Why working mums should be happy to start paying tax

Each year, the Budget rolls around and agitates or delights different segments of society, with its slew of new measures to cut or raise taxes.

This year, two measures in particular have drawn public attention.

The first is the move to cap the amount of personal income that working mothers can claim for tax relief, at $80,000. They will now have to pay tax on income above that amount.

Although the move is expected to hit just about 1 per cent of earners, the outrage from this group of high-earning, and presumably very well-educated and hence vocal, women has been palpable, going by comments from folks I know.

But the fact is that working mothers have enjoyed generous tax relief for years. I didn't realise how much, until I saw a March 28 article in The New Paper that tabulated just how much tax savings a high-earning mother can make.

A working mum below 55 years of age, earning $150,000 a year, can claim tax relief in excess of that amount, if she has three children; supports one set of parents including one who is handicapped; hires a maid, and tops up her retirement savings in the Central Provident Fund (CPF) with the Supplementary Retirement Scheme (SRS).

In other words, she pays no tax.

The lion's share of relief comes from her children: the working mother child relief for the three kids comes up to $90,000 alone. With the proposed cap of $80,000 in tax relief, she will have to pay tax amounting to about $2,650.

Read also: How much women lose if they take time out for a baby

TNP then helpfully computed how much tax the same woman would pay, if she could not claim all those child reliefs and other reliefs, and if she can claim only the earned income relief of $1,000 that all taxpayers can claim.

The answer:$10,950.

In other words, the rest of us taxpayers are subsidising the tax bills of working mums who earn $150,000, to the tune of nearly $11,000 a year. And to think that when the rules change to tax them $2,650, they complain?

At the other end of the spectrum, there is concern in some quarters that Singapore risks becoming too generous to our elderly.

The Silver Support Scheme is a pension payment for lower-income elderly. It was first announced in 2014. Last week, Finance Minister Heng Swee Keat fleshed out the details. About140,000 seniors aged 65 and above will get quarterly payouts of $300 to $750. They fall in the bottom 30 per cent of seniors.

This "major new feature" of Singapore's social safety net will be a permanent scheme. It will cost nearly $320 million in the first year - and will likely grow as Singapore's population ages.

Mr Heng made it clear that Silver Support is not meant to replace other sources of support - such as savings or allowances from children. It will also complement other government assistance programmes such as ComCare and Workfare.

Some concerned citizens have asked if too much social security benefits might erode filial piety.

The fiscal conservative in me understands such concerns. Indeed, few would want to live in a society whose government bankrupts this and future generations on over-generous welfare benefits.

But I also wondered why not more people have spoken up about the dangers of generous tax reliefs for parents eroding their sense of parental responsibility.

If we fear a pension payment for the bottom 30 per cent of our seniors might erode their children's sense of filial piety, should we not worry that giving too-generous tax relief to the top 1 per cent of our working mothers might erode their sense of maternal responsibility?

If we worry that a public pension may crowd out intergenerational private transfers (from children to their parents) shouldn't we also worry that a Baby Bonus and tax benefits for parents may crowd out similar intergenerational transfers (from parents to their babies)?

If one is viewed as a public good, so should the other.

Yet, if we compare the tax relief given to families, we will find that families with children get a lot more in relief than families with elderly folks to support.

This is not necessarily the most equitable of tax arrangements.

But rather than let this descend into a us-versus-them diatribe, I want to argue here that we should go beyond a world view of seeing taxes from an individual win-lose perspective.

Otherwise, the young family with three kids struggling with childcare fees will begrudge further Silver Support payments to the elderly; and the childless taxpayer will resent tax perks given to those with kids.

But such views are blinkered and divisive. Instead, we can choose to look at taxes from a collective family perspective, and over a lifetime.

Most of us are embedded in family relationships and can and should look at tax benefits accordingly. The working mum who pays $2,600 more in tax this year should consider how her own parents, or a distant uncle, will get some solace from the Silver Support allowance.

The so-called intergenerational conflict disappears if we consider that we are all part of families. Giving a retiree an extra $200 a month in Silver Support benefits not only him, but his family, if his grown-up son struggling to care for an ailing wife and kids, has more money to spend on milk powder or medication.

In any case, filial piety is not a function of how much money one gives to one's parents.

As for the fear that public transfers may crowd out private transfers, the jury is out on this.

A draft paper by Dr Bei Lu from the University of New South Wales, titled Rural Pension, Income Inequality And Family Transfer In China, looked at whether elderly men and women in Gansu and Zhejiang got less money from family members after China introduced a rural pension system in 2009. Her conclusion: There is little or no correlation between parents' retirement income and the allowance children gave.

Dr Lu's paper also gave a useful summary of the literature on the issue. The survey yields mixed results.

One study in China suggested that "public transfer would only crowd out private transfer at very low levels of income but becomes less responsive at or above poverty line". Other studies in Mexico and Peru showed some crowding-out effects.

But this "crowding out of private transfer" (from grown-up children to parents) could just mean more money within the family to be spent on the kids.

If we add a lifetime perspective to understanding tax benefits, we can be more comforted that the costs and benefits may equalise over time.

Financial Times columnist Martin Wolf cited a study by the London think-tank, the Institute of Fiscal Studies, which showed that "in the course of adult life, only 7 per cent of individuals receive more in benefits than they pay in taxes, even though 36 per cent of people receive more in benefits than they pay in taxes in any given year".

The welfare state, in his parlance, is a "piggy bank for life" - into which you put deposits and from which you withdraw when needed.

Understanding taxes and benefits within the context of a family, and as a continuum over the course of a lifetime, has a salubrious effect on tax relief envy.

Rather than see tax and benefits as a win-lose proposition from a self-centred, individual perspective, it is better to adopt a more holistic outlook that takes into account a person's role in a family, our own needs over a lifetime, and ultimately, our shared responsibility as a society.

muihoong@sph.com.sg

This article was first published on April 3, 2016.
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