.

In brief:

  • Singaporeans are paid the lowest wages and have the lowest purchasing power among the high-income countries, even though we have one of the world’s highest cost of living.
  • Even though Singaporeans pay the same amount as the citizens in the Nordic countries do into taxes, social security/CPF and what we have to pay as out-of-pocket expenditure, this is unevenly distributed where the low-income and lower-middle income Singaporeans would not be able to afford and access basic necessities. Also, because of our low wages, we lose a much higher proportion of our wages into paying for these.

For over the past one month, we have shown you how Singaporeans are paid low wages – the lowest wages among the high-income countries. This is even though Singapore has one of the highest prices and cost of living in the world.

Also, we have shown that even though taxes are low in Singapore, when you look at how much we pay into taxes, social security/CPF and out-of-pocket expenditure for healthcare, education and retirement, we are actually paying almost the same amount as what the citizens in the Nordic countries pay into taxes and social security but receive healthcare, education and retirement for next to nothing.

Not only that, because the poorest in Singapore have the lowest share of income in Singapore, as compared to the other high-income countries, this means because we are paying the same as the Nordic citizens, our purchasing power is a lot lower than the Nordic citizens. In fact, for the poorest 80% in Singapore, we are poorer than the 80% in the other high-income countries.

So, in this finale article, let us put together the story for you – to let you see once and for all, what things are really like in Singapore.

If you haven’t read the past articles, or you haven’t gotten the complete picture, this article is a must-read. It will give you the full picture once and for all.

Here goes.

So, Singaporeans have been told that we pay low taxes, and because of that, the amount that the government can spend on social protection is thus also low.

If you look at how much Singaporeans pay into personal income tax and social security/CPF, we pay $8,486 per capita and get back $8,942 in social protection (including withdrawals from the CPF) per capita (Chart 1).

Slide1

Chart 1

And if you compare this with what the citizens in the Nordic countries pay, they pay on average $20,087 per capita and get back $28,397 per capita in social protection (Chart 2).

Slide2

Chart 2

In comparison, the citizens in the Nordic countries get more bang for the buck – they get back on average 41% more in social protection, of what they pay into income tax and social security, while Singaporeans only get back only 5% more (Chart 3).

Slide3

Chart 3

But, as mentioned, for the citizens in the Nordic countries, they only need to pay personal income tax and social security, and get back healthcare, education and retirement for next to nothing. However, for Singaporeans, we have to pay an additional $7,774 per capita out of our pockets for these basic essentials (Chart 4).

Slide4

Chart 4

And so, when you compare what Singaporeans pay into personal income tax, social security/CPF and out-of-pocket expenditure for basic essentials – a total of $16,260 per capita – with what the citizens in the Nordic countries only need to pay into personal income tax and social security, you realise that Singaporeans actually pay almost the same amount as the citizens in the Nordic countries do (Chart 5)!

Slide5

Chart 5

Here’s what it is – if the Singapore government were to return back to Singaporeans for social protection at the same rate as the Nordic governments, this means that on the $16,260 that we pay, the Singapore government should pay an additional 41% into social protection – or a total of $22,986 per capita (Chart 6).

Slide6

Chart 6

The government already pays $8,942 in social protection and we pay $7,774 out-of-pocket. So, after deducting for these, this means that there is still an expenditure of $6,271 per capita which the government isn’t spending back for Singaporeans (Chart 7). To put things into perspective, this means that there is potentially $24 billion that the government isn’t spending on social protection!

Slide7

Chart 7

But so far, we have only looked at direct taxes. Let’s also look at indirect taxes. Then, you will get a better picture of how much the government should be spending but isn’t.

This is because what we pay into indirect taxes is actually 3.5 times higher than what we pay into personal income tax. In comparison, the citizens in the Nordic countries pay about the same indirect tax as personal income tax (Chart 8).

Slide8

Chart 8

When we look at what Singaporeans pay into personal income tax, social security and indirect taxes, we would be paying $15,560 per capita.

In the next chart, look at how much we pay and how much we get back in social protection.

Slide9

Chart 9

Of the direct and indirect tax, social security/CPF and out-of-pocket expenditure that Singaporeans pay, the government only pays 57.5% into social protection. However, for the Nordic countries, their governments would pay between 79% and 93% (Chart 10).

Slide10

Chart 10

If the government were to spend for social protection at the same rate as the Nordic governments, the government should be spending $13,647, or $4,706 more per capita (Chart 11).

Slide11

Chart 11

So, is it true that because Singapore’s personal income tax rate is lower and which is why the Singapore government cannot spend more on social protection?

This is obviously not true, because:

  1. The Singapore government collects 3.5 times the amount of indirect taxes, as what we pay into personal income tax and social security/CPF.
  2. The Singapore government spends a much lower proportion of what is collected into social protection – 20 percentage points lower than the Nordic governments.

In total, what Singaporeans are paying into personal income tax, social security/CPF – and we also have to pay additional out-of-pocket expenditure for basic essentials – is $16,260. In comparison, the citizens in the Nordic countries only have to pay personal income tax and social security and get back the basic essentials for next to nothing.

So, what’s the big deal then – if we are paying the same in whatever form but get back the same, then why should we bother?

Well, it’s not the same.

This is because the poor in Singapore receive the lowest wages, as compared to the poor in the Nordic countries. For someone who earns $800, say as a cleaner, the same person in the Nordic countries earn several times more (Chart 12).

