NSP Budget 2013 Response

7/29/2019 NSP Budget 2013 Response

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National Solidarity Party

Singapore Budget 2013 Page 1

Embargoed until 20 Mar 13 7:30pm

Singapore Budget 2013:Towards a More Progressive Tax Structure,

Higher Development Expenditure &Steady Restructuring of the Economy

By


Adrianna TanHazel PoaNicole SeahSamantha De SilvaTony Tan


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Singapore Budget 2013

The National Solidarity Party (NSP) welcomes the proposals in the Budget 2013 to:

(i) increase spending in the pre-school sector and primary schools to level the playing fieldfor children from lower-income families. This is a problem that has been highlighted for

many years and we are glad the PAP government has finally decided to address it.

(ii) make our tax structure more progressive with higher tax rates for high-end propertiesand vehicles.

(iii) strengthen our social safety net.

2. The NSP has been advocating the introduction of greater competition in our public bus servicesfor years. We thus also welcome the announcement that private operators will be allowed toprovide public bus services.

Part 1 - Towards A More Progressive Tax Structure

3. The latest tax changes to make our tax structure more progressive is a reversal of the trend since1986, during which time the PAP government has gradually moved our tax revenue away from

direct taxes, like income tax, to indirect taxes like GST. By cutting income tax rates, the higher

income earners pay less tax. The shortfall is made up by GST, which is a flat rate of tax across all

goods and services. As lower income earners tend to spend a higher percentage of their income

on consumption as compared to higher income earners who have the means to put aside a

greater proportion of their income into savings or investments, the GST is proportionally a

heavier burden on those with lower income. It is a regressive form of taxation. The figures

below show the cut in income tax rates from 1986.


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Fig 1Source: Deloitte Budget Commentary 2012

Fig 2Source: Singapore Budget and KPMG

4. Our corporate tax rate and top marginal personal income tax rate was cut from 40% before 1986,to the current 17% and 20% respectively, which are amongst the lowest in the world. The

following diagram compares Singapores tax rates with other Asia Pacific countries.

40%

33%

30%

28%

26%

24%

22%

21%

20%

1985

1986

1994

1996

2001

2002

2003

2005

2006

Top Marginal Personal Income Tax Rate


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Fig 3

Fig 4Source: PWC Budget Commentary 2013


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5. The abolition of Estate Duty is another contributor to our less progressive tax structure. Whenthe Estate Duty was abolished in 2008, then Finance Minister Tharman Shanmugaratnam himself

said:'Estate duty is a means to rebalance opportunities with each new generation and prevent

wealth from being concentrated in fewer and fewer hands over time.' This is now more valid

than ever. He also said that the Estate Dutys low exemption limit for non-residential assets, setat $600,000, compared to the higher limit of $9 million for residential properties, tends to affect

the middle and upper-middle-income estates disproportionately compared to wealthier ones.

The appropriate response should have been to recalibrate the Estate Duty to result in a fairer tax:

one which ordinary middle-income families would not be caught in, as well as to plug tax

loopholes and circumvent estate planning rather than abolish the tax totally.

6. The current measures to make our tax structure more progressive signal move in the rightdirection, but there is more room for improvement in achieving more equitable outcomes. The

Workers Partys (WP) proposal to increase the marginal personal income tax rate to 25% is not

excessive by global standards.

7. NSP proposes:i. to cut GST to 5.5%;ii. to raise top marginal personal income tax rate to 22% for those earning above

$500,000;

iii. to re-instate Estate Duty at 5% for total assets (without differentiating betweenresidential properties or other assets) between $10m to $15m, and 10% for

amounts above that;

iv. to raise the casino tax rates to 22.5% for non-premium players and 7.5% forpremium players.


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Part 2 - Higher Development Expenditure for Densely Populated Singapore

8. Over the past two decades, the proportion of development expenditure versus operatingexpenditure has been dropping. In FY 1996, development expenditure was 40% of the total

expenditure, while operating expenditure was 60% of total expenditure. In 2001 development

expenditure was 36%, in 2009 it fell to 26%, and in 2011, development expenditure decreasedagain to 25% of total expenditure.

