What is GST?
At the core of this year's budget debate is the Goods and Services Tax (GST) hike. What exactly is a GST? A common understanding is that when you, as the consumer, purchase things, you pay the GST together with the price of the purchased products. This is a misconception. GST is in fact the responsibility of the seller. The seller is entitled to pass on the costs of GST to the consumers. But there are exceptions. Some businesses, for instance like NTUC Fairprice, opt to absorb the GST. Thus, when a consumer buys things, the consumer pay the agreed fee for the goods and services, the seller provides the goods and services for the agreed amount. The seller then pays the GST out of that agreed price to the tax authority.
Issues of the Heart
The GST issue is a highly emotive one. In HK, many protests against the implementation of GST had caused thousands to throng the streets with signs reading "NO to GST!". In Singapore, our reaction, if any, is far less dramatic. Feedbacks range from rumblings on the blogs, kopitiam talks to occasional sighing. But what exactly is the issue?
Not only because all of us are consumers in one way or another. GST hike is especially debatable because it involves more than just facts and figures. It affects consumption pattern, business decisions and ultimately quality of living. Questions like these are commonly heard: Is the GST hike fair for the poor? Are we robbing the poor to pay the poor? Are there better ways of raising government revenue? Economics students would call these issues that appeal to our value-system (not just rationality) - Normative issues. They are issues of the heart, not just the mind.
The Heart of the Issue
To resolve normative issues mentioned is really beyond the scope of this blog. There are simply too many interest groups and complex repercussions involved. But, one good way to go to the heart of the issue is to understand the regressive nature of the GST.
When we say that the GST is a 'regressive tax', what it means is that when such a tax is imposed on all goods, a larger proportion of the income of the poor is taxed through their consumption of necessities, as compared to the rich. The real 'tax burden' (who actually pays for the tax) is thus greater on the poor than on the rich.
Thus, one of the key highlights of the ongoing budget debate is how the GST hike can be made less regressive for the poor, using the GST offset package and other income assistance measures. According to the budget speech, average households will receive seven times the extra GST they will have to pay each year. In other words, seven years' of offset. The statistics looks impressive.
Many can still question the adequacy and effectiveness the GST offset package and other income assistance schemes. But in my view, one fundamental question is yet to be addressed - the issue of state-reliance versus self-reliance.
The GST hike should be seen in the wider context of our shift from direct taxation (taxing income) to indirect taxation (taxing consumption). It is very likely that GST would be repeatedly revised upwards in the years ahead as taxes on income (personal and corporate taxes) are cut further to maintain competitiveness. Given this trend, more handouts would need to be given to help the poor.
While the move towards indirect taxes gives the general population greater freedom in deciding how much they can be taxed by choosing how much to consume (or save), it may cause the poor to have greater reliance on the government's help. It may reduce work incentive, which is the very thing the government tried to avoid by moving from direct to indirect taxation. (It is believed that people are more motivated to work if they get to keep more of their personal income. That is why income tax has been reduced in recent years.)
There lies the dilemma in this year's budget - Managing the psyche of state-reliance versus self-reliance. The government seems to be grappling with this issue. While giving more handouts to the poor, the government has also given Workfare a permanent status. Workfare seeks to supplement the incomes of low-wage workers based on the principle that the best way to help people is to help them to help themselves, i.e. help the poor to find work and stay in work. Given the forces of globalisation that demand greater resilience and resourcefulness from our workforce, I would think that promoting self-reliance is the way. Workfare is thus a good start. However, the psyche of state-reliance does not put us in a good position to compete in a globalised economy. This is another taxing issue to resolve.
Link: to http://www.singaporebudget.gov.sg/budget_2007/index.html
13 comments:
I see that the Government has assumed 2 things.
1) Every Single comsumer in Singapore has have their Income increased to support this GST Hike like a feather.
2) That this GSt hike is only Price discriminatory to the Rich and not the poor since they enjoy emphasizing the fact that they want to help the Poor.
yes i agree that the GST Hike is useful . But if we weigh the pros and cons, apparently the cons outweigh the pros, and the Government failed to see that.
