Sunday, August 18, 2013

Taxes and GST

Some people have the thinking that higher taxes will drive businesses away from Singapore, leading to lower employment. This is the argument put forward by the Government when they reduce income tax and introduce GST.

I disagree with this view. There are many businesses that serve the domestic market and have to remain in Singapore, in spite of the level of tax. These include professional, financial, retail and other services catering to the local market.

The export-oriented manufacturers may be affected by higher taxes, but their decisions are more likely to be affected by other factors, such as rental, availability and quality of labor. The Government grants and tax holidays given to them will be more important than the rate of corporate tax.

When higher taxes are collected from the higher income earners, there is no need to collect GST. The higher tax revenue will enable the Government to provide basic public services, such as health care, education, law enforcement, and transport, free or at subsidized rates.

The chance of abuse of these basic public services is low. Nobody wants to go to hospital or take public transport or take the time of police officers for fun. They will only use it when necessary.

The older people will recognize that I am describing the environment found in Singapore in the 60s and 70s. After 1985, Singapore made many changes towards the market based economy that have led to high cost of housing, high cost of living and the wide disparity of income.

If we are to move back to a better economic or social environment, we need to understand the root cause of our problems and take the correct remedial actions.

2 comments:

Kooli said...

六十甲子Liu shi jia zi: A Chinese traditional cosmic cycle is 60 years long - an end and change beginning around this timing.

Tan Choon Hong said...

“After 1985, Singapore made many changes towards the market based economy that have led to high cost of housing, high cost of living and the wide disparity of income.”

I recall the 80s was dominated by economist Milton Friedman and his free market doctrine which was much publicised in his “Free to Choose” TV shows, focusing on the success of that policy in the Asian tigers, in particular Singapore. The praise must have got into the heads of the planners who continue to promote this laissez-faire environment right up to this day. However the free market was distorted by the tripartite arrangement which is pro-business to the detriment of the workers, especially the low wage earners.

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