9. In the 10 years from 1996 to 2006, when our population grew by million, the developmentexpenditure was 33% of total expenditure. However, when population growth accelerated to 1

million in the 6 years between 2006 to 2012, the proportion of total expenditure allocated for

development actually dropped to 25%. We have been under-investing in our public

infrastructure developmental projects.

Population growth

(000)

Approximate Ratio of annual Operating Expenditure

to annual Development Expenditure

From 1996 2006 730 2 : 1From 2006 2012 911 3 : 1

10.Fig6 Population Growth versus Ratio of Operating to Development Expenditure11. In 2013, the budget allocated towards development expenditure has once again been lowered.

This begs the question, where is the budget for the massive infrastructure development

advocated by the White Paper?

The following table shows the decreasing proportion of our budget allocated to development

expenditure over the past two decades:

1996 2,001 2006 2008 2010 2012 2013(E)Development

expenditure

(S$million) $9,600 $9,999 $6,412 $8,880 $11,295 $12,898 $12,783

Percentage of Total

expenditure 40% 36% 21% 24% 26% 25% 23%Operating

expenditure

(S$million) $14,500 $17,846 $23,463 $28,590 $32,755 $38,671 $41,928

Percentage of Total

expenditure 60% 64% 79% 76% 74% 75% 77%Total expenditure(S$million) $24,100 $27,844 $29,875 $37,470 $44,049 $51,570 $54,711

Total Population in

Singapore (000)

3,670.7 4,138.0 4,401.4 4,839.4 5,076.7 5,312.4 5,400

Fig 5 Development and Operating Expenditure 1996-2013

Source: Singapore Budget& Dept of Stats(E) Estimates

12.Just as development expenditure has steadily declined, operating expenditure whichrepresents the cost of government, has consistently been on the increase. Additionally, the

growth in operating expenditure has also outpaced our GDP growth in recent years. From 2006


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to 2012, GDP (nominal1) grew by 49% while operating expenditure grew by 65%. Do we have a

runaway operating cost? The question is all the more pertinent against increasing instances of

wastage discovered by Auditor-General. The cheating case at SLA, and questionable government

purchases like the case of the Brompton bicycles, raise concerns about the robustness of our

public sectors financial control.

13.From 1996 to 2012, the population has grown by 45%, but the development expenditure hasincreased only by 34% while the operating expenditure has increased by 167%. NSP proposes

that the Ministry of Finance drives the effort to rein in operating costs while expanding

development expenditure in the next few financial years. We need to adjust our development

budget to put more into building public infrastructure, especially housing, healthcare and

transportation, and less on operational budget in order to support population and economic

growth strategy.

1Nominal GDP growth is used for comparison instead of real growth since operating expenditure is also

nominal.


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Part 3A Steady Approach to Restructure Our Economy

Conflicting Signals from Budget 2013 and Population White Paper

14.The White Paper on Population presented by DPM Teo and the Budget Statement presented byDPM Tharman, only weeks apart, are sending conflicting signals to the business community.

15.The White Paper projected continued population growth and the need for massiveinfrastructure development. During the Parliamentary sessions, the PAP also said that

businesses need time to adjust to the necessary economic restructuring. When the Budget

2013 was released, dependency ratios were cut, criteria for passes tightened, and foreign

workers levies raised significantly.

16.Where is the time for businesses affected by economic restructuring to adjust? At a time whensteady steering from the government is much needed to help our businesses chart through

these uncertain times, the flip flop in policies within a month certainly does not provide

confidence to businesses.

Corporate Tax Rebate &Wage Credit Scheme Benefitting Profitable Companies

17. In principle, Government should not be subsidizing businesses. However, the NSP agrees thattransitional assistance to companies and businesses affected by the tightening in foreign labourpolicies and economic restructuring is justified. However, the three-year transition plan

comprising the corporate tax rebate and wage credit scheme (WCS) to help businesses cope with

economic restructuring is not targeted at those who need help the most.

