Singapore
government narrative of high European taxes without any reference to benefits
makes for poor debate on welfare. To take a much more balanced approach to the
issue, let us check with the UK Office of National Statistics for an
appreciation of how much the British paid in taxes in relation to benefits
received.
Benefit spending
In 2014,
the social expenditures in direct transfers to households are given below.
The total
expenditure of £257b equal over 14% of GDP. In Singapore GDP equivalent, that is
nearly the entire government budget. Not included are benefits in kind such as
subsidized education and healthcare. The UK government spent £125b or 8% of GDP
on the latter. Singapore government’s healthcare spending is 2% of GDP today.
As a matter of interest given the recent debate over unemployment insurance,
the UK government spend just 0.16% of GDP on unemployment benefits, far less
than the amount spent on the People’s Association.
Tax = Benefit = Lower Inequality
This
chart divides British households by 20% of total households or quintile
according to income and provides the taxes paid and social transfers received
in cash and in kind.
The 3
lowest quintiles representing 60% of households received more benefits than
taxes paid. The 2nd richest quintile received less benefit than tax paid by
about £5,000 (S$10,000). Only the top or richest quintile received
significantly less benefit than tax paid. As a whole, the British received
nearly the same amount of benefits as taxes paid. When the Singapore government
warn of poor value for high taxes, they are referring only to the wealthy.
European
tax and spend policies are meant to reduce income inequality. So the Gini
coefficient is reduced from 0.51 before tax and social transfers to 0.33 after
tax and social transfers, not as low as the Scandinavians because tax and
therefore benefits are both lower. This is especially notable in pensions where
a low state pension from age 65 is meant to be supplemented by private employee
pension (which can be used from age 55).
Fiscal Deficit
Since
nearly all taxes paid by the British people are returned through social
transfers, why is there a fiscal deficit in the UK, like most 1st world
countries (in 2014, £ 71b or 4% of GDP)?
Like its
neighbours, the UK economy comprised 60% of wages. Revenues from other sources
are insufficient to cover other expenditures such as public services, defence,
public investments. Higher corporate and wealth taxes in theory may raise
revenues but this will slow the economy which negates the revenue raising
effect.
Benefit Reduction or Debt
The
budget choices are:
Reduce
expenditures including social transfers but this means households get much less
benefits than taxes paid, with the impact hardest on the low and middle income.
Borrow to
cover the shortfall.
The UK
has one triple A rating to Singapore’s three. It is still highly rated despite
its fiscal deficits and like any 1st world economy, the government is able to
borrow at the lowest possible cost. This is a crucial consideration because the
state exists in perpetuity whereas people have a horizon limited to a lifetime.
It means the government can aggregate demand, insure and fund against social
risks over an infinite horizon which result in far lower costs than any individual
is able to do.
As long
as deficits are not excessive, borrowing puts the state’s credit ratings and
its lowest possible borrowing costs to use instead of enacting huge reductions
in social expenditures and accepting high inequality. In any open society,
excessive benefits cuts and the resulting large increase in inequality are
politically untenable. If this is a cost in financial terms or in slower
economic growth, then it is paid for social peace and equality.
Usefulness of Singapore triple A ratings
Singapore’s
debt to GDP ratio of 110% is higher than the UK’s 90% (and falling). But the
constitution forbids the spending of debt proceeds, including CPF which
resulted in all of the debt invested. It means debt is not incurred directly to
provide for government expenditures. Singaporeans do not derive any direct
benefit from debt other than the excess returns from investing debt goes into
the reserves from which a portion of the earnings supplemented the budget, even
so not specifically for social expenditures.
Despite
being backed by the nearly 10% of GDP a year long term budget surpluses, the
triple A ratings have little direct to benefit to households. The surpluses are
not without consequences to households since they are derived from land sales
at increasing prices and denial of social benefits both leading to inadequate
retirement and healthcare funding, and to an acceptance of high levels of
inequality.
Chris
Kuan
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