Finance Smiths

As an investor, I know I’m supposed to prefer market volatility and bear markets so I can buy ETFs & stocks at lower prices. And I understand this usually comes together with an economic recession, which poses retrenchment and other types of risks that I should accept with my investing approach. This is the objective and logical way to think about it. But we know the human mind doesn’t always work like that.

Which is why I have to say I’m liking this economic recovery, even with the consequential higher stock and property markets prices. It feels more stable and people are in a better mood when their jobs are more secure and their investments are doing well. There’s a nice rhythm and it’s even more obvious when work winds down in the months of Nov and Dec as people spend more during the festive season. It seems like 2017 is turning out to be a better year than 2016 as we try to end on a higher note.

It has actually been a busier year at work for both of us due to our respective divisional restructuring exercises and the expansion of our job scopes. We were probably under more stress and pressure as a result. But it still beats having to leave a toxic workplace (at the end) and trying to settle into a new work environment that I went through last year. Same goes for my wife as she had the opportunity to step into a higher level job role to prove herself. Plus her remuneration reward for working harder this year is better than what she got last year.

When the payoffs from our jobs in the financial, professional and personal sense are still much higher than the payoffs from our investments, it’s natural for us to wish for better economic conditions. It makes for a vibrant job market with more opportunities to try out new & interesting roles and you are better paid as well. And there’s dividends from the ETFs and stocks to look forward to as well since they are less likely to get cut. I’m going to enjoy the good times while they last!

The issue of raising taxes in Singapore due to growing government spending on investments and social services has surfaced in the news again. Specifically Income Tax and GST. I always get into an internal conflict with myself when I start to think about where I stand on it.

Singapore’s Income Tax Rates is progressive, which means high income earners pay a proportionately higher tax. But with the highest income tax rate at 22%, it’s lower than other developed countries. Same goes for the GST at 7%, which is comparatively lower than other developed countries. Having lived and worked in Australia for a number of years, I can safely say the low tax rates here in Singapore is one of the biggest draws of working here.

The gross salary may be lower but your net take home salary can be higher even after accounting for mandatory retirement contributions and income taxes. This is more likely to be the case as your income level goes up. Which means high income earners benefit significantly from the low personal taxes in Singapore.

It’s true that Singapore isn’t spending enough on social needs. Although Singaporeans have been encouraged to rely on themselves all these years, there comes a point in time in the country’s development when the government needs to step in more and increase social spending. People can get left behind when a country progresses and it’s worse at a rapid pace of development. A capitalist society can be brutal and cruel to a person who cannot keep up.

Let’s not forget about the necessity of infrastructure investments, especially the expansion of the MRT lines. Given the terrible experiences we have had on the trains this year, I can’t wait for the service improvement that always seems to be right around the corner but never here. But I understand it costs money. A lot of it.

I know the government already collects quite a bit of revenue from Electronic Road Pricing (ERP), Stamp Duty (including ABSD & SSD) and Property Tax. I guess the former goes towards road improvement projects and the latter goes towards housing projects.

Current Income Tax and GST revenues are probably not enough to manage this increase in spending. Even as we encourage more people to live and work here in Singapore. Which leaves increasing the Income Tax and GST rates as a viable option. If you compare the YA2016 and YA2017 resident tax rates tables, you would notice the income tax rates have increased for chargeable income levels above S$160,000. Our combined chargeable income for YA2017 is above S$160,000 but separately, our individual chargeable income for YA2017 is below S$160,000.

This means we are not affected by this round of income tax rates increase. My guess is this was targeted at dual high income earning households i.e. both husband and wife are earning high salary incomes. The question becomes whether the next round of income tax rates increase will target an above average income earning household. By raising the income tax rates for chargeable income levels between S$80,000 and S$160,000. This is likely to catch a lot more households in Singapore with decent income earned by husband and/or wife.

I have a feeling this is what’s going to happen next. Even if you raise the income tax rates further for chargeable income levels above S$160,000 the increase in revenue will not be as much as if you widen the tax net. Collecting more from more people beats collecting even more from the same people. We pay about S$1,000 in total each month (instalment) for our personal and property taxes. It’s less than what we pay in Australia so we don’t have any complaints. Plus we haven’t experienced an increase in income tax rates that affect us yet. This will change soon enough.

I understand it’s necessary and I accept it. But I also admit that a part of me is not going to like it. I know it’s a privilege that I get to stay in private housing, haven’t been retrenched from my job, my family is financially stable and we don’t have major cash-draining illnesses so far. But it’s not like we didn’t work for it. We put in time and effort to take of ourselves financially, physically and dedicate hours to our work everyday. I already don’t receive any form of cash and welfare handouts because of this privilege. It’s morally correct to ask me to contribute more in taxes to help the less fortunate because I can afford it. But it would be nice for you to acknowledge that it does require a certain level of sacrifice from me. Even if it’s just a little.

And I know I spend quite a bit on consumption items. So increasing the GST rate is going to hit me as well. No need to be so smug that I will be contributing more GST as a result. Or would you rather I find a way to spend less so I contribute less GST? Maybe I should take this as a signal from the government to be more careful with my spending and save more. After all, it’s not the GST on necessities but luxury goods that’s going to hurt.

Ultimately, I agree with increasing the income tax and GST rates. It’s for the greater good and I support it. But let’s be more appreciative of both sides of the argument and not take for granted how easy it is to do that to fund the higher government spending on investments and social services.