Comments, opinions and an occasional ramble
Part 1 of thoughts on Budget 2007 – The GST offset package
The offset package is out. To find out the details of the offset package, please refer to http://www.gstoffset.gov.sg/
The good thing about this offset package is that it’s staggered over a few years. GST credits are given out for a period of 4 years, and the value of the amount of GST credits that one receives will depend on the size of your flat and annual assessable income. One can expect to receive anywhere between $100 to $1000 over 4 years. NSman and NSFs get a one time $100 payout. To find out more about the amount of GST credits that you qualify for, click here. In addition, there is the Senior Citizen’s Bonus, Post secondary education account top ups and rebates for utilities and conservancy charges rebate.
The GST offset package is perhaps the best that I can hope for. By staggering the payouts and spreading the benefits over a wide range of categories rather than one lump sum is the most sensible thing to do. If the offset package is done the progress package style where a one-off lump sum is given, the travel agencies are going to see a sudden surge in demand for holidays by less than prudent Singaporeans and all the money meant to help them for the next 5 years will evaporate instantly.
There’s also a PDF document that compares the amount of additional GST payable (based on Department of statistics 2005 General Household survey) and the value of the offset package. Since not everyone might have a PDF reader, I’ve reproduced the document in a format that can be displayed on all internet browsers:
The government has stuck to its promise that the poor will more than benefit from the increase in GST, so I suppose I can officially remove my objection to the GST. However, I am concerned that there are gaps in our system that will result in some people being left out of the package. The offset package is there, but some of the poorer folks, especially those that are not so literate, might not actually know of the package. I guess this is perhaps the current challenge now.
Overall, the GST offset package has been pretty reasonable, although there are probably questions as to why is there a need to raise GST only to give an offset package. It doesn’t sound very intuitive. The official answer to this has been laid out in the Budget speech, which will form the part 2 of my thoughts on Budget 2007.
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about 4 years ago
Clarification sought:
In Annex E, the offset is for additional 2% GST. So, how does it help the poor. Isn’t it only status quo at most?
It is also illogical to calculate eligibility based on the address stated in the NRIC for those who rent a room or poor families renting a flat when they don’t even own property.
What about the homeless? How are they better off?
about 4 years ago
shoestring,
I’ll attempt a quick answer. For one-room household, total additional GST over 5 years is $1,020 but total benefits received is $3,880. For two-room household, total additional GST over 5 years is $1,600, but total benefits received is $4,110. For three-room household, total additional GST over 5 years is $2,500 and total benefits received is $3,940. Based on these figures, the poorer folks are receiving more money in terms of the value of the offset compared to the extra they have to fork out in GST.
We have to compare apples with apples. Since the problem is an additional 2%, the offset package must more than offset the additional 2%. If your point of contention is that the GST the poorer folks have to pay in total is amounts to the total amount of the offset package, it’s akin to comparing an apple with an orange. It’s an unfair comparison. The exisiting 5% is another matter altogether, which really should be discussed separately.
As for the homeless and those who rent flats, it’s a good question. My assumption is that those who are renting/homeless are probably going to receive the same amount of help as those in the lowest category, i.e. the 1 room category. It would make no sense for the government not to help the homeless and the flat renters. The problem really is whether these people will be able to receive the aid packages.
And, I think the issue of homeless-ness should not be linked with the issue of ensuring that the poor are not overly burdened by the regressive nature of an increase in GST. They are two separate matters. I do note that something should be done about the homeless people in the streets to give these people at least a roof over the head.
about 4 years ago
Once again, the middle class has been largely overlooked. Consider a 30 year old earning $30k annually, living with his parents, without kids or car. Aside from the GST credits, which will not be sufficient to offset the additional GST-related expenditures and will not be a permanent feature, he will not be getting any other support from the government. Can he cope with the GST? Of course he can. But will his standard of living decrease? Most definitely, all else equal. The middle class has once again been forced to sacrifice for the nation and our less well-off Singaporeans. But what is the government doing to ensure that middle class Singaporeans still feel they have a place in this country?
about 4 years ago
GST is a consumption tax which is based upon the price of the goods/services that one uses. With yearly compounded inflation, i doubt the GST offset package can last 19 years for someone who is not only going to grow old but would likely need more services (ie medical care). What the offset package is doing is to pacify the citizens for the first few years, after which all would have been forgotten and they can continue to reap the additional taxes indefinitely..
about 4 years ago
Yun,
I would just like to pose a question to you, and that is how much should the government help the middle class? The reason why I am asking this question is because our money doesn’t come oozing out of the ground like the Middle East. Therefore, a choice must somehow be made.
I agree whole heartedly that it is unfair to make the middle-class “suffer” in order to provide more assistance to the poor. However, would you be willing to pay the extra 2% in GST if, as a result of increasing GST and cutting corporate taxes, your salary increases by say an average of 5% for the next few years? I think you wouldn’t mind the increase if the forementioned scenario happens right?
