Raj:
You have been a proponent of implementing a progressive wealth tax in Singapore. How do you respond to critics that posit that said taxes would just incentivize individuals to relocate their wealth to a different tax jurisdiction? Following that, are you of the belief that considering rising government expenditure, Singapore needs to diversify its revenue sources to lighten the overall tax burdens on its citizens? What can policymakers do to tackle the possibility of an increasing tax burden without cutting corners?
Jamus:
To be fair to critics, this is a genuine concern. I wouldn't use the word real, just because to know whether the concern is real or not, we have to look at the data and there's quite a bit of empirical evidence out there that suggests that for both the individuals as well as firms, things like the tax rate, especially if it is modest, tend to be second or third order.
Other things matter a lot more. I'll put that in real terms for most of us to think about when you decide to live in Singapore. At what point do you start to think about the tax rate? When you look for your job or you think about the quality of life you think about whether it’s safe, if you have kids as something that's important, you think about your ability to earn a relatively high salary, uh, an opportunity to do a profession that you enjoy doing that may not be available elsewhere in the world. And only much, much later down the road is something like the tax rate. This is verified with data for firms as well when they locate, how much are tax considerations, not even the top 10.
If both firms and individuals have shown that things like participation in the political process, voice, a sense of belonging to a country are far more important. And I think we shouldn't sell ourselves short by just thinking that something like a very modest wealth tax on the highest income individuals would suddenly lead them to decide that “Ah! Maybe I'm better off in Zimbabwe.” No, there are many, many other merits that Singapore can offer and while it will perhaps matter the margin for some, I likewise argue that there are some wealthy individuals that could see benefits from contributing back to society as long as you align centers.
I'm on the record of saying that there are ways that we can try to make this more consistent with incentives. One possibility is to allow naming rights. Uh, another is to allow some kind of earmarking of tax revenues paid via these wealth tax to specific causes to provide more agency to individuals for choosing how the tax money is deployed. So I think we sell ourselves short when we say that it's clearly impossible, rather than thinking about creative ways where we can make it happen.
Raj:
Singapore practices a flat consumption tax, that is the Goods & Services Tax (GST), on all goods. However, some economists have argued that these forms of broad flat taxes imposed excess burdens, deriving from necessities that can adversely impact consumption baskets. In that regard, the inverse elasticity Ramsey Rule is posited as a solution to ensure optimality by both minimizing the excess burden while maximizing the tax revenue gained by imposing a higher tax rate on less elastic goods. Do you believe that Singapore should extend said academic sentiments to its policy works, not limiting itself to its current arsenal of clusters like alcohol and cigarettes and widen it to a much wider variety like luxury goods? What issues do you foresee, and do you believe that such a move is apt in our pursuit towards engineering a more progressive but sustainable tax regime while also ensuring Singapore remains competitive?
Jamus:
So anyone that decides the Ramsey rule obviously is a man after my own heart. I would just say that by and large, there are fair benefits to having a flat consumption based tax along the lines of what we have a GST. In principle, I'm not opposed to the consumption tax.
The issue of course stems from the different exemptions that we would like to introduce, the different wrinkles, if you will, for making what would otherwise be a generally regressive tax into something that's more progressive. And we have many elements along the lines already. At the high end is usually just that we have taxes on certain kinds of goods, sin taxes, if you will, on alcohol, although just note the other sin taxes on cigarettes, which often isn't necessarily a super progressive tax.
We do have elements of a luxury tax when it comes to both high end property (and cars). So it is progressive in terms of high end property, as well as, for cars as many of us are aware. I think that we can do more on that front, on the high end, introduce more tiers where we can try to hit, in your words, these areas where elasticity is potentially somewhat low and more amenable to raising greater revenue without excessively distorting the purchasing process.
At the low end, I also think that there is a benefit to some degree of exemptions for certain kinds of necessities. And again, an alternative way that this is done is by providing GST vouchers. But that's across the board, right? The GST voucher generally offsets across the board, any kind of goods and services, tax that is incurred by the lowest income groups. And that is good.
