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Prices have gone up, so have expectations

A low tax regime is the main way the Government is helping the middle class cope with rising costs. -ST
Aaron Low

Sat, Sep 29, 2012
The Straits Times

SINGAPORE - A low tax regime, and not direct assistance, is the main way the Government is helping the middle class cope with rising costs.

Even though many in this group may not realise it, they are taking home more of their pay than counterparts in other countries with higher tax rates,said Prime Minister Lee Hsien Loong.

And while he acknowledged that prices have indeed risen, the PM also suggested that part of the cause is that expectations are rising and some people are buying more things than they used to.

"Expectations, buying things which you didn't use to buy, I think are a big part of why people feel housing costs (and the) cost of living have gone up," he said.

The question of cost of living was the hottest issue among readers of Singapolitics, garnering 10 per cent of the 21,000 votes cast.

They wanted to know how the PM would ensure cost of living remains manageable in Singapore. Mr Lee was candid in his reply.

"This is a very difficult question to answer because we've been answering (it) for now about 20 years and we're still answering it," he said.

While inflation has been hovering around 5 per cent in the past two years, latest figures out this week indicate that period is over as price rises came in at 3.9 per cent last month, the lowest since November 2010.

In his response, Mr Lee laid out several main reasons behind the anxieties people had over cost of living, and what the Government did to help them cope.

One is simply that the prices of basic items have actually risen.

Higher global oil prices have pushed up the costs of food and electricity, while rice prices fluctuate and sometimes go up drastically.

To help the lower-income, the Government gives direct financial assistance such as utility rebates. This group, along with the elderly, also gets help through the permanent Goods and Services Tax Voucher scheme, essentially a direct cash gift.

For the middle-income, the Government keeps taxes low.

The typical household in this group pays 7 per cent GST and car taxes if they own a vehicle - but little in income tax.

"If you're earning a middle income, you'll probably pay very little income tax or maybe no income tax at all," noted PM Lee.

"And that's a very big difference compared to if you're living in Australia or Britain or even in the US, where if you're middle income, you pay substantial income tax."

But Mr Lee also noted that rising expectations have also led to perceptions of rising costs, as more people want to buy the latest and best things.

The latest iPhone, for example, has replaced many a small camera being touted by many Singaporeans. Mr Lee acknowledged that this could be the result of lifestyle changes, but also cautioned against households overextending themselves.

"A lot of Singaporeans feel they must have the latest and best. And that adds to the pressure of why you feel qian bu gou yong - money no enough," said Mr Lee.

"I think that we have to keep our balance in aiming for a higher standard of life but also knowing what is essential, what is not essential and making sure we don't overextend ourselves."

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