Singapore may raise taxes for ageing nation

PUBLISHED : Monday, 03 September, 2012, 12:00am
UPDATED : Monday, 03 September, 2012, 2:03am

Singapore would need to raise taxes in the next two decades as the government boosts social spending to support an ageing population, Prime Minister Lee Hsien Loong said as he proposed measures to boost the country's birth rate.

"As our social spending increases significantly, sooner or later, our taxes must go up. Not immediately, but if we are talking about 20 years, certainly within that [time], whoever is the government will at some point have to raise taxes," Lee said last week in his annual televised National Day Rally address, which ran for more than two hours.

The prime minister pledged to ensure sufficient affordable housing for citizens, invest in preschool education and add nursing homes for the elderly. He urged citizens to build a more compassionate society, reject anti-foreigner sentiment and have more babies.

The government has sought to address public concern that Singapore's economic progress has left its poorest citizens vulnerable to rising living costs while an influx of foreigners increased competition for jobs, education and housing. After his party last year suffered its smallest electoral win since independence in 1965, Lee tightened rules on hiring foreign workers and boosted aid for the poor.

Vishnu Varathan, an economist at Mizuho Corporate Bank, agrees that taxes will have to be raised.

"I don't think anything will change in our tax policy to make us less competitive in the next five to 10 years, but the prime minister is talking about something much further out," he said.

Singapore, ranked by the World Bank as the easiest place to do business, cut taxes in recent years to spur investment. Bankers in Britain favour working there over New York and London, where they face lower wage growth and higher taxes, an annual survey by recruitment firm Astbury Marsden shows.

Lee said last Sunday that the government drew S$8 billion (HK$49.5 billion) from returns generated by its reserves in the budget for the past financial year, exceeding the amount from personal income taxes.

"It's helped us fund many new programmes and still balance our budget without having to push up taxes sharply," he said. "We have to draw from the reserves in a sustainable way."

Lee also warned that Singapore's fertility rate, at 1.2 children per woman, was too low. The median age of Singaporeans will rise to 43.1 in 2020 from 37.6 in 2010, Bank of America said in April, citing data from the World Bank and United Nations. That compares with 23.9 in the Philippines, 31 in Indonesia and 28.4 in Malaysia by 2020.

"We are having too few babies," Lee said. "We have a problem. The long-term trend is down but we cannot give up. We've got to do something about it."

The government will decide on measures to encourage citizens to marry and have more children after consulting the public, the prime minister said.

Areas include better work-life balance, flexible work arrangements, priority housing for couples with young children, paternity or shared maternity leave, defrayed childhood medical expenses, better childcare and improving "baby bonuses", or cash benefits for having children.

The city has grown by about one million people since the beginning of 2005 as the government allowed more immigration to make up for the declining birth rate and to meet growing demand for workers in an expanding economy.

Foreigners and permanent residents make up more than one-third of the city state's 5.2 million population, and opposition parties contend that the large numbers of overseas labourers have depressed local wages.

"Many Singaporeans have concerns because the influx has caused some real problems," Lee said. "But I'm worried by some of the nasty views which are expressed. It reflects badly on us. It damages our international reputation."

The foreigner influx contributed to crowded public transport and more competition for jobs, housing and school places, fuelling voter anger. The gap between Singapore's most affluent and poorest also widened last year.

Lee further pledged that Singapore would have two more universities to increase educational opportunities and the government would invest S$60 billion over 10 years on the subway system.