As Tsang, Gabriel, Varun, Shamir and myself met last nite for a short while after steamboat with my singapore bible study group (which consisted of many JC friends), we had some interesting conversations, reminiscing about life, our St Andrews School days and onward to politics and a social commentary on the state of our country.
one of the topics that stuck in my mind was that of taxation. Tsang was saying Singapore was a country where social studies students were taught that indirect taxation helps the poor and those from low income households. He pointed out the incongruity of it all, because for the poor, consummables such as food, water and electricity are the main things they spend on. These are taxed. And, the taxes they pay for consummables form a larger percentage of their income then for the rich. How can indirect taxation be good for the poor?
Well, i said, only if 1) indirect taxation is used to directly fund additional health and medical, education and welfare services that are only available to the poor [some form of means testing determines who is 'poor'], 2) the poor [determined by means testing] are given rebates for the cosummables they spend on, for as long as there exists an indirect tax on consummables, or 3) those who have been means tested and found to be financially lacking are given coupons that waive the Goods and Services Tax when they purchase consummables [and present these coupons] or 4) remove basic consummables like food, water and electricity from the list of taxable items in the GST. But of course, across-the-board application is always inefficient compared to means-testing.
In all our discussions i realised one thing, and that is, what on earth is the justification for taxation of any sort? To be more specific, why do citizens in a democratic country allow their governments to tax them? Most people think that because my government has the power to do so, this ends the matter. Well, what if the government decides it is within their power to legalize murder? Some will say that taxation is there to finance public services and the salaries of public servants. Of course. But thats not close enough to the heart of the matter. We pay taxes so that the administration of the country may ensure that all citizens have basic needs, like healthcare, education and public transport. Taxation is about state intervention in the individual accumulation of private wealth, so that public needs are met for all in the community. The very idea of taxation is against the principle of a laissez faire free market economy.
Secondly, because taxation is state intervention in private wealth for the benefit of the larger public, it is always biased towards those with greater private wealth who may benefit the public most. In other words, the rich pay more because they have more to give, and the poor pay less because they have less to give. Thats also known as income tax. But wait a minute! thats not the case in indirect taxation..every one pays the 3 odd 4 percent in Singapore's GST or the 7 odd percent in the UK's VAT..why? fairness for all? but taxation as a concept can never be fair. Can fairness for all really mean everyone pays the same amount? You wouldnt think of getting someone in the lowest income bracket to pay 49% of tax, the same as the head of a billion dollar firm, in the interests of 'fairness', would you? In fact, to be fair means exactly the opposite, that not everyone pays the same amount of tax.
therefore, whats the end of the matter? the way that the majority of economists think about indirect taxation is wrong. As long as the phrase 'indirect taxation' contains the root word 'tax' and behaves like a tax, intervening in my private wealth on state orders for the benefit of the greater populace, well then, it has to be graduated for different income earners, shouldnt it? so Singapore, take my suggestion and implement one of the first three recommendations i gave above, or some combination of them, won't ya?
