Budget III: GST and Special Employment Credit

[FB should do something about the Notes features here. I can’t set up hyperlinks :(]


Anyway, Finance Minister Tarzan, I mean, Tharman Shanmugaratnam has responded to various questions which MPs have posted about the Budget. Despite calls to cut GST to control inflation (at best a temporary measure), he reaffirmed the govt’s position on this issue: that indirect taxation will gradually replace direct taxation. He also emphasized the importance of productivity as a key driver of income growth (like, duh?), and on the topic of social mobility or income inequality, he flashed out many examples to illustrate the govt’s priorities regarding it.


Both the Finance Minister and Workers’ Party MP Low Thia Kiang have valid reasons on GST. It is true GST is a regressive tax, it hurts the poorer than the rich because the former has a larger marginal propensity to consume. He is right in saying the poor (and during the debate, he said ‘middle-class’ too) is disproportionately affected by GST. On the other hand, Tharman has statistics to back himself up – that the lion share of GST comes from the top 40 percentile of households and foreigners (I’m assuming he includes tourists, but I thought they got duty-free shopping i.e. GST rebates?). It makes sense, since the rich consume expensive, big-ticket items which will then send more GST revenue to govt coffers.


Actually ah, most S’poreans don’t pay direct taxes. And it’s good, because then we can choose what to do with our income (I guess most of us spend it…which goes into GST lol). So indirect taxes are one of the ways to fund govt revenue, or who’s gonna pay?


While I agree multi-rated GST for different items, or essential vs. luxury goods, is administratively burdensome, I don’t see why it can’t be reduced AT ALL. Personally, I think stuff like food should be cheap. Yes, the govt might show that food is a small component of total household expenditure, but when prices of food increase, people feel the pinch in the first few months before resigning themselves to it. I can’t think of the right words to phrase it. Maybe I should call it psychologically damaging for basic food like your zi char or char siew rice or whatever to have higher prices. The psychologist Maslow has a pyramid of needs which I think is quite enlightening. People need food to survive, and while S’pore isn’t starving, making food cheap eliminates the anxiety of some households who have to worry about meals.


If I were the Finance Minister, I would abolish the GST on common vegetables and rice. If the supermarket chains or market stalls try to gay siao and do not reduce prices to pre-GST levels, I’d set the dogs on them.


As I mentioned, cutting GST is no solution to inflation. Ensuring that income growth increases more than inflation IS the correct way, as the Budget has done correctly. The GST is a scapegoat for inflation problems 😦


Secondly, Tharman talked about ‘inclusive society’ and ‘opportunities’ etc. Generally I agree with the govt’s direction. Raising productivity will increase income growth, and everyone will be happy. But I’m disappointed that he did not address one particular group’s problems: the trinity of ‘low-income’ (according to Workfare, it’s below $1700), ‘low-skilled’ (hmm, secondary education and below?) and ‘old’ (a little tricky, after late 40s?).


I’ve been having my lunch at the cheapest place one can find in Raffles Place for the past three weeks, and when the cleaners come to clear my plates, I always wonder how much they earn. It’s a tough and dirty job, and I doubt they are paid alot. How much? $600 per month? Furthermore, the cleaners I see are usually white-haired uncles or aunties. Hence they fit into my category of the trinity.


The govt always talk about retraining, job redesigning or raising productivity. But seriously, how much productivity and retraining a cleaner can achieve in a hawker centre? Uniform, checked. Gloves and boots, checked. Best soap, checked. Maybe smile. Checked.


Or not just the cleaner, but a recently retrenched production factory worker in his late forties, low-skilled. He is retraining under the Workforce Skills Qualification (WSQ) to be a security guard. He earns $1600 a month for his family of four. Under the WSQ, he can obtain a license, followed by a supervisor’s certificate, then finally a diploma. If he’s good, he might become a security manager and he can earn more than $2500 a month. Well, does that happen to EVERYONE?


There’s nothing wrong with being a cleaner or security guard or technician or storeman or dunno what. The pay might be low, the conditions might be bad, and there’s little room for improvement. Having a JOB is more important than being unemployed, with nothing (except for the bohemians and ascetics lah). Some people think a minimum wage is the best solution – EVERYONE will have a minimum salary of $1200.


I disagree, because it 1) raises cost for business and eventually for consumers, 2) it doesn’t solve the trinity situation, because a minimum wage might force some companies to close shop, resulting in fewer jobs, and 3) it is usually a political solution to a very economic problem.


Hence there is the Workfare to ‘supplement’ income – but I think it is too little. However, the Special Employment Credit is a hint of what is to come. The scheme pays half of employers’ CPF contribution to older workers (actually ah, older workers have lower employer CPF contributions, so it doesn’t cost THAT much to the govt), if the employers continue to hire these workers. Effectively a job subsidy i.e. govt pays companies to continue hiring older and presumably low-income/low-skilled workers. Some improvements might even be the govt paying up to 90 percent of employer CPF contribution, or paying 20 percent of wages a la Jobs Credit 2009.


This is where I think the Special Employment Credit should be made permanent into the Permanent Employment Credit. The trinity workers will continue to have employment, and with Workfare payments (should be higher in my opinion), I think they will have better lives in one of the costliest cities in the world.


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