The problem is that we cannot be sure if the above mentioned scenario can happen. The government is confident that it will happen, so let’s wait and see. If the government cannot deliver the goods, it’s not too late to boot the PAP out of power at the next GE and get whoever comes to power to reduce the GST, right?
about 4 years ago
KC,
You are spot on. The 19 years figure is really for show. It does not account for inflation and other costs. However, even if I discount for the other costs involved, I think it will still be able to last for say, 10 years? That’s not too bad in my opinion.
about 4 years ago
The offset package really did took away some the questions that comes with the GST hike. As mentioned in many forums and alike, many are waiting to see what government has to offer and they somewhat “proven their worth”.. at least for now.
On reading though, I figure that there is a potential room for problem with “installments” method that the government is using.
What if there are changes in circumstances anytime within the 4 years? Do the originally “richer” get less “handouts” then? I’m really apprehensive of the “positive” projection that the handouts can last a dozen years.
OK.. maybe it sounds overly cautious and pessimistic. ^_^
about 4 years ago
Thanks Aaron. The reason why I compared the package using 7% and not 2% is because the government’s claim for raising GST is to help the poor.
So, my question is, what is the point of raising GST if it is not meant to alleviate the burden of 5%, but just to negate the impact of 2% rise?
The no. of years of offset quoted also doesn’t make sense if after 5 years, the GST is raised again. What is the use of 19 years then?
about 4 years ago
Hey Aaron, do you know if anything more was said about how the amount for additional gst payable annually was calculated beyond what was said on the pdf. As in, how was the estimate made?
I ask this because my duck rice rose from 3.50 to 3.80 and its not even july yet. sigh. Anyway, that is an 8% increase. So even if the government is increasing GST by 2%, the increase that I might have to spend might be more than that. So if I used to spend $100 and the tax was $5, it doesn’t mean that now I pay $107. I could end up paying like $115 or something, so the number of years that have been calculated to be able to be offset by the offset package may be on the high side.
about 4 years ago
Hi Stanley,
It was stated that every year, the amount one receives will be based on the income and the value of the person’s home. So if you suddenly got a good job and upgrade your home, your offset package drops. The reverse is true. If you get retrenched and had to downgrade your flat, you will get more. Just make sure that you keep your home address up to date. There’s probably no need to update the government about your income because this information would be captured either by CPF contribution or income tax assessement.
The details had been pretty finely thought out by the government.
about 4 years ago
Shoestring,
You said,
So, my question is, what is the point of raising GST if it is not meant to alleviate the burden of 5%, but just to negate the impact of 2% rise?
I’m confused here. I don’t really get you. I think you mean what’s the point of the offset package if it is meant only to negate the impact of the 2% rise, and not GST in general.
The whole idea of a GST is to spread taxation across the board. Indeed GST is a regressive tax, and on the surface, taxing income seems to be a better idea. However, if you don’t know, rich people are usually smart people (if not how they become rich?)
Rich people actually employ tax accountants (I’ve a friend whose dad is a tax accountant) and the job of a tax account is to find all the legal ways to reduce the tax liability of the rich. Tax accountants are not cheap. So, if the rich finds it worthwhile to employ a tax accountant, can you imagine how much income tax they avoid paying every year? Going by that logic, wouldn’t it be better to tax consumption? Consumption tax CANNOT be avoided. If you consume, you have to pay tax.
In a way, GST probably allows the government to tax more from rich people. The problem is that GST is across the board, so everyone will be affected. So, the offset package comes into play to cushion the impact for the poorer folks.
As for another GST hike, we don’t know if that will happen. We’ll deal with it as it comes. However, my suspicion is that the threshold acceptance of GST is being reached. For myself, the 7% figure isn’t exactly sitting down well with me. I’m going to have a much stronger reaction if the GST is going to go up again, and I think it’s the same for many Singaporeans too, but I digress. Let’s not be too presumptous at this moment. If the next hike comes, you can be sure I’ll be the first (well one of the first) to voice my displeasure.
about 4 years ago
Hi Ian,
I didn’t lookup point 2 in the notes, which states that the additional GST payable that was computed is based on the Household Expenditure Survey 2002/2003. Now that you mention it, I probably should look up if newer figures are available. 2002 is like 5 years ago.
As for your duck rice, maybe you should go look for your MP and tell him/her that you suspect the duck rice uncle is profiteering. :p
Anyway, yes, please take the number of years the offset package can last with some pinches of salt. I’m pretty sure it has not factored in inflation and other additional costs that may increase along the way. I’m no economics student, so if there’s a brilliant one reading this, how about doing a quick model to do a very conservative estimate on how long the offset package will last? I too suspect the figures given by the government are a little too rosy.
about 4 years ago
Aaron,
What I meant was, when the PM announced the intention to increase GST by 2% points last year, he said it would be used to help the needy. Nothing else was mentioned. That implies the full amount of revenue from the increase will be used for welfare/workfare.
