70% of Singaporeans effectively pay no taxes—not even GST

But as you can see below, the bulk of the burden is disproportionately carried by the top 10% earners in the society, who pay into the national budget an average of ca. S$27,000 for each household member, while receiving back only S$2,700.

In fact, they pay more than the next four groups put together and combined. Despite making up just 10% of all households, they are responsible for 42% of all tax receipts—income, GST, property and so on.

…and the poor receive almost 10 times more than they pay

Meanwhile, the bottom decile receives close to S$15,000 in government transfers annually, despite contributing just ca. S$1,600 in taxes (per household member)—9.2 times less.

In fact, if you look closely, you will realise that all groups up to the 7th decile pay less into the budget than they receive from it. This means that their total effective tax rate is negative—they pay no net taxes at all, while still getting extra money or valuable benefits.

In essence, if we tried to simplify and equalise it, all personal taxes in Singapore could be abolished for those 70% of households, and yet, they would still receive quite a lot of money.

This is important to remember, because the government has other expenses that are required for the country to function as a whole, like national defence, administration, judiciary or infrastructure (public transit, roads, port, airports, energy, water, etc.).

And yet, it is able to afford all of them while subsidising nearly 3/4 of local households, without having to borrow any money.

In practice, then, any tax increase, like a GST hike, is a redistributive tool primarily aimed at the richest residents, who earn the most but also spend the most and live in the largest, most expensive housing.

With the money collected, the authorities are then able to offset the increased costs for most regular Singaporeans while retaining the surplus, so they can provide better social or healthcare services as the country is ageing and its elderly require more support.

Why doesn’t Singapore simply abolish most taxes on individuals & cut welfare bureaucracy?

Given that most people pay no taxes when corrected for all the money received back, it might seem logical for the authorities to simply remove both taxes and many welfare programs so that the system is simpler and administrative costs can be avoided.

Instead of first paying and then getting even more back, people would just keep money in their pockets and just receive the extra funds on an as-needed basis.

For practical reasons, however, this is not possible.

You cannot simply exempt around 3/4 of society from GST, while keeping it for everybody else — you’d need dual prices on everything. You also have to keep the personal income tax scale smoothly progressive, so it doesn’t incentivise hiding one’s income to avoid paying any tax if they fall below a certain point.

As long as avoidance of tax payment is difficult, then the government can collect all that it is due and then ensure that the money returns to those who need it—often sending back more than they paid—and control how it is spent (tying the payouts to specific services or providing targeted subsidies, instead of allowing for wasteful consumption).

The entire system is designed to collect money from the rich and then use it to guide everybody else towards the most desirable outcomes. Instead of being a simple handout, the government is using transfers to ensure their fundamental needs like housing, healthcare, pension, and utilities are catered to.

• Read other articles we’ve written on Singapore’s current affairs here.

Featured Image Credit: TKKurikawa/ depositphotos