18.The corporate tax rebate costing taxpayers $1.3 billion over 3 years benefits only profitablecompanies, since only companies that make a profit need pay corporate tax. Similarly, the WCS

benefits companies which are doing well and are able to give wage increments. Local SMEs

struggling to cope with the twofold pressure of reduced foreign manpower and higher foreign

worker levies are likely to have little profit and ability to raise wages to benefit from these

schemes compared to companies which are unaffected by these changes.

19. it is inevitable that with the economic restructuring, some businesses that are unable to adaptwill fold or leave. But let us give our homegrown enterprises a bit more time to restructure

themselves. It is often said that necessity is the mother of invention. With the writing so clearly

on the wall, that the days of abundant cheap foreign labour are over, these businesses should be

given a bit more time to reinvent themselves.

20.The WCS is unlikely to change employer behavior with regard to wage increments andproductivity. Given that the WCS is only for 3 years, employers would only give wage

increments that are sustainable after the three year transition period.


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21.Therefore, instead of budgeting for corporate tax rebates and WCS, both of which subsidiseprofitable businesses, we should instead lower foreign workers levies for local SMEs for one year

only. This will directly benefit local SMEs most reliant on foreign workers and thus most hit by

foreign worker curbs, giving them additional cashflow to restructure. Control can be effectively

maintained by limiting the number of work permits and various passes issued, instead of vialevy.

Escalation of Business Cost, Specifically Rental Cost

22.Over the years, certain government policies have contributed to rapid increases in business cost.For example, sales by JTC/HDB of industrial properties, hawker centres, and commercial land to

private companies / REITS who then raise the tenants rents sharply, the COE and ERP system

which increased transportation cost drastically, and so on.

23.The figure below shows that the amount of private office and shop space increased by 18% to 21%over the past 10 years while the amount of public office and shop space (these are propertieswhich are owned by the state and rented out for income) decreased by 4% to 12% over the

same period. While labour force has increased by 39% and population by 25% from 2001 to

2011, the total shop space has increased only by 7% over the same period. These cost increases

from rental and transportation are contributing to the inflationary pressures in our domestic

market, and making our companies uncompetitive in the global market.

2001 2011 Change % change

Private Office Space (000 sq metre) 5,607 6,761 1,154 21%

Public Office Space (000 sq metre) 1,347 1,287 -60 -4%

Total Office Space (Private and Public)(000 sq metre)

6,954 8,048 1,094 16%

Private Shop Space (000 sq metre) 2,098 2,486 388 18%

Public Shop Space (000 sq metre) 1,260 1,114 -146 -12%

Total Shop Space (Private and Public)

(000 sq metre)3,358 3,600 242 7%

Labour Force (000) 2331 3237 907 39%

Total Population (000) 4138 5184 1046 25%

Fig 7 Source: Dept of Stats

24.High rental cost stifles the ability of local start-ups to survive and develop, and limits the abilityof employers to raise the wages of employees. High business cost also leads to a high cost of

living for Singaporeans.

25. It is time to review our predominantly market-based approach to the pricing of land,transportation and other infrastructure, to re-assess whether this approach yields more or less

overall benefits over the longer term, measured in terms of quality of life for Singaporeans.

Perhaps the concept of loss leaders2should be applied in some of these areas.

2Loss leaders are items deliberately sold at a loss by companies in order to lure customers in to buy other

items.


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Economic Restructuring for Singapore

26.The intentions of the restructuring of Singapores economy must bei. to raise the wages of Singaporeans through productivity gains;ii. to limit companies reliance on foreign labour;iii. to support and develop local SMEs and start-ups;iv. to reorient Singapores industrial base towards knowledge-based and high value-

added areas such as R&D, technological developments, design, etc.(See Annex A for

brief history of Singapores industrial transformation.)

