Singapore’s Tax System: Robbing The Poor To Feed The Rich

Recently, the issue of whether the rich should pay higher tax has been raised in the mainstream media. Willie Cheng had written in The Straits Times that, “It is time the rich stepped up” in his article, “Please be fair, raise our taxes“. He had advocated that, “perhaps it is time the many well-off people in Singapore should be saying to the Government: ”Go ahead and tax our income more. It is only fair.”

I applaud Willie for his integrity to write such an important piece of article to advocate for a fairer and more progressive taxation system in Singapore.

However, a certain Justin Wang wrote into The Straits Times, in protest against such a move, claiming this is a “principle” of “robbing the rich to feed the poor”. Justin claimed that “the income tax collected from tax residents, 90 per cent is being collected from the top 22 per cent – or those who can be safely called “the rich”. He also claimed that he “cannot think of a Scandinavian wonderland where such a large income tax disparity between its middle and upper classes exists, so perhaps it is time the middle class stepped up instead”.

Now, let me put some facts straight and clear Justin’s misguided ignorance.

First, Justin claimed to be worried that the “top 22 per cent” are paying the majority of the taxes. But what Justin has also chosen to ignore is that the richest 20% in Singapore earns as much as the poorest 80% in Singapore (Chart 1). The richest 20% earns more than half the income in Singapore – so Justin is right, “the top 22 per cent … can be safely called “the rich”. In fact, the richest 10% earns 42% of all income in Singapore, the richest 5% earns 31% and the richest 1% earns 14% of all income in Singapore. Meanwhile, the poorest 20% in Singapore earn only less than 5% of the income in Singapore and the poorest 40% earn less than 9% of the income.

Richest 20% Earn As Much As Poorest 80% In Singapore

Chart 1: The World Bank World Development Indicators: Distribution of income or consumption, The World Top Incomes Database

In other words, the high-income earners in Singapore are very rich. In fact, it has been shown that the rich in Singapore earn the highest salaries, as compared to the other high-income countries, and the poor in Singapore earns the lowest wages. The richest in Singapore – an executive – earns the 7th highest salary in the world – in no other developed country does the rich earn such an extravagant salary (Chart 2) while a lower-income earner – a junior manager – has a salary that is only ranked at 21st (Chart 3). In fact, the average Singapore earns the lowest wages among the high-income countries (Chart 4).

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Chart 2: ECA Global Perspectives National Salary Comparison 2012

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Chart 3: ECA Global Perspectives National Salary Comparison 2012

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Chart 4: The Heart Truths Singaporeans Earn The LOWEST Wages Among The High-Income Countries

What’s more, the wage disparity in Singapore between the richest and poorest is also the widest among the high-income countries – if you look at how much a university graduate earns, as compared to someone who has a below upper secondary education, the gap is the highest in Singapore, as compared to the high-income countries, and this gap is even 3 times wider than the country with the next largest gap (Chart 5)!

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Chart 5: OECD Indicators Education at a Glance 2013

Not only that, Justin claimed that, “the rich have in fact already stepped up”. But do you know that when you include for social security, the richest in Singapore actually pay the lowest tax and social security / CPF rate, as compared to the other income groups? The highest income earner who earns more than $30,000 every month pays only 18.5% in tax and CPF – one of the lowest in the world (Chart 6), while someone who earns a lower $10,000 would pay a higher 20.6% (Chart 7). In fact, someone who earns an even lower income of $5,000 pays the highest rate of 22% while the median-income earner in Singapore who earns $3,000 would also need to pay a higher 21% (Chart 8).

(For critics which claim that the CPF is “our money” and shouldn’t be included as tax, please watch the video below. The CPF has currently amassed $248 billion in balance so if indeed the CPF is “our money”, why is all this money sitting inside, instead of being returned to Singaporeans? Also, the interest that Singapore isn’t getting back from Temasek Holdings and GIC is an implicit tax that Singaporeans are paying to the government)

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Chart 6: KPMG’s Individual Income Tax and Social Security Rate Survey 2012

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Chart 7: KPMG’s Individual Income Tax and Social Security Rate Survey 2012

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Chart 8: The Heart Truths How Are Taxes Built For The Rich In Singapore?