Slide12

Chart 12

And for a Singaporean who earns $1,800, say as a bus driver, the same person in the Nordic countries would again earn significantly more (Chart 13) – this s 35% of the population in Singapore who earns $1,800 and below.

Slide13

Chart 13

Not only that, the poorest 20% in Singapore has only 5% of the share of income in Singapore. This is the lowest share, as compared to the high-income countries (Chart 14).

Slide14

Chart 14

In fact, for the poorest 80% in Singapore, we have only 51% of the share of income in Singapore – again, the lowest as compared to the high-income countries (Chart 15).

Slide15

Chart 15

Which means that the richest 20% in Singapore actually has 49% of the share of income in Singapore – the highest among the high-income countries (Chart 16).

Slide16

Chart 16

So, when you look at it, the poor in Singapore, and in fact, the median income earner, and the poorest 80% of the population are earning significantly lower wages than our counterparts in the Nordic countries.

In fact, for the median wage earner in Singapore, they earn lower wages than the median wage earner in the Nordic countries (Chart 17).

Slide17

Chart 17

This is even though Singapore is the 6th costliest city in the world, whereas the Nordic countries are cheaper (Oslo, Norway is 18th, Copenhagen, Denmark is 21st; Stockholm, Sweden is 46th and Helsinki, Finland is 65th), yet Singaporeans earn the lowest wages.

As such, Singaporeans might pay almost the same amount into direct and indirect tax, social security/CPF and out-of-pocket expenditure as the citizens in the Nordic countries, but when you look at it as a proportion of our wages, Singaporeans are actually paying out the highest proportion of our wages – 64.8%, as compared to between 34.6% and 59.4% in the Nordic countries (Chart 18).

Slide18

Chart 18

And because the poor earn even lower wages, we have calculated that for someone who earns $1,800 in Singapore, he/she wouldn’t be able to save after spending for food, transport, housing, healthcare and education. A person who earns $1,800 in Singapore wouldn’t be able to save and retire in Singapore – this is 35% of the population in Singapore. Meanwhile, the citizens in the Nordic countries would be able to save substantially (Chart 19).

Slide19

Chart 19

Finally, we calculate that for the low-income earners in Singapore, they are actually losing 315.5% of their wages – much higher than the citizens in the Nordic countries (Chart 20).

Slide20

Chart 20

And for the high-income earners, they would lose 47.1% of their wages – lower than the citizens in the Nordic countries (Chart 21).

Slide21

Chart 21

As such, you can see that even though Singaporeans are spending almost the same amount as the Nordic citizens per capita, is everything alright? It is not, because for the low-income and lower-middle income earners in Singapore, not only would they not be able to spend on even some of the basic essentials, they would not be able to access basic essentials such as healthcare, education and retirement, simply because they are paid too low wages to afford them.

It is thus not a coincidence that many Singaporeans feel that they are not able to save, and retire. It is because we simply cannot.

Given this situation, do you think that the current situation, where Singaporeans have to pay into taxes, social security/CPF and spend out of our pockets is a sustainable scenario? Or do you think that since Singaporeans are already paying the same amount as the citizens in the Nordic countries anyway, that it might be a more efficient model if we were to pay what we currently pay out-of-pocket into taxes, so that this can be more equitably distributed, and allow all Singaporeans to have the peace of mind to be able to access healthcare and education, and retire (Chart 22)?

Slide22

Chart 22

But this is still not the full story – because Singaporeans are paid low wages, we should rightfully be paid about twice as much as we are currently paid now. This would mean that instead of paying 64.8% of our wages into taxes, social security/CPF and out-of-pocket expenditure, we would only be paying 32.4% of our wages – even lower than what the Nordic citizens have to pay (Chart 23)!

Slide23

Chart 23

Now, do you see the full story? In summary, Singaporeans are paid the lowest wages and have the lowest purchasing power among the high-income countries, even though we have one of the world’s highest cost of living. What’s more, for the low-income in Singapore and 80% of the population, they have a much lower share of the income than the other high-income countries. And even though we pay the same amount as the citizens in the Nordic countries do into taxes, social security/CPF and what we have to pay as out-of-pocket expenditure, this is unevenly distributed where the low-income and lower-middle income Singaporeans would not be able to afford and access basic necessities. Also, because of our low wages, we lose a much higher proportion of our wages into paying for these.

Singapore faces a chronic situation where wages have been depressed for far too long and prices have shifted upwards so quickly that many Singaporeans are being left out in the cold. It might be said that Singapore has a low personal income tax but when everything is added together, what Singaporeans pay is actually very high, and on par with what the citizens in the Nordic countries pay. Yet, the Singapore government does not return in social protection on par with what the Nordic governments do, even as Singapore runs a massive surplus of $36.1 billion (according to IMF guidelines), which as we have calculated, would be more than enough to cover for the current out-of-pocket expenditure without even needing to increase taxes.

So, why is this not being done? Why is the cash-flow in Singapore so lopsided and messy that low- and lower-middle income Singaporeans, and in fact, the median wage earner are made to suffer chronic low wage situations and lose a significant percentage of their wages?

Where has our money gone?

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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4 comments

  1. Pingback: Singapore’s Tax System: Robbing The Poor To Feed The Rich | The Heart Truths
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