The Rich would have not much problem dealing with this hike as they are able to afford this "Coffee sum" amount. But if you take alook at the Poorer Consumers point of view, they actually suffer. With almost every single outlet in Singapore Following this GST hike, 7% means quite a lump sum of amount for the consumer who is poor. Every single shop you shop costs 7% more, if you add them all up together, you are actually taxed a Hefty sum , maybe even reaching 1000 Bucks a month!
past GST of 3 % was already alright, but increasing GST like Eating Rice will one day cause Singapore Government to face strikes.
If The government would want to help the poor , STop the Poverty Cycle instead of Intensifying it.
I will like to recommend that the blog entries be grouped according to subjects heading, such as grouping the entry on Tax and Economics of prostitution under Economics. This will very much facilitate future viewings of the entries.
-Yours Truly
The "Garment" is still standing strong though, i can't see strikes happening anytime soon because all the people who see and understand the problem will probably recognise that, for their own self-interest, it is best to leave Singapore for good anyway.
They would, of course, realise that there's no possible way to go round this worrying problem.
So maybe having "quitters" in the country is good afterall (lesser tension). Maybe breeding a generation of unpatriotic, unloyal citizens is part of the grand plan?? We can always count on mercenary, equally unpatriotic and unloyal foreigners to drive our economy.
i think its really dumb to increase the GST after decreasing the income tax.it is of no difference. does the govt think that we citizens are stupid? moreover, it is really isn't fair for the poor...i seriously do not like the system about GST and income tax.so money minded....!!!
Certainly , this issues have raised many controveries. However, regardless of how unsupportive the public is with the GST raise, the government decision is final. We just have to take it on our stride and accept it, whether we like it or not.
According to me, i feel that the hike in gst is not reasonable..
a few years ago when gst was 3%,alot of revenue was already generated.
However now, the gst is on hike every year and i don't see why the govt needs such an increase. if their reason is to help the lower income groups, inthe end the lower income groups will still face problems as even though they get some subsidies, the still have to pay GSTt for their everyday lives.
Terefore, due to these reasons, i do not find the hike in GST reasonable
It would be very difficult to please the people when adjusting the percentage of GST.
By theory, when the country prospers, a small increase (~3%) in GST is considered appropriate. However, when considering whether the magnitude is appropriate, external factors have to be included such as cost of living and sustainability of daily lives.
Consider the recent case where a cup of kopi-o in a typical coffeeshop is raised to $1 instead of maintaining at 60c. To most Singaporeans, $1 can buy almost a $1.05 item in Valu$ shop. The main idea is that, the perception of the people must change. Is the GST hike reasonable? Will it affect much to their daily expenses? However, the government must also get voices from the people to determine if the GST hike is appropriate or not.
These few questions can be considered in order to prevent a vicious cycle.
I feel that the government should do away with the GST. With GST, the things that are being sold are becoming more and more expensive. This makes ppl becoming less and less able to afford the things that are being sold...
However, with the increasing GST, the govt are just trying to help boost the economy of Singapore...
Overall, i think that the govt should not increase the GST....
That's all~!
I think that the government should try to balance its aims of collecting revenue and helping the poor so that they can afford to pay for necessities. It can try to give subsidies to the poor, but it should not make people believe that they can rely on the government for financial support.
I for one, believe very strongly that the Government has had much discussion on the boon and bane of the GST increase behind the curtains before it was revealed to the public on Budget Day 2007. Being a democratic Government body, the Government has ALWAYS been putting the interest of the public at first hand priority. I am thus FULLY supportive of the GST increase. Ultimately, we will be benefitting ourselves. Anyway, the Government has been very "pro-public" for these years. Even the implementation of the CPF account for retirees has enabled use(when we are old) to support ourselves. So, let's give the Government a break and soon, before we know it, we are already used to the GST increase. Take things in our stride!
the offset package is not enough! a few thousand is not enough to cover the Gst increase. the government needs to address this issue with something more consrtuctive, instead of the tiny offset package.
Well, any increase in taxes will surely upset the population. No matter what cause it is for. Personally, i think increasing the taxes by a few percent is able to help the others. Why not?
After reading this comment, i think implementing GST is not a wise choice to be made by the government because it just causes our cost of living to rise and is not helping the poor. Indeed, implementing the GST is one way to help the poor, however, the poor are not, in fact, benefiting from it. When they buy products, they too have to pay GST as well. =)
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