27.As detailed in our earlier paper on population, NSP proposes the following measures to limitcheap foreign labour and focus on increasing the wages of Singaporeans:

i. Pause the growth in foreign workforce until productivity grows at more than 1.5% andpublic infrastructure has been expanded

Work Permit(workers earning less than $2000 per month excluding Foreign Domestic

Workers): Pause the growth in the number of work permit (WP) holders so that the

wages of lower-income Singaporeans are not further depressed. In 2011, we had

464,000 Singapore residents earning under $1500 per month. We have brought in

685,400 work permit holders to compete with them for jobs. This has resulted in a large

downward pressure on the wages of the poorest Singaporeans. If the number of work

permit holders continue to increase while productivity declines, the wages of lower

income Singaporeans will be further squeezed. Companies that wish to expand willeither have to offer higher wages to attract locals, or innovate to produce more with less

manpower, thus improving productivity.

ii. Uniform quota of 33% for S Pass and E Pass

Currently, a quota of 20% is imposed on S pass holders (those earning between $2000

and $3000 per month) while there is no limit to the number of E pass holders (those

earning at least $3000 per month) a company may employ. NSP proposes to impose one

uniform quota of 33% throughout for equal protection across all salary levels. This also

removes the incentive for fraudulent declaration of salary to benefit from the lack of

quota for E Pass.


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28. In addition, NSP proposes to replace the $3.6 billion WCS and $1.2 billion corporate tax rebatewith these policies targeted at supporting our local SMEs and reducing business cost to enhance

the competitiveness of our companies:

i. To reduce the foreign workers levies by 50% for local SMEs for ONE year(estimatedloss in revenue: $1.2b);

ii. To enhance the SME Cash Grant cap to $10,000 instead of the current $5,000 overthe next 3 years (estimated cost: $1b);

iii. To build and increase the supply of public office and public shop space over the next3 years to support local SMEs and start-ups.

Car Financing Scheme Too fast, Too drastic?

29.The abrupt vehicle loan curbs have caught many by surprise. The NSP agrees that curbs onvehicle financing are necessary. The cap of 70% on car loans in place before 2003 should never

have been removed in the first place. However, the curbs should have been imposed in a more

consultative and gradual manner. This provides both early signals to families that a change in

policy is on the horizon, as well as the time for them to adapt their future plans.

30.Our COE system is overdue for a review. An allocation system based solely on ability to pay,while totally disregarding different levels of need, is unsatisfactory in many aspects. In addition,

the use of the price mechanism to limit demand reduces the urgency for the Government to

expand road capacity. A profit maximizing company would see the increasing price of COE as a

signal to rapidly expand its capacity so that it could sell more and make more profit. Not so for a

public entity which is content to let prices escalate to the point where many are priced out of

the market for vehicle ownership. This mutation of the price mechanism has led to a socially

non-optimal outcome.

31.NSP urges a thorough review of the COE system in conjunction with our public transport policies.Our private vehicle allocation system must be synchronized with our public transport system in

order to holistically address the transportation needs of our population and our companies.

Conclusion

32.Many of the issues Singapore Budget 2013 seeks to address are not new. The problems of risingincome inequality, limited wage growth for Singaporeans, our tax structure becoming steadily

less progressive, under-investment on public infrastructure, rising COE, the disadvantages faced

by children from lower income families, the healthcare cost burden, and so on have been raised

several times over the years by Opposition politicians as well as political observers.

33.Yet, the enervated response of the PAP government has meant that these issues have onlyreceived serious attention in the last two years. As recently as Oct 2009, in response to concerns

about income inequality, the government dismissed rising income inequality is an inevitable


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outcome of globalization. It is perhaps then not a coincidence that the PAPs rather rapid change

of heart on the matter comes quickly after poor performances in the threeback-to-back

elections starting with GE 2011.

34.The NSP therefore urges citizens to remain informed and active participants of our politicaldiscourse. While democracy may be a delegation of the day-to-day running of the country toelected officials, it is not an abrogation of our responsibility as citizens to determine the course

of our country.

35.Finally, an important issue that remains unaddressed is the long overdue revamp of oureducation system. If Singapore is to move into the creative economy, then we must prepare our

children to go beyond rote learning and exam skills, to becoming self directed learners and

original thinkers. In the coming months, the NSP will focus on developing an alternative

education policy conducive to just this.


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Summary of NSP Policy Proposals & Budgetary Requirements

36.Enclosed below is a summary of NSP versus PAP policies.Intention PAP NSP

Towards AMore

Progressive

Tax Structure

GST at 7%; top marginal personal income tax rate

at 20% for those earning above

$300,000;

No Estate Duty: Casino tax rates at 15% for non-

premium players and 5% for premium

players.