The issue with that is that obviously like all targeted schemes, it cuts off at some point. It cuts off typically at the 30th to 40th percentile. So if you are low- middle, but not low income, you get no assistance on some of these essential goods as well. So my sense is that even for the lower-middle income households, there are benefits to being exempt from paying these kinds of tax for things like milk powder and real essentials.
I think you can inject once again, going back to this notion of normative considerations where you can think of moral justifications for why we might want to introduce exemptions over and above efficiency considerations. Therefore I think a small degree of exemptions for certain categories does make some sense.
Raj:
One of the major criticisms of the “Ramsey Rule” itself is that providing exemptions or incurring higher tax rates on certain individual clusters will just end up increasing the administrative costs that the government or state will incur. How do you reconcile with such arguments?
Jamus:
Have you looked at how we collect these GSTs? We “beep” them. How complicated is exempting something that you beep? Everything has a barcode. If you wanna exempt diapers and powder, you just don't collect the tax on those items when you beep them. So I think that that's a bit of a red herring. Technology is far capable of doing basic exemptions. If you make it too complicated, it’ll become a bit of a mess. But I think many other jurisdictions have successfully done these exemptions. And not even recently, they've done it 20 years ago, so I don't think it is an issue.
Raj:
You have also sought alternatives to raising GST to finance our recent increases to spending. One of these being raising the Net Investment Returns Contribution (NIRC), that is, keeping the initial principal constant, Singapore should re-invest a smaller proportion of its returns into its reserves and instead use it to finance current spending habits in our budget. Singapore has always erred on the side of pragmatism, and thus many of its policies like the NIRC have been financially prudent. How then do you reconcile arguments that such proposals like raising the NIRC percentages would diminish Singapore’s financial prudence i.e. its ability to save for a rainy day like the recent pandemic?
Jamus:
NIRC, the Net Investment Returns Contribution, is the part of the returns that we receive from our collection of reserves, part of it gets hived off and reinvested, and the other part of it gets channeled into our budget. Now whether it's 50% as it is today or 30% as it was a decade ago and a half or two decades ago, I can't remember when, or whether it's 60% as I have argued and, and others have argued for the possibility, that is a decision that society has to come to.
Of course, 50% sounds nice and clean. The human mind hangs onto it and says, okay, 50% for the past and 50% for the future. But then when you start to probe that simple prescription, you start to realize that that doesn't fully make sense, right? Why 50% for the present and 50% for the future?
For that matter, is it clear that for the generations that have contributed so much to the existing reserves, should they only get 50%, or more or less? Again, I don't think there's a fixed answer to this. What I think is important is that we aren’t dogmatic about a given position that we adopt.
One reason why we might want to raise the NIRC is simply because the elderly now have greater needs. In fact, that's the main motivation behind the recent move to raise the GST by two percentage points, because we want to provide greater support for the elderly, especially through healthcare expenditures.
If that’s the case and if we accept that the elderly were the ones that had contributed to that huge reserves that currently exists today, why is it that we are not willing to say “Well, perhaps we should take a little bit more from what they had already forgone up to now so that they can enjoy that today rather than say they are forced to give, uh, a certain amount to future generations?”
Raj:
I think that these concerns and proposed alternatives ultimately stem from the fact that the government expenditures have been rising and thus the need for Singapore to diversify its revenue sources and to also balance its overall tax burden on its citizens. What do you think that policymakers should do to tackle the possibility of an increasing tax burden without cutting corners?
Jamus:
So we should be clear, right? When we talk about the tax burden of, of course, the usual tax systems that we compare it to European systems, European welfare states, where you have 40%, average tax rates and these are considered high tax countries. Ultimately it just comes down to how that system is organized in countries where the tax burden is correspondingly higher, benefits are also correspondingly higher.
So let me give you a simple example. Switzerland is a relatively low tax burden country in some elements. But if you have ever tried to pop your car in the downtown of any city in Switzerland, you'll find that it rapidly eats away your budget. Is that a tax rate? No, it's not a tax rate, we don't consider it as part of your tax burden, but nevertheless, it's of charge. It's just a different way of charging for a certain kind of privilege.
High tax burden countries decide that it's okay to have the government collect a larger share and then redistribute that. And lower tax burden countries finance it more through individual contributions to buying various things that otherwise will be provided by the state.