So, if what the poor are getting now is just sufficient to negate the impact of the 2% rise, then it does not make sense. Why raise GST, supposedly to help the poor, only to maintain status quo for them? Are they really better off than before the hike? If not, then GST should remain at 5%.
about 4 years ago
I see what you mean. Did you check out the details in http://www.gstoffset.gov.sg? There are not only GST credits, but a whole host of other things.
about 4 years ago
Aaron
I asked myself that question too. Of course, it’s a difficult policy decision given the scarcity of resources. I guess I was disappointed mainly because I was expecting an explicit measure specifically targeted at the middle class since the government had said prior to the budget announcement that the middle class would not be overlooked again this time around. An increase in GST will hurt the middle class more than the high income earners, but the government is not putting in measures to proportionately help the working middle class more. Helping the less well-off in our society is perfectly fine, but the rich should do more than the middle class. And the government could lead by example, e.g., by capping the level of wage increase for our already highly paid ministers and president.
Whether my salary increases going forward, I would have to pay the extra GST. Using your argument, I would be happy to pay the extra 2% GST if my wages increase by more than 2% above what I would have gotten anyway without the GST hike. In any case, I don’t think that the GST hike was intended to increase Singapore’s current growth trajectory by another 2% since the output gap is already in positive territory.
As for booting the governmet out at the next GE if the rosy scenario doesn’t materalise, I think that’s quite a long shot. Anyway, I don’t get to vote now that my constituency has been subsumed under a GRC.
Cheers
Yun
about 4 years ago
Yun,
I think this is the unfortunate reality of things. I’m sure that the government would want to hand more out to the middle class if they could, but unless we are prepared to go into the kinds of deficits along the levels of the United States, the middle class won’t be able to get anything more than what’s been given out.
Regarding the capping of wage increase for ministers and president, I don’t think the cap will make much of a difference in the grander scheme of things. The money saved probaly won’t help more than a few hundred middle class families. What I would like to see is that the government continue to make the Singapore economy grow at a good rate, and that the middle class gets good jobs with good pay and increment. I don’t think we should expect the government to babysit us all the time. I personally prefer them to create a good environment, and then I’ll go win the rest myself.
about 4 years ago
Aaron
This is indeed the unfortunate reality of things, and while I accept it, I do think the reality could be kinder to the middle class. I’m equally sure that the government would be more than capable of handing more to the middle class if it so desired. Tokenism or not, it would serve to signal that the middle class is not the forgotten lot in Singapore. I support fiscal prudence and I am not suggesting that the government should run huge budget deficits. To be sure, the US’ projected budgeted deficit in FY2007 of 2.6% of GDP is not much more Singapore’s 0.3% if we take into account the war in Iraq. In fact, according to my back-of-the-envelope calculations, our defence budget as a percent of GDP is 4.5% whereas that of the US is 3.2%. We spend 32% of our budget on defence whereas the US spends just half as much even with the ongoing wars. It makes me wonder if our taxpayer’s money is really well spent in the area of defence?
The cap on the level of wage increases for our highest political body would again serve as a useful signal that there is strong political commitment to address the income divide. After all, our politicians are among the highest, if not the highest, paid in the world. I wasn’t suggesting to channel the money saved to middle class families per se and I certainly don’t expect the government to babysit us. My point was simply that since the GST affects the middle class more than the high wage earners, there should perhaps be an explicit measure to provide relief to the middle class – something I had come to expect due to the repeated assurances that the middle class would not be overlooked in this budget. It is the duty of the government to grow the Singapore economy. However, it is also the duty of the government to ensure that the economic pie is more equitably shared; and working middle class Singaporeans form the edifice on which Singapore Inc is built. Like yourself, I am all for winning the rat race on my own merit. Once I make the grade, I would be able to do more to help all my fellow Singaporeans.
Wishing you a Happy New Year.
Cheers
Yun
about 4 years ago
Yun,
Good point about Singapore’s defence spending. I’ve been wondering about that too. Will we actually be that extra vulnerable if defense spending drops an additional half percent to one percent? And of course, the effectiveness in which military funds are spent is really questionable, based on my own experience.
I fully agree that the government has to look after the middle income as well, but rhetoric aside, how do we implement this? As much as I sometimes like to criticise the government, I do realise that policy making is really shitty sometimes. I don’t really have any marvelous ideas to address the problem, aside from looking at how else we can use funds more effectively so that some money can be saved and channeled to fund some aid program.
And, we can do with more people like you. We need more people who are willing to help fellow Singaporeans once they make it.
about 4 years ago
Oh yes, happy CNY to you too, Yun.
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