This means that low- and middle-income Singaporeans have a much lower purchasing power than the high-income earners in Singapore. And mind you, more than 75% of Singaporeans earn below $5,000, which means that 75% of Singaporeans have a much lower purchasing power than the top 25% high-income earners. And may I remind you again, the richest 20% in Singaporeans earns as much as the poorest 80% in Singapore.

Moreover, it has also been shown that the highest tax rate of 20% in Singapore only affects the very rich in Singapore – the highest tax rate of 20% in Singapore only takes effect when someone earns more than $26,000 every month (Chart 9)! This means that for most of the rich in Singapore, they don’t even pay tax that is anywhere near the top tax rate of 20%, and you can see from the example of the high-income earner who earns $30,000 in a month above.

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Chart 9: KPMG’s Individual Income Tax and Social Security Rate Survey 2012

Finally, it has also been shown that the tax system in Singapore is also the one of the most regressive among the high-income countries (Chart 10) – which means that as compared to the other high-income countries, the poor have to foot an even heavier tax burden in Singapore.

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Chart 10: Progressive Taxation and the Subjective Well-Being of Nations

When Justin claimed that he “cannot think of a Scandinavian wonderland where such a large income tax disparity between its middle and upper classes exists”, perhaps it would do well for Justin to look at the above statistics before making such an erroneous claim. In fact, it is Singapore that has the widest wage disparity, and the largest tax disparity and most regressive tax system among the high-income countries. The low- and middle-income in Singapore are taking on a disproportionate tax burden in Singapore, and it is the high-income earners who need to “step up”. Either Justin is thoroughly ignorant to the counter-intuitive tax system in Singapore, which I believe is not the case, or Justin is hoping that simply by hollering, and feigning victimisation that he could protect the wealth he has accumulated and stridently wants to protect, at the expense of the poor and the middle-income in Singapore. 

It is perhaps ironic that Justin had claimed that, “such a large income tax disparity between its middle and upper classes” cannot be seen other than in Singapore because Justin is right – indeed only in Singapore, can you see the rich earn such a high income and pay such low taxes, that the lower- and middle-income are left far, far behind in Singapore.

In fact, Justin had dared make a very big claim when he said that, “so perhaps it is time the middle class stepped up instead”. How blind Justin is, to the plight of the middle-income in Singapore.

As I had calculated, the middle class in Singapore has shrunk from 69% in 2002 to 51% 2011 – barely half of the population – in Singapore (yellow portion in Chart 11), and the middle-class looks set to continue to shrink.

Thus for Justin to claim that the middle-class has it good and that they should step-up ignores the fact that the middle-class are losing their wealth, and in fact the lower-middle income group is falling into being in the low-income group. The poverty rate in Singapore – or Singaporeans who earn only half the median income – has increased from 16% in 2002 to 26% in 2011 (red portion in Chart 11). Would Justin be ignorant as to not realise that the middle-class is shrinking and being disadvantaged in Singapore?

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Chart 11: The Heart Truths Poverty in Singapore Grew from 16% in 2002 to 28% in 2013

In fact, in a survey conducted by The Straits Times, it was found that among the middle-class, more than two-thirds of Singaporeans would only have enough to buy the things they need and would not have enough to do what they want to do (Chart 12). Would Justin have this problem?

Happiness and Well-Being cropped

Chart 12: The Straits Times Middle-income Singaporeans feel the squeeeze, survey finds

Not only that, since 1995, the richest 10% has seen their share of income in Singapore grow from 30% to 42% (Chart 13), while the richest 5% has seen their share of income grow from 22% to 31% over the same period (Chart 14). So, you can see that the rich has grown richer and richer while the poor has grown poorer and poorer in Singapore – you can see that the real income of the richest 20% has grown the fastest while that of the poorest 20% had remained stagnant (Chart 15).