To cut GST to 5.5% To raise top marginal personal

income tax rate to 22% for those

earning above $500,000

To re-instate Estate Duty at 5%for total assets (without

differentiating between

residential properties or other

assets) between $10m to $15m,

10% for amounts above that

Toraise the casino tax rates to22.5% for non-premium playersand 10% for premium players.

Higher

Development

Expenditure

for Densely

Populated

Singapore

Development expenditure for 2013 isslightly lower than for 2012

Allocate only 23% of the totalexpenditure as development

expenditure in 2013

To allocate 33% of the totalexpenditure as development

expenditure in the next few FYs

Managing

Population

Plan

E Pass allows unlimited foreignworkforce

Tighten S pass by cutting dependencyratio to 15%

Pause the growth in foreignworkforce until productivity

grows at more than 1.5% and

public infrastructure has been

expanded

Uniform quota of 33% for S Passand E Pass

Restructuring

Singapores

Economy

Corporate tax rebate for profitablecompanies

Wage Credit Scheme for companieswhich reward Singaporeans with

higher salaries

To reduce the foreign workerslevies by 50% for local SMEs for a

year

To enhance the SME Cash Grantto $10,000 instead of the current

$5,000 over the next 3 years

To build and increase the supplyof public office and public shop

space to support local SMEs and

start-ups

Fig 8


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37.The table below shows the financial impact per year of NSPs proposals averaged over 3 years:

NSPs Proposal Positive

Cashflow(Increase

revenue

or

decrease

cost)

Negative

Cashflow(Decrease

revenue

or

increase

cost)

Source of

Data forcost

estimation

To cut GST to 5.5% $1.89b Budget2013

Remove the Wage Credit Scheme $1.2b Budget2013

Remove the Corporate tax rebate $0.43b Budget2013

To reduce the foreign workers leviesby 50% for local SMEs for a year

$0.42b Tan Chuan

Jin,

Parliament

12 Nov 12

To enhance the SME Cash Grant to$10,000 instead of the current $5,000

over the next 3 years

$0.32b Budget

2012

To raise top marginal personal incometax rate to 22% for those earning

above $500,000

To re-instate Estate Duty at 5% fortotal assets (without differentiating

between residential properties or

other assets) between $10m to $15m,

10% for amounts above that

$0.2-$0.3b Dept of

Stats

To increase the casino tax rates to22.5% for non-premium players and

7.5% for premium players

$0.5b Josephine

Teo,

Parliament,

10 Jul 2012

Total ~$2.38b ~$2.63b

38.The overall net effect is a net outflow of $0.25b. Since PAPs budget projects a surplus of $0.3bfor 2013, this means that our proposals would result in a balanced budget.


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Annex A

Table extracted from:

Source:http://siteresources.worldbank.org/INTLED/Resources/339650-1194284482831/4356163-

1211318886634/SingaporeProfile.pdf#page=6&zoom=146,0,760
http://siteresources.worldbank.org/INTLED/Resources/339650-1194284482831/4356163-1211318886634/SingaporeProfile.pdf#page=6&zoom=146,0,760http://siteresources.worldbank.org/INTLED/Resources/339650-1194284482831/4356163-1211318886634/SingaporeProfile.pdf#page=6&zoom=146,0,760http://siteresources.worldbank.org/INTLED/Resources/339650-1194284482831/4356163-1211318886634/SingaporeProfile.pdf#page=6&zoom=146,0,760http://siteresources.worldbank.org/INTLED/Resources/339650-1194284482831/4356163-1211318886634/SingaporeProfile.pdf#page=6&zoom=146,0,760http://siteresources.worldbank.org/INTLED/Resources/339650-1194284482831/4356163-1211318886634/SingaporeProfile.pdf#page=6&zoom=146,0,760http://siteresources.worldbank.org/INTLED/Resources/339650-1194284482831/4356163-1211318886634/SingaporeProfile.pdf#page=6&zoom=146,0,760

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NSP Budget 2013 Response