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Table of Contents
A FAIR TAX SYSTEM: MAKING IT LAST
100. Several MPs – Mr. Janil Puthucheary, Mr. Lim Wee Kiak, Mr. Ang Wei Neng, Mr. Desmond Lee, Mr. Vikram Nair and Ms. Tin Pei Ling highlighted the need to maintain our fiscal sustainability. They emphasized that whatever we do, we have to keep an eye on the long-term.
101. We have to make sure that we can sustain our various initiatives, and not do them for a few years and then start withdrawing them, or start raising taxes to pay for them. We have to think though very carefully - how much should we do, and how we should fund it, in order to sustain a fair and progressive tax system not just for a few years, but well into our children’s generation.
Managing Healthcare Spending: A Key Challenge
102. The key challenge is healthcare spending. That is going to be the biggest driver of our expenditures over the next 10, 15 and 20 years.
103. We are currently spending 1.6% of our GDP on healthcare. By 2016, it will go up to 2% of GDP. However, if we extend healthcare spending all the way to 2030, which is when the aging of our population has set in more fully, then it will increase to around 3.5% of GDP - an extra 2 percentage points of GDP in expenditure from today. This is a significant increase.
104. Transport expenditure will also remain high for a while especially because we are massively expanding the rail systems. But healthcare expenditure will be a long term commitment. By 2030, it is about 3.5% of GDP - and that too, only if we play it right. It could be much more if we do not play it right.
105. Ms. Sylvia Lim suggested that we follow other developed countries, and spend an average of 6% of GDP on healthcare. Mr Low Thia Khiang also spoke about a first-world social safety net. I do not like the idea of a first-world safety net because what it also means is first-world taxes or first-world debts, and I do not like both ideas.
106. To explain this in detail. If we have to take our healthcare spending to 6% of GDP which is around the global average, it means that we will have to raise taxes very significantly to generate the necessary revenue to fund the system. It would mean increasing the GST to about 20%. Or raising corporate income taxes to above 40%. Or lifting personal income taxes across the board and with the top rate moving to 60%. Some countries, especially the Nordic countries, do have such high tax rates. And even if we think of using a combination of these different taxes, it is still a significant increase in each of these taxes.
107. This is why, as Mr. Liang Eng Wah, Mr. Hri Kumar and Dr. Chia Shi-Lu said, we should focus on healthcare outcomes, instead of spending, as a measure of our healthcare system. We are already getting relatively good outcomes – it is not a perfect system, but one of the better healthcare systems in the world when we look at outcomes. This is despite spending much less, both through government and private spending.
108. Second, we should focus subsidies where they are most needed. There will be groups that have affordability problems. We should help them with targeted subsidies, not broadly across the population. In particular, we should encourage people to shift to lower-cost, but good quality care settings. Instead of staying in an acute hospital for a long period and incurring high costs for the individual or family as well as for the taxpayer, they can instead enjoy community-based or home-based care at lower cost. This is what we are doing in this year’s Budget. We have provided very substantial subsidies and expanding our capacity for community and home-based care, to help people stay at home and yet obtain quality care. This is a very important dimension of keeping healthcare costs down while getting good health outcomes.
109. Third, we are improving support for the middle-income group. Under the measures introduced in this year’s Budget, a typical middle-income family will see their expenditure on long-term care halved. The Medisave top-up introduced in GST Voucher is also significant. For those who are say 75-years or older, the permanent, annual Medisave top-up through the GST Voucher scheme is enough to fund on average, half of their annual Medisave withdrawals.
110. Next, risk-pooling. We have to keep the 3M framework going, because that is at the heart of our system. The framework encourages people to save, to think about their health actively from young, because it is also their savings that will eventually be paying for it.
111. But I agree with Ms. Sylvia Lim and Mr. Laurence Lien that we have to think about increasing the scope for risk pooling. We are indeed studying Eldershield to see how we can enhance the scope. MOH is studying how we can, in the right measure, use Eldershield to support the longer-term medical needs of Singaporeans. Likewise, we will study Mr. Yeo Guat Kwang’s important suggestion on the portable medical insurance. It has not taken off as much as it should and we should look into whether we should provide more incentives to promote portable medical insurance.
112. Even with Medisave, there will be some who cannot afford their medical expenses. We want to make sure that these individuals make use of Medifund well before their children’s savings are exhausted. There are flexible criteria, and in fact a growing number from both the lower-income group and also the middle-income group are being helped through Medifund.
113. VWOs are an important part of our approach to providing long term care. I think Ms. Sylvia Lim has overstated things when she said that the Government is taking the backseat and leaving things to the VWOs. Quite the contrary, there is in fact no Government that is as aggressive as us in supporting VWOs and working with them. Looking at fiscal support alone, the Community Silver Trust has set aside 1 billion dollars, and together with our tax deduction schemes for donation, this means that for every dollar VWO receives from a donor, 60 cents comes from the government. This too is how we encourage everyone to contribute to our VWOs, and not leave the task only to the Government.
How Do We Sustain a Progressive System?
114. There have been many, very useful and thoughtful proposals that MPs have made on what we should spend more on. But we must always ask ourselves how it all adds up, and how we fund it.
115. And remember there is a major driver of rising costs - the aging of the workforce. Dr. Lim Wee Kiak has indeed asked how we are going to fund this.
116. For healthcare spending, we are going to go up by another 1.5 percentage points of GDP beyond 2016, or 2 percentage points of GDP more than what we spend today. With the ageing of workforce, there will be increased utilization of healthcare services and long term care services. Demand will go up and as technology improves, people will want better care. This is why we must expect healthcare expenditure to go up another 2 percentage points of GDP by 2030.
117. We must therefore have a strategy to fund our expenditures for the next 10 to 15 years after 2016. We should not be forced to cut back on funding for education, defence, and the other fundamentals that keep Singapore going.
118. There are several elements to this strategy. It means first, that we stay competitive and grow our economy in a sustainable basis, because that is the biggest source of our revenues.
119. Second, we need to find new sources of revenues. Our Budget is fine for the next five years. That is why we have been setting aside monies now in trust funds and endowment funds, to fund future spending, whilst we still have the resources. But beyond the next 5 years, we will have to think of raising revenues.
120. Third, we must spend judiciously in every area, both for development and operational expenditures. Always spend with outcomes in mind, not for show.
121. And finally, we have to be prudent and targeted in our subsidies. People do need more help, but we have to be very clear about who needs the most help and target our subsidies carefully.
122. Many countries in the West have allowed social expenditures to creep up gradually, thinking that each incremental rise will be affordable. However, each term of Government - whether it is a conservative of left-of-centre - has found itself pressured to raise the subsidies or include more people in the subsidies. The overall bill goes up, from one term to the next. And it is almost always the middle-income groups that end up paying much higher taxes.
123. This also addresses MP Denise Phua’s point. There is a limit to how high you can push taxes at the upper end. The reality of the matter is that our income taxes are significantly higher at the top end of incomes compared to Hong Kong. So the competition for talent is real.
124. Half of our personal income taxes are paid by non-citizens. But even if we consider Singaporeans, they are mobile. If we look at many graduates, increasingly, many of them start their careers in Hong Kong or elsewhere. They are well-educated. They are talented. They too are mobile. We have to ensure that we keep our best talents here. We will make our system more progressive over time, particularly with regard to property taxes. But there is a limit to how high taxes can go at the top end, without hurting our competitiveness. This is the reason why we have got to guard how we spend and what we spend on, so that we avoid imposing too heavy a burden on the middle-class.