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Chart 13: The World Top Incomes Database

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Chart 14: The World Top Incomes Database

Real median monthly income of resident employed, 1996 to 2009

Chart 15: The Heart Truths Singaporeans Earn The LOWEST Wages Among The High-Income Countries

To give you some perspective, the real income of the richest 0.1% in Singapore is $2.1 million. No guesses as to who belongs to that category. Meanwhile, the top 5% in Singapore would earn more than $15,000. Again, no guesses.

Willie had also written about how, in conversation with Robert Steen, a senior executive of Schibsted, Norway’s largest media group, that Steen had concluded that, “‘If taxpayers do not trust the government to deliver the goods and spend their money wisely, then the system of high taxes breaks down. In Norway, we trust our government.”

Now, perhaps this will shed some light on why Justin was so up in arms as to the proposal to increase taxes – does Justin trust the government?

It has been shown by The Inequality Trust and The Spirit Level Delusion that the higher the income inequality, the lower the level of trust. Indeed, in Singapore, because of the high income inequality, there level of trust is also the lowest in Singapore (Chart 16 and 17).

Income Inequality vs Trust

Chart 16: Diary of A Singaporean Mind More on the Importance of Income Equality….

Income Inequality vs Trust @ The Spirit Level Delusion

Chart 17: The Spirit Level Delusion Ignoring Crucial Facts

In fact, the World Giving Index has also recently ranked Singapore as 134th in the willingness to help a stranger, or second least likely in the world to do so – because of such a wide inequality in Singapore, Singaporeans have learnt to be very distrustful and unwilling to help one another – a consequence of the self-centred policies by the government.

Perhaps now we can understand why Justin is so fervently opposed to increasing taxes – he might perhaps not trust the government.

And why so?

Back then to the question on taxes, Leong Sze Hian and I have recently calculated that Singaporeans actually pay almost as much tax as the Nordic citizens, when you account for CPF and out-of-pocket expenditure. In fact, the median income earner in Singapore would pay about 65% of his or wages into there. Thus the 20% tax rate in Singapore is clearly an illusion – Singaporeans have to part with a much larger proportion of our wages. In comparison, the Nordic countries need to part with less than 60% of their wages or even as low as only 35%, and still have a significant proportion of their wages leftover (Chart 18). This is not forgetting that Singaporeans already earn the lowest wages among the high-income countries – or only half of what countries with the similar a GDP per capita as Singapore are paying their citizens.

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Chart 18: The Heart Truths Tax Finale 2: Singaporeans Pay As Much As The Nordic Citizens But Get Back Way Lesser In Social Protection

But more importantly – when you look at how much the Singapore government gives back in social protection for Singaporeans, you see that the government only gives back 58% of what we pay into tax etc, back to Singaporeans, whereas in Nordic countries, their governments gives back a much higher proportion of more than 80% of what their citizens pay back to them (Chart 19).

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Chart 19: The Heart Truths Tax Finale 2: Singaporeans Pay As Much As The Nordic Citizens But Get Back Way Lesser In Social Protection

Thus when Steen had said, “If taxpayers do not trust the government to deliver the goods and spend their money wisely, then the system of high taxes breaks down”, this is exactly the situation that has happened in Singapore right now. Singaporeans – the rich and the poor alike – do not trust the PAP government. Singaporeans know that the government isn’t giving back to Singaporeans what the government should – we know the government is eating up the money. Thus is it understandable that a high-income earner would want to hold on strenuously to their money, when they know that instead of the money coming back to benefiting them and the whole of society as well, this money would be swallowed up by the government and they would never see the light of it anymore? Then why give it to a government which would not keep its end of the bargain?

When Justin had claimed that Willie was advocating for a principle of “robbing the rich to feed the poor”, what Justin doesn’t realise is that in Singapore, the opposite is actually happening, where we are “robbing the poor to feed the rich”, but to be very clear, it is the government which is “robbing the poor to feed the rich who are aligned to them”.