So it’s a question that each society has to decide for themselves. Are they happier with redistribution by the state, because the state has certain objectives that better reflect what we want? Or is it better for us to have a decentralized system? But let's not kid ourselves in thinking that because we have a low tax burden, we therefore are contributing less towards expenses for the cost of living on a day to day basis, because it comes in other ways.
Raj:
Considering recent events like the Russian war which exacerbate economic issues derived from the pandemic like price and wage sensitivity, what are your opinions on the move to increase GST in the coming years? Will such a move have an adverse impact? And if so, what measures should the government engineer to ameliorate it?
Jamus:
I'm on record that we do not need, at this stage, a 2 percentage point increase in the GST and that there are other mechanisms that we can still bring to pass. Now whether we should never, ever have an increase in the GST, that's something that can be debated at another date. But even absent from these short run considerations, we already have many other tools at this time with which we can tap on.
I articulated four different ones, you can mix and match as you wish. But the bottom line is that I think at this stage, an increase in the GST is both inopportune as well as unnecessary.
Raj:
Are concerns surrounding an ever-increasing GST well-founded? Should Singaporeans be worried, and what assurances are being made (or should be made in your opinion) by the government to be more financially prudent with their consumption & investment decisions?
Jamus:
Again, I don't think that this government is imprudent. If anything, I would argue that it has gone overboard with some of its prudence to a point where we run large surpluses when additional support for the population at large can actually be justified.
So I wouldn't say it's a matter of prudence. Now, the fact that government expenditure is projected to increase, that’s generally a fact, and because a part of it is in natural demographic changes that alter the necessary burden it comes from healthcare expanding and so on, so forth.
But other parts of it are greater demands by Singaporeans for certain government expenditures and benefits. Now if we, as a society, think that we want to have an expansion of these benefits and to have the government as the intermediary to provide those benefits, then ultimately we have to, as a society, be willing to accept either a greater tax burden or a payment of this greater taxation in other ways such as through fees and other kinds of charges
The bottom line is the government is not a magic porridge pot. It doesn't have revenue except in what it raises from the people and hence as long as we are aware that when we make demands on what we would like expenditures to be in, then we have to be prepared at the same time for higher either tax burdens or contributions in (other) ways that nevertheless entail greater spending in other things.
Raj:
I would like to take a step back and ask a few, several questions regarding Singapore's social compact, philosophizing what should be done to tackle the issues facing Singapore today. What kind of social changes need to happen in our society before wide ranging social issues like the LGBTQ+ movement manifests as policy?
Jamus:
So I think you would look at social movements and social change around the world. This is something that academics have long thought about. So the big movements in the past, separate from what is a debate in our time, which is more on the issues of adequate representation for LGBTQ arguments, was one that had to do with racial representation.
And a lot of that occurred when there was enough critical mass within the population that felt that a change in policy was both warranted and necessary. Sometimes that sentiment can shift remarkably quickly. And we saw that and, and the stimulus, the catalyst for such changes can occur from unlikely sources in the US. The move towards gay marriage recognition at the time was a legal ruling and the movements, other social movements around the world elsewhere occurred because of sparks, specific incidents that led enough people who saw it, especially among those that were generally on the fence to swing in favor of a widespread change.
So there's definitely an element of both a catalyst as well as a critical mass in a wellspring thereafter. So I think it is a combination of these things. We need a catalyst and at the same time we need a population that is already primed and ready to swing. And then when a small group of strong proponents push for this in a public stage and enough people are swayed by this, then we'll see the change.
Raj:
I would like to now inquire about the comments made by Prime Minister Lee and the recent National Day Rally, specifically the claim that it was, and I quote, “entirely baseless to claim that there is Chinese privilege in Singapore”. This was met with massive backlash online. What is your understanding of the word privilege exactly? And do you think that there is to an extent Chinese privilege in Singapore? Or are we simply confusing Chinese privilege with the naturally occurring majoritarianism that is often persistent and prevalent in many countries.
