As part of its move to build a fair and inclusive society, and enhance social mobility, the Government has made a deliberate tilt towards supporting the lower- and middle-income group over the past five years, through a progressive tax system, said Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam as he wrapped up the Budget debate in parliament on Thursday (Mar 5).
This is where higher income earners contribute the bulk of taxes, the lower-income group receives the most benefits, and the middle-income group receives more than they used to.
SINGAPORE HAS DONE ‘RELATIVELY WELL’ IN SOCIAL MOBILITY
Mr Tharman said that social mobility is the defining challenge of every advanced country today. But he said that Singapore has done relatively well, staying more fluid than most other countries.
In the US for example, among those who were in their mid-20s and early 30s, and who started off in the bottom 20 per cent, only 7.5 per cent eventually moved up into the top 20 per cent of the population. In contrast, Singapore saw 14 per cent of those who started off in the bottom 20 per cent, move up to the top 20 per cent of the population.
But Mr Tharman acknowledged that with each decade, it gets harder to improve social mobility. The Government has introduced a range of measures to address this. These include investing in education, diversifying pathways and promoting home ownership.
There have also been “significant moves to temper inequality”, such as the introduction of Workfare and the progressive wage model to raise the salaries of low-wage workers.
Mr Tharman added the Government has also shifted significantly to permanent schemes such as GST vouchers and the Silver Support Scheme. In fact, he said 90 per cent of transfers last year comprised permanent schemes.
PROGRESSIVE TAX SYSTEM
The progressive tax system also means that most benefits flow to those who truly need it.
To illustrate, he said that the top 20 per cent of households pay 55 per cent of all taxes and receive 12 per cent of benefits. The middle 20 per cent pay 11 per cent of all taxes, and receive 20 per cent of benefits. Correspondingly, the lowest 20 per cent of households pay 9 percent of all taxes, largely through GST, and receive 27 per cent of all benefits.
Said Mr Tharman: “The system is not just about redistributing from the rich to the poor. It is also about the middle income. The middle income group in Singapore are net beneficiaries of our system and there has been a significant increase in the amount the middle-income group has received over the last 10 years.”
He said that for every dollar of tax paid by the middle-income group, they now get back S$1.70 – a sum that has been increasing over the years. That is much more that what the middle-income group in countries like Finland, US and Britain gets back in benefits.
Mr Tharman said: “The benefits that our middle income get are not what you see like in the Scandinavian countries or the UK or many other advanced countries. Some of them have free healthcare, free tertiary education, free many things. But they are paying for it. It is not free, it is never free.
“And in most of these societies, with the Scandinavian countries being the classic example, in fact their tax system are not particularly progressive. They rely mainly on the VAT and high income tax for everyone to be able to flow back the benefits. Everyone is paying for the free benefits that they are getting.”
STRENGTHENING VALUE OF FAIR, INCLUSIVE SOCIETY
But while the Government is playing a more active role in redistribution, Mr Tharman noted that what is important is how it goes about strengthening the value of a fair and inclusive society.
He said: “The key to building a stronger society is not how much we are doing to redistribute, it is about how we strengthen the values that undergird and sustain a fair and inclusive society. It is not how much we are doing but how we do it, and whether how much we are doing strengthens the value of a fair and inclusive society.”
He said the Government is seeking to build a stronger social compact, where personal and collective responsibility go hand in hand. And it is doing so by empowering people and aspirations as well as rewarding responsibility throughout life.
“Our whole approach therefore is to avoid a zero sum game between personal and collective responsibility and get a compact where personal and collective responsibility reinforces each other,” he said.