In fact, Leong Sze Hian and I have calculated that the government doesn’t spend a single cent on healthcare, CPF and housing, and other public goods as well. Watch the video below to understand the stark reality in Singapore where not only are Singaporeans paying into taxes, we are also made to double-pay into the other basic necessities, such that not only does the government not have to return us the money, they are also earning the money from Singaporeans.

Finally, the whole question of whether Singaporeans – whether rich or poor – should be paying higher taxes is completely misplaced anyway. First, Leong Sze Hian has calculated that there is a $36.1 billion in surplus in 2012. Next, if you had watched the video above, you would be able to see that we currently have huge amounts of money that Singaporeans have are already paying that can be easily redistributed now back to Singaporeans, and when done, would still leave a large pool of savings left.

So, don’t worry Justin – we understand why you are worried. We have a government which only knows how to take without giving back to Singaporeans. We have a government which knows only how to tell Singaporeans to be “self-reliant” but do not know how to be self-reliant themselves, but are so reliant on Singaporeans. In short, we have a PAP government that Singaporeans cannot trust, even if we have been told countless times by the PAP that we should trust them.

So, you see – there is currently a massive surplus of money which can be redistributed back to Singaporeans at this point to ensure that all Singaporeans can be adequately protected, so that we can allow Singapore to become a much more equal society, where we would have a people who would be more willing to look out for one another.

And as I had said at the Pre-Budget 2014 Forum, “When you have a system like (the Nordic countries) where everyone feels that they are in this together, we won’t have a system where you feel that you have to ‘protect me first’ because I am losing out but (one) where I am being protected, I am not losing out, and that’s why I want to protect you too.”

However, the question at this point is – can we entrust the PAP to bring about such a system, where we can trust them to put our taxes into their hands, for it to be redistributed back to Singaporeans, so that all Singaporeans can benefit? My answer to this is, I think likely not. I would rather trust my money in a new government which would be willing to be transparent and accountable with how they use my money, and which they would genuinely redistribute it back, so that even the rich and the poor would be able to benefit as well.

And I look forward to a new government formed in the near future, now if only Singaporeans would choose to let go of our misguided fears and realise once and for all that for the safety and protection of ourselves, our children and their children, that we need to bring in a new government, for the sake of all our generations.

17 comments

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  2. sanjay perera

    Hi Roy,

    Insightful piece.

    Some points for you to consider in strengthening your case on issue of wealth/income re-distribution:

    1. The points you raise highlight a hidden class agenda that is always there when higher income people try to defend the status quo and claim (ST Forum page has letters that reflect this) – must be fair to the rich who’ve struggled to earn what they have; higher taxes on the wealthy don’t solve problems of the poor; discover causes of poverty rather than just tax and redistribute.

    2. You present a good case revealing the class agenda of those who don’t want their riches touched that needs to be brought to light, but you also weaken it because of your political agenda: that is fine, since you’re transparent about it but it is a hindrance.

    3. Indeed, perhaps a new govt. or new type of govt. may address properly what you raise but there is no basis to think that as of now, there is any group that can do so…because the points you raise are not exactly being politically championed by anyone in the manner you’re discussing it. If they are then I stand corrected.

    4. The irony is that the reason why the capitalist class spokespeople are coming out of the woodwork to fight for themselves is because the ruling party is perhaps ‘saber-rattling’ a possible ‘left’ turn in their policies – this is speculation, but the reason for ‘lack of trust’ by the rich is not that their welfare may not be looked after but that their wealth and lifestyles may be affected. You don’t help your stand by bringing in a class critique then draw a non sequitur in claiming that the rich think the PAP is not capable of looking after their interests as well as the poor (the interests are not the same if you ascribe a class motive to the rich).

    Please bear in mind — this does not detract from what you pointed out that people are paying quite a bit in hidden ways which they may not be always be aware.

