Taxing the Poor to Help the Poor

This seems to be the message that the Ruling Party is sending to the masses when it justified the increase of GST from 5% to 7% as "that the hike is necessary to finance the enhanced social safety nets, needed to help the lower income group, and [he] emphasised that the offset package will more than counter the rise in GST."

Let's be clear on this. There are two types of tax system that anyone who has gone through an economics 101 would know. A regressive tax system and a progressive tax system. If you slap a flat income tax rate of 10% on everybody, it is a regressive tax system because $100 from an income of $1,000 is much more significant than say $10,000 from an income of $100,000. A progressive tax system however taxes different income groups at different rate which is exactly how our current income tax system works.

GST is definitely a regressive tax because the lower income group always end up being more affected than the higher income group. Even if you have an "offset package that will more than counter the rise in GST", this is small consolation for the below reasons:

(1) The effectiveness of the offset package depends largely on the effectiveness of system of distribution. Just like some people felt short-changed by the progress package, there is no guarantee that the "offset package" would reach and help all who need it.

(2) The Ruling Party makes the assumption that the actual and effective general price increase would only be 2%. But merchants would more likely round the 2% up especially for smaller ticket items where the disproportionate increase can be more easily "hidden". And since most of the spending of the lower income group would be on necessities which tend to be small ticket items individually, the impact on the price could be greater than expected.

And anyway, why do things in such a complicated way? If one wants to raise more revenue to help the lower income group, why not just increase taxes that would not affect the lower income group instead? Such taxes include inheritance tax, capital gains tax, tax rate for higher income bracket, tax on luxury goods like cars, etc. There is something really wrong when on the one hand, the papers report a record number of millionaires being created in Singapore and yet on the other hand, the Ruling party is telling us that the only way to increase government revenue is to tax everybody instead of making all these rich people contribute.

The way I see it, this only serves to perpetuate income inequality and class division. I used to say that Singapore is becoming like America where we have two big groups of the haves and the have-nots. Now, I think we are going to become like Russia where you have one small group of very rich people; the oligarchs and a large group of poor people struggling to make ends meet. And yes, if you think this looks like feudal society where you have the "elite" nobles and the peasants, you are not too far off either. Welcome to the Barony of Singapore.