Tan Kin Lian's Blog: Taxation and social services

Tuesday, September 29, 2009

Taxation and social services

Each society needs to provide some social services to its people, such as infrastructure, education, health care, law and order and safety. The cost of these services have to be paid through taxation.

A fair method of taxation is a flat amount to be paid by all residents or households. As each person or household benefits more or less equally from the social services, they should contribute equally.

Unfortunately, in a society where there is a large disparity of earnings, there are many people who do not earn enough to pay for the cost of living. They will not be able to contribute towards the taxation.

A better method is to impose higher taxes on the high income earners. As they earn much more than the median wage, they are able to carry a larger share of the social cost.

Some people argued that a high tax rate will chase away the high income earners to other countries. This may apply to certain businesses that are globally mobile. There are many businesses that depend on the domestic market of a country. The high incomes have to be earned in the country and cannot be moved away.

In my view, a maximum tax rate of 30 percent of earnings is fair, as it would still leave 70 percent in the pockets of the high income earners.

There are debates on what has to be provided by the state and what should be provided by the private sector. In my view, the basic needs that should be provided by the state up to a standard that is necessary and cost effective. Those with higher incomes can opt to pay for a higher standard of service in the private sector, such as private schools or health care.

If the state does not provide for the basic needs, many people will have to buy these basic needs from the private sector and pay a much higher price, due to predatory practices and a high profit margin.

This has already happened in the financial sector which pays a low rate of interest on the savings and sells bad investment products that cause the investors to lose their savings. In the health care sector, some people have to pay higher fees to private doctors, without getting better outcomes.

It is better for the essential social services to be provided by the state on a cost effective basis, and for the cost to be shared fairly among the tax-payers. The higher income earners should be asked to contribute a larger share.

Tan Kin Lian

10 comments:

Anonymous said...: We do have higher tax on higher earners. The more money you make, the higher your tax rate.

So the first $20,000 is tax free, but any amount over $320,000 is taxed at 20%. ANd of course, different values between.

That's what a progressive tax basis is. So the higher income earners are paying a larger share, so I'm completely missing the point of your post.; September 29, 2009 9:02 AM
Tan Kin Lian said...: Hi
The current rate of taxation in Singapore is too low and insufficient to provide the basic services needed by the citizens, such as an old age income and more affordable housing and health care.

We also have inadequate police officers to enforce the law, carry out investigation on scams, etc.

It is better to have higher taxes, up to 30 percent, and provide better public and social services.; September 29, 2009 9:10 AM
Tan Kin Lian said...: Some people have the impression that the lower the tax, the better for society. If this is the case, then pubic sector will not have sufficient funds to provide the essential services.

It is better to have a reasonable level of taxation (i.e. up to 30% of earned income) and have an adequate level of public services.

We are used to paying a service charge for our condos or HDB flat. We should pay tax to fund the public services.; September 29, 2009 10:20 AM
Anonymous said...: Old man's thinking that S'pore is not a welfare country must change first before taking your suggestion into consideration by his "young man".

If old man still refuse to change his thinking, soon death will change his and nobody can fortunately escape death no matter how powerful or how rich he is.; September 29, 2009 2:52 PM
Vincent Sear said...: I think that the present personal income tax bands are too unnecessarily complicated. The top bracket is taxed too lightly while the tax-free bracket is set too low.

A good benchmark should be $30k annual income. If one can't qualify for a credit card, one shouldn't have to pay income tax.

A simplified and fairer bands system:
$1 - $29,999 : 0%
$30,000 - $59,999 : 10%
$60,000 - $119,999 : 20%
$120,000 - : 30%; September 29, 2009 3:12 PM
Anonymous said...: At the end of the day, any increase in the tax collection must indeed be used to improve social services, and not largely put aside as reserves to be used by people to hoard and invest just to grow the pie and providing little in terms of better benefit to the people.; September 29, 2009 3:33 PM
Anonymous said...: You can Only dream of such things in sg.; September 29, 2009 8:08 PM
social service worker said...: This is nice article about giving the information between Taxation & social services. As, I am learning in a community college for social services worker education this is very useful information for me.

Thanks !
:); September 30, 2009 12:56 PM
Chris said...: I tend to disagree with the proposal of increasing the personal income tax rates. As this will likely to impact mainly the middle income wage earners - perharps the white collars and professionals rather than the truly wealthy. The high net worth individuals are not likely to be salaries workers (employees)but rather owners of business (shareholders) who annually derive hugh dividend payouts and investment income which are all tax free in Singapore. Whilst it may be true that these dividends are paid out of profits that have been already subjected to the corporate income tax - but at what rates? 17% max but if you start analysing the published financials of these companies especially the listed ones - do you see effective rate of 17% - not likely and usually much lower. Even if higher is not due to singapore taxes but foreign taxes.

Besides, one should also ask the question as to how many of those property speculators which include the so-called foreign investors(e.g. buy and sell options making significant gains - easily worth more than a year or more worth of salaries) ever pay any Singapore taxes? Of course, they would argue that these are capital gains. But are they really capital gains?

Hence, the above are the accumulators of wealth who probably pay very little taxes. Increasing personal income tax rates will only burden the middle income.; September 30, 2009 3:18 PM
Don Lim said...: In my opinion, instead of increasing the top bracket to 30%, we should reduce it to just 15%, around HK's level. This will attract highly skilled or rich individuals to move here. When these people move here, the corporations will also move here to enjoy their service or to provide services to them. When more corporations come here, more corporate taxes will be levied. So, we can't look at personal income tax as all taxes. As you can see, it affects the number of talents migrating to Singapore. Hence, as long as there are more corporate tax revenue, personal income tax rates can be reduced, with the overall result still being that more tax is collected. Also, it's easier to tax corporations than individuals.; October 13, 2009 2:41 AM