The Singaporean government says it is doing its best to keep business and living costs down despite raising taxes. Singaporeans feel that business and living costs are continually going up.
On 3 March 2017, Minister for Trade and Industry Lim Hng Kiang assured Singaporeans and investors that the government was keeping a close eye on business costs. He added that the government was striving to facilitate growth among small and medium-sized enterprises (SMEs) and to support local companies.
During the same Committee of Supply debate for the Singapore Budget, MP Lim Biow Chuan responded to increases in water prices and diesel taxes by saying that businesses were not hoping for a handout from the government, but that they were looking for a friendly and less costly business environment.
The 30% rise in water prices and diesel duty hike announced in the 2017 budget are expected to have knock-on effects for certain industries and households. Rather than helping businesses, MP Leon Perera said that it could, “tip some SMEs at the margins over the edge.”
Are Singaporeans’ concerns justified?
Based on the graph shown below, inflation has clearly been higher in the past. If consumer prices have not increased as much as they did in the past, what is giving Singaporeans the impression that prices have increased to the extent that businesses are affected?
Given the scarcity of land and space in Singapore, we would expect high demand for rentals to lead to higher business and living costs. However, JTC’s warehouse rentals have been on the decline since 2013.
We see the same steady downward trend for office rentals since the start of 2015. In fact, major cost items have been decreasing over the last two to three years. If general consumer prices and industrial rentals have not increased, why are Singaporeans feeling the pinch?
Could the government have been sending the wrong signals to the public, albeit unintentionally? Could the Singaporean government manage public perceptions better? Is the government too focused on global competitiveness to understand the day-to-day pressures business owners are under?
Some tariffs and fees are on the rise
In January 2017, Straits Times reported that gas tariffs for households will increase by 4.5% from 1 February to 30 April. It was also reported that the price increase was driven by macroeconomics because fuel costs had increased by 20.8% quarter on quarter.
In the same month, Straits Times also reported fee hikes across 200 childcare centres in 2017. These cost increases were introduced to cope with a rise in manpower costs. It is understandable that manpower costs will continue to go up as Singapore tightens the tap on foreign workers.
Simple economics can help to explain these price increases. It was not possible to keep gas prices the same as fuel costs increased by more than a fifth. Similarly, the price of labour will obviously increase as the supply of manpower decreases in Singapore.
The government can justify tax raises and minimise the impact
The government has put the water price increase in place to discourage businesses from wasting water. The government must also increase prices because money is needed to meet future demand and pay for water treatment. “Rising costs of resources and the use of more complex development approaches have exerted upward pressure on the costs of producing and delivering water,” Minister for the Environment and Water Resources Masagos Zulkