Just how progressive is Budget 2010?

Written by Ng E-Jay
24 Feb 2010

We hear the word “progressive” being flaunted when used to describe Budget 2010, especially with regards to the new property tax system.

But really, just how progressive is Budget 2010 and the new property tax system in particular?

The PAP government is not renowned for being a progressive government, or a government that implements progressive taxation systems.

The Goods and Services Tax (GST), a regressive tax, was implemented in 1994 and has been steadily rising ever since. A Standard Chartered economist recently predicted that the GST may eventually be raised to 10% by year 2012.

The estate duty tax was removed in 2008. The government explained that the reason for its removal was due to the fact that it was impacting the middle and upper middle income groups disproportionately relative to the wealthiest of Singaporeans.

But if so, shouldn’t the solution have been to modify the estate duty tax, as opposed to eliminating it altogether? In any advanced economy, estate duties are an important mechanism of redistributing wealth back to society.

Finance Minister Tharman Shanmugaratnam said on Monday in his Budget statement that there will be a shift from the current system of a flat property tax rate for all owner-occupied residential properties to a system of progressive property tax rates based on the Annual Values (AVs) of these properties.

Under the new property taxation system for owner-occupied properties, the first $6,000 of AV will be exempted from property tax. The next tier will be taxed at 4%, and the balance of AV in excess of $65,000 will be taxed at 6%.

There is no change to the property tax structure of non-owner occupied residential properties and other properties, which will remain at a flat rate of 10% of AV.

I am surprised at the government’s decision to leave the taxation of non-owner occupied properties at the current status quo.

A higher tax rate for non-owner occupied properties coupled with reduced taxes for owner-occupied properties will result in further progressivity of the property taxation system.

It might also help to curb excessive speculation in the property market to some extent, because speculation by definition is caused by people wanting to buy high and sell higher, not by people looking to live permanently in their new homes.

A higher property tax rate for investment and other non-owner occupied properties is further justified at the present juncture because estate duty has already been abolished, resulting in reduced overall taxes on wealthy families.

Current property tax rates and personal and corporate income tax rates in Singapore are already very low by international standards. There is ample scope for the government to increase taxes for the middle and upper classes to provide necessary revenue that can be used to further offset the burden on lower income groups through increased budget disbursements and tax reliefs.

The lower income segment of the population is currently facing severe strain as a result of the overly liberal import of unskilled foreigners and the lack of a comprehensive social safety net.

The needs of Singapore citizens will be best served by:

  1. a more sustainable model of economic management that recognizes the long term limitations of our nation’s growth rate,
  2. a more controlled rate of import of foreigners and more careful selection of the quality of foreign manpower we are importing,
  3. a more comprehensive social safety net for the needy, elderly and sick,
  4. independent labour unions that genuinely seek to protect the rights of Singaporean workers, and
  5. a “Singaporeans first” policy that gives due recognition and assistance to National Servicemen who have had their studies and careers disrupted due to National Service, and policies to ensure they are not being discriminated against in the workplace.

Budget 2010, while going in the right direction of implementing a more progressive property taxation system, does not go far enough.

Merely having a better taxation system but without overhauling the fundamental flaws in other existing government policies would just amount to applying bandages on an open wound but without treating the underlying injuries.

3 comments on Just how progressive is Budget 2010?

  1. it was funny how he stressed the additional tax on wealthy property owners was minuscule, so as not to put them off. pandering to the rich has become PAP’ motto

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