Brace yourselves: the GST hike is only the beginning

singapore-finance-minister-budget-2017

If you are shocked by the recent announcement that our GST will be increased from 7 to 9 per cent, fasten your seatbelts, because tax increases are probably something to get used to as Singapore’s population begins age. In light of this, one thing is certain: the people that will be most affected by this trend will be today’s youth, and that is something to consider.

This is because, by the time Singapore’s baby-boomers hit retirement age, today’s 20-somethings will be in their 30s, trying to make ends meet and having to juggle the dual responsibility of maintaining the previous generation, and at the same time investing in the next (i.e. their children), while still trying to leave enough to spend on themselves.

Furthermore, electorally speaking, the fact that the baby boomer generation forms the bulk of our population means that any government keen on winning elections and staying in power will be inclined to favour policies supporting retirees and the elderly, who control most of the voting power in the country, especially since people below 21 cannot vote.

This means that today’s young people can expect to contribute a greater share of their income to support tomorrow’s elderly, which, when combined with slower economic growth and rising costs, will mean less disposable income to spend on themselves and their families. This will place immense financial pressure on them in the long run.

In light of this, what can we do? Aside from ensuring that the CPF is in a sufficiently healthy state to provide the necessary support for retirees, there are several other solutions that the government should consider in dealing with this problem.

First, find alternative means of raising money aside from increasing taxes. This includes, for example, tapping more into our net investment returns (NIR) to fund our spending needs, rather than increasing taxes. While the Finance Minister is correct in saying that using 100% of our NIR will cause the principal sum of our reserves to stagnate over time, as Donald Low put it: “just because 100 percent is not prudent doesn’t make 50 percent right either. There’s nothing scientific about spending just 50 percent of the investment returns. Why not 60 percent, or even 70 percent? We’d still be adding to the principal of the reserves.”

Second, instead of concentrating on GST, focus on progressive taxes in order to alleviate the pressure on young people who are low to middle-income earners. This entails, for example, revising the income tax brackets, or income tax rates to make it more progressive (i.e. increase the tax payable by high-income earners), rather than focusing on GST, which, in spite of GST rebates, affects low to middle-income earners more than high-income earners.

Third, be prepared to divert resources away from high-cost sectors, such as defence. Admittedly though, this is a short to medium term solution, since it does not change the fact that there are limited resources chasing after immense demographic needs, and because cutting the budget anywhere will necessarily harm the sector experiencing the cut. The question, therefore, is what a country chooses to prioritize in light of the challenges it faces.

Fourth, focus on increasing national output – having a larger national output means that we can both allocate resources to help the elderly, as well as leave enough behind for young people spend on themselves and invest in the next generation. This can be achieved in two ways.

First, by increasing the labour population (i.e. immigration). This is quick, but not necessarily favourable. First, because of the immense strain on our infrastructure that would be caused by increasing the population of an already overcrowded island, which would itself require resources to sustain. Second, because of the possible social implications that will result from a large influx of people who may have different cultures, attitudes and beliefs from existing Singaporeans, who, at present, are insufficiently welcoming enough to tolerate these differences.

Another way to increase output is to raise the retirement age in order to keep more people in the workforce, therefore allowing them to continue contributing to our national output. However, two challenges emerge: first, this will be unpopular, and will therefore have electoral consequences. Second, keeping older people in the workforce will not be effective unless there are sufficient jobs, and unless older people have the necessary access to retraining and upgrading in order to adapt to technology and the demands of a modern economy.

To summarize, there are two points to take away: first, Singapore’s ageing population is an urgent national concern, but there are many ways of dealing with this problem aside from raising taxes, due to the great pressure this places on young people who are low to middle-income earners. Even though these methods have their limitations, the government must nonetheless consider them very carefully and invest more time and money in them. Tax increases should always be a last resort.

Second, it is time for members of the older generation to adjust their attitude towards young people. They need to acknowledge that their common perceptions of our youth as lazy, unmotivated, or indulgent are extremely misplaced.

This is because, it is in fact today’s youth who will be financially squeezed due to the needs of tomorrow’s elderly. Hence, while the previous generation often reminds our youth to be grateful for the work they have put into building Singapore up as a country, there needs to be a similar expression of gratefulness for the work that our young people will need to put in, and the sacrifices they will make, in order to support the older generation as they enter retirement.

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Written by Rio Hoe

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Author: Rio Hoe

Rio is the chief editor and co-founder of Consensus SG. He is a recent law graduate from the University of Oxford. His interests include politics, sociology, legal theory and political philosophy.

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