Jamus:
So I think the spirit behind PM Lee's argument is that there is, etched within our institutions and our ethos, a certain equality of opportunity. So in his mind, as long as there is broad equality of opportunity, at least in terms of what you see de jure, or written down, then there isn't any kind of privilege. But if you've lived as a minority in any country, as I've lived much of my adult life as a minority in white dominated societies, you become acutely aware that what is de jure may not be de facto, or something that is true.
And I think the more we acknowledge that there is a divergence between the de facto and the de jure, the better we are able to empathize with the minorities that don't, on paper, have any difference in equality of opportunity, but in reality, continue to face certain challenges that come with living as a minority in any kind of majoritarian society.
I think until you acknowledge that there is potentially this shortcoming, you won't be able to address what I think are legitimate grievances of those that have experienced what they feel, what they perceive and what could well be true, de facto, to be discriminatory practices that they experience in their lives.
Raj:
So in your opinion, what do you think should be done to ratify the public?
Jamus:
Well, I'm not a sociologist, but I think one big step is recognition. I think recognition is the first and possibly the most important step. So the more we are willing to acknowledge that a potential discrepancy in the lived experience of people exists, the better we will be in the position to potentially address a problem. If you don't think that there's a problem, then obviously there's nothing to be addressed. I'm not one that believes in stubbornly arguing for what could be true on paper, but isn't true in practice.
Raj:
The Ministry of Manpower has also recently introduced new regulations for lorries ferrying foreign workers, namely the mandate that speed management devices and personnel are to stop the driver if the driving is deemed unsafe. The conversation surrounding this topic has always been centered around the struggle between costs and the value of human life, with the government often seeking to maintain a fine balance that ensures safety while not raising costs for construction firms. In your opinion, what arguments should be material to the conversation about safeguarding human lives and what should be done moving forward to improve this situation?
Jamus:
So the first point I'll make, obviously, is that let me put aside this ridiculous argument that we never ever want to put a price of human life. That is a bit artificial. We do that all the time in the cost-benefit choices that we make. So obviously, it's not completely priceless. That said, it is also false for us to undervalue a human life just because the human life, even though they are amongst us, may not be Singaporean, for instance. Human lives are human lives, it shouldn't matter what nationality they are and what gender they are.
On this specific issue of lorries, I feel strongly that we can do more to value the lives of those [being ferried], look, humans are not cattle. And even cattle are often well protected within cages in vehicles that are meant to ferry them. So this is where it's emotional for me. I look at people sitting at the back of lorries. Unless it is voluntary – some people like joyrides, I don't know – which in the case of construction workers, are almost never voluntary, I don’t see how one could take any kind of moral position that says that the cost-benefit is acceptable. I think there’s a practical way – it will increase costs – but you can have a system of buses that does this ferrying. We are very good at coming up with efficient systems. I'm sure we can come up with an efficient system of buses that would be able to ferry workers from their respective residences to their work sites and to make that ultimately be a sustainable industry. Will cost go up? Of course it will. But it's a kind of a cost that we as a society should be willing to bear. Now it does touch on something deeper, which is why we seem to have this obsession with always minimizing costs. For me, we overemphasize this element of cost reduction, as opposed to saying, well, let's allow prices to rise, but we are going to compete on other dimensions. We're going to raise productivity, we're going to raise quality and we're going to compete on these dimensions. It will more than justify the small amount of additional costs that we have to accept when we accept higher quality and higher productivity. So I think that's the goal.
And it becomes a bit of a chicken-and-egg problem when we are so obsessed with costs, and then yet we say we don't have productivity – which we haven't in our nation for decades – to say until productivity rises, we can't allow cost to rise. No, I think that's getting it the wrong way around. I think when cost rises, we allow the pressures of market competition to do its work, which is to channel capital toward raising productivity, to channel human ingenuity and refine technology and processes by which we go about doing business that would raise our productivity and quality. We need to get the order right – to not place the cart before the horse, but to place our order or priorities right. So this is a purely economic argument, but of course, it brings us back to, at the very least, recognizing the morality of why we want to do this. [This is] because human life, in this case, should not be devalued by allowing individuals to ride at the back of vehicles not meant to ferry individuals for the sake of keeping costs low.
Raj:
Thank you so much for giving us your valuable insights today, Jamus.
Jamus:
Good. My pleasure. Okay, great.