    5. The rich are beginning to be a tad ‘wary’ of the PAP, if that is the term, over the issue of possibly being taxed more. They would wholeheartedly continue support for the ruling party if they were told that the rich would be allowed to be richer, and let the poor empower themselves with the worn out tedious analogy of going fishing for themselves (after supposedly being taught how to).

    Do not for a moment think that many of the wealthy care for those who have failed the meritocracy test in life by not being able to fight and win a zero-sum game of being a top earner while maintaining an attitude of — and to the devil with all else.

    Try to hone your arguments to take into account the following:

    a. Why is a system of redistribution or proper taxation required? Is this an issue of fairness; so what is ‘fairness?’

    b. Is there an ethical basis to society, government and citizenship?

    c. Can people get rich anywhere without inadvertently or otherwise exploiting others (e.g. lower wages and benefits for those who create profits, cheap foreign labour, a generally pro-capitalist mainstream media, indoctrination in universities as in teaching neoclassical economics, etc.).

    You may want to address these issues separately from your political agenda which seems to be above all else do not vote for the PAP: keep that for separate posts. By conflating the two you distract from the important critical thinking function some of your posts provide with your political bias (which you’re more than entitled to, of course, on your own blog) 🙂

    Be well.

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  7. Ping Jin

    Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this…

    The first four men (the poorest) would pay nothing The fifth would pay $1 The sixth would pay $3 The seventh would pay $7 The eighth would pay $12 The ninth would pay $18 The tenth man (the richest) would pay $59

    So, that’s what they decided to do.

    The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20″. Drinks for the ten men would now cost just $80.

    The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six men ? How could they divide the $20 windfall so that everyone would get his fair share?

    They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer.

    So, the bar owner suggested that it would be fair to reduce each man’s bill by a h higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

    And so the fifth man, like the first four, now paid nothing (100% saving). The sixth now paid $2 instead of $3 (33% saving). The seventh now paid $5 instead of $7 (28% saving). The eighth now paid $9 instead of $12 (25% saving). The ninth now paid $14 instead of $18 (22% saving). The tenth now paid $49 instead of $59 (16% saving).

    Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

    “I only got a dollar out of the $20 saving,” declared the sixth man. He pointed to the tenth man,”but he got $10!”

    “Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too. It’s unfair that he got ten times more benefit than me!” “That’s true!” shouted the seventh man. “Why should he get $10 back, when I got only $2? The wealthy get all the breaks!”

    “Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”

    The nine men surrounded the tenth and beat him up.

    The next night the tenth man didn’t show up for drinks so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

    And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

    David R. Kamerschen, Ph.D. – Professor of Economics.

    https://www.ijreview.com/2012/04/688-tax-system-explained-beer/

  8. Chingchinglinglong

    You clearly dont pay enough tax to understand the situation. The lower quartile pays negative tax rates after adjusting for transfers.

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  11. Deedee

    Ping Jin, excellent article and analogy! It’s time people start realising they have to carry their own weight on their own efforts, instead of asking for “equal opportunities” akin to handouts one might say. If we do not beg in the streets, then we do not ask for someone else to pay higher taxes (or our drinks) just because they make more.

    The rich are rich because they earned the money – why are they being asked to share the fruits of their labour by paying higher percentages? Why should it be a point that they make the majority proportion of income? Do they use more of resources of the country? Do they enjoy privileges courtesy of the country’s resources not given to the poorer population? In fact, it is the reverse. Much of the country’s resources inland are devoted to the service of the majority – the lower income population. Community centres, public transport and facilities and more, not forgetting subsidised housing that is regulated to the ultimate service of the poorer population. Is that not sufficient dignity, respect accorded? Given without having to ask for. The richer population circulate their wealth back into the economy, because they pay for goods and services, at times at a premium, and less of the free/cheaper public facilities.

    If we try to reduce the wealth of the rich to equalise that of the lower income, we can certainly be advocating for a country, as one people, not to grow. Therein lies the beauty of true growth and advancement as nature means it to be: learning the skills of survival of the fittest, without which any living specie would stagnant and die out, pretty fast.

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