Touchy topic for many of us. One of my closest friends insisted that he wasn’t going to vote for the Opposition because he doesn’t want to pay higher taxes; something he foresaw if we were to implement their policies. Dr Chee believes (or believed) Sinkies are a kind-hearted bunch. Are we? Well, many of us probably teared through fund-raising sob videos during one of Mediacock’s many fund-raising charity shows and called in to donate the obligatory $5. Never mind that older folks are clearing tables, collecting soft drink cans, handing out leaflets and flipping burgers. After all, they need the exercise and they have our $5s.
Back to the main topic, is Australian tax really higher than Singapore tax? Well, yes and no. That really depends on what type of tax you’re referring to. Taxes come in all shapes and sizes and can be slapped on virtually anything and they can be called different names and packaged in many different forms. Note: the essence of this article is this: a tax doesn’t have to be explicitly labeled a tax before it can function like one.
Most people would recognise “Income tax” and “Goods and Services Tax” and triumphantly declare Singapore’s low tax environment and high GDP as evidence of how well run this country is as a by-product of our extremely capable leaders. Australia has markedly higher income taxes (49%. *Faint*) and GST (gasp! 10%). What they often to fail to realise is:
l No, income tax is not 49% in Australia and GST is not always 10%.
l the amount of hidden taxes you pay in the form of housing, COE and household support.
Income taxes : Singapore vs Australia
Since this is the most recognizable form of tax it is of course the most popular subject of comparison. Contrary to what most Sinkies believe in (even among the highly educated), the tax rate in Australia is NOT 49% / 45%. That is the “headline” tax rate - the highest tier one can be subject to in a progressive tax system. In certain situations if you’ve not provided a correct tax filing number there are also some presumption rules that will kick in to apply a backup 49% rate (which is refundable).
Singapore also employs a progressive tax rate system with a headline tax rate of around 22%. The effective income tax rate (taking into account deductions, reliefs etc) for a well-paid professional in Singapore can be as low as 3-5%, and usually not higher than 10%. The same person would likely be paying 4-5 times that amount (e.g. 25% income tax incl. medicare levy) in Australia. So for those Sinkies who are looking for justification to stay on in Sinkieland there you have it - your vindication. For those who prefer to examine things more holistically you are welcome to read on, especially in relation to Australia’s healthcare and pension system where much of the taxes collected go to.
GST: Singapore vs Australia
Goods and Services tax is “indirect” or “consumption based” taxation. The more you consume, the higher the tax paid. Easily understood and applied. However GST in Singapore is also a form of regressive taxation. Since it applies across the board and does not discriminate between the rich and poor, lowering income tax rates and getting back the shortfall in GST means you’re redistributing some of that tax burden to the middle class and poor. Yes the rich may pay more GST since they tend to buy more expensive satki cars and luxury watches but the reality is most GST will be collected from the everyday things purchased - groceries, clothes, diapers etc. The largest ticket items like condos and houses are not subject to Singapore GST.
Wait wait! Australia’s GST is 10% right? And Singaporeans get GST vouchers!
I wouldnt go into the specifics of how the Singapore GST vouchers work but there is essentially U-save and GST- cash vouchers which grants something like $380 and $500 a year max. And there are very low income thresholds after which you will be partially or completely denied that benefit. At 7% GST, you can probably consume up to circa $12,000 before the voucher amount runs out and puts you back into a GST paying position. In an expensive city like SG, these vouchers obviously don’t go a very long way. Singapore GST is applied virtually across the board on nearly everything. The exemptions are narrow (e.g. housing and financial services are exempt). Suffice to say most, but for the absolute poorest, will be bearing at least some of the GST burden. Most lower or upper middle class Singaporeans won’t qualify for the full $380 and $500, if they qualify at all. There are some limited goods and services in Singapore that are still GST-free (e.g. polyclinics and government hospitals) due to certain subsidies from the government. The majority of what you consume will not be. Sometimes the GST is "seen" (shown in the receipt) sometimes it is "hidden" ("absorbed" by the business as an operating cost and passed on to you). For example, the hawker centre chicken rice uncle bears GST on the raw materials he purchases and that gets passed on to you eventually in the form of higher prices.
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| No shit. You may have to pay GST to get buried. |
Australia on the other hand does not impose GST on most basic necessities such as basic foods, childcare and medical services. So while GST is 10%, it doesn’t hit as wide as the Singapore GST system. However, unlike Singapore, there’s no voucher relief system for the very poor (but there’s free access to a scheduled list of medical treatments and there’s pension).
The above said, it is up to oneself to judge for him or herself which system works better but know for a fact that a lower GST rate doesn’t mean you will always pay less GST.
Household support payments (to Mum and Dad)
How is this a tax???? Well, put it this way, first generation Singaporeans who migrate to Australia pay an Australian tax in the sense that your Singapore/Australia-based parents are not being supported by the local pension system. The local pension system is funded from the income (and other) tax contributions of many Australian generations. It is means-tested and supports many older folks who retire with little income. Old folks are a burden to Australian society (no mincing words), so instead of having them clear trays at MacDonalds so they can be denied the exercise that will make them live longer, the Australian government also cruelly strips them of their dignity by providing them access to universal healthcare and a weekly pension.
Singapore senior folks on the other hand rely on their CPF system. It is a dignified retirement scheme (a.k.a self-help system). For those who consciously save and don’t overuse their CPF for housing (*eyes rolling*), it can be a decent retirement system. Many Singapore sons and daughters still provide their parents with a monthly allowance to supplement their retirement withdrawals because there is no pension system in place. Whatever you saved in income taxes here in Singapore some of it still goes to supporting your parents. This is the same inter-generational tax Australia enforces on its people through the somewhat high income taxes imposed. By the way Australia also enforces a superannuation system similar to CPF. Means-tested pension is in addition to the superannuation.
The above is not to criticise or favour one system over another, but to critically examine the trade-offs associated with each system. Some people will have different economic outcomes under these 2 very different systems - e.g. if you have no parents to support in Australia (passed away young or they are very well-off and don’t qualify for means-tested pension) you obviously wouldn’t benefit from the Australian pension system until you retire and there’s no guarantee the pension system will still be in place by then. The Singapore CPF system would be much better off purely on economic terms.
There’s no point arguing about the philosophical or intangible benefits of a pension safety net and the greater peace of mind it brings because I suspect these only appeal to weak minded quitters like us.
Certificate Of Entitlement (to own a car), ERP and Car Parking
There is no COE concept in Australia. I’m tempted to say that’s enuff said.
For those Sinkies who think they’re not affected because they have no desire to purchase a car and the transport system in Singapore is efficient. Think again. If you have 2 kids and elderly folk, a car can significantly enhance the quality of your life. Yes it may not be a true necessity in the sense that you can still get around with the local transport system but many of my friends with such families have all purchased cars in Singapore. Even the miserly ones who championed local transport have all bought cars when their first baby came along. If you’re middle class, this is one of, if not the heaviest tax you will pay in Singapore. There’s nothing good or bad about COE, just bear in mind COE is also a form of tax you pay.
ERP is self-explanatory. It’s a road toll and you will pay it even if you’re sitting in a bus (since ERP is an operating cost which will be passed on in the form of higher fares). The difference between ERP and road tolls of other countries is that its omnipresent and if you drive you will almost certainly pay it once or twice a week, and much more often if you drive everyday.
Do you know most houses or apartments in Australia come with car-park lots and you don’t actually have to pay to park a family car? HDB car parks are not free, despite the sky high prices you pay on your HDB. Monthly season parking charges will likely set you back by $100+.
Housing
Again, how is housing a tax? It’s obviously a tax because you’re paying through the roof for something that can’t be handed down. Nearly every generation pays for it. And the biggest beneficiary? HDB and commercial banks. The interest they earn off you on your loan is now earned on $800,000 instead of $200,000. There’s a similar problem in Melbourne and Sydney but the difference is that properties in Australia are usually free-hold and they will almost certainly be cheaper (relative to their free-hold status, location etc). Since corporate taxes in Singapore are significantly lower in Singapore (can be as low as 12%), the benefit of that extra interest earned off the back of YOUR significantly larger housing loan flow to the greedy banks of course.
In addition, people who purchase BTO flats usually get to resell them for a profit when their MOP is up. And given certain groups of buyers like Singaporeans with foreign wives (who don’t qualify for BTO) could only buy in the resale market and pay an inflated price to the BTO owner. This is effectively a tax you pay to other Singaporeans which may be fair or unfair depending on which side of the fence you sit. If you’re a lucky BTO owner who balloted for a hot location and got it, you’re pretty much set for life. If you’re not lucky, then you probably would curse the system…
Conclusion:
There are obviously many more kinds of taxes not yet discussed: excise taxes, stamp duties, property taxes etc. These taxes generally don’t have as much a lasting impact on people as the ones discussed.
I’m not trying to prove any point here with this post, only to highlight that any conversation around Australia vs Singapore taxes must be holistic. I’m very often amazed at how some of my “educated” peers would make callous sweeping statements about Australian’s tax rates without also mentioning the trade offs. OZ has higher tax rates. That is true on many fronts but so does Singapore - the difference is Singapore taxes are usually hidden and out of sight.
All said and done, most Singaporeans do not make the decision to migrate around economic considerations. You only need to read the rest of the blog posts contributed by others here to understand the various reasons why we “quit”.
Trivia:
1. In medieval Netherlands, property taxes were calculated based on house width (the side where your front door is located). Consequently people would, in order to reduce the amount of tax they pay, build their houses thin and long. So if you had the opportunity to step into one of those skinny houses in Netherlands you would be amazed at how spacious it actually is inside.
2. Not too long ago (up to 2012/2013), Singapore companies are given a double deduction under Section 14L of the Singapore Income tax Act for recruitment and relocation expenses incurred to hire foreign workers. Yup. The gahment subsidizes foreigners to come get your lunch. The policy was finally scrapped in 2012/2013 for god knows what reasons….. do you know the reason?
"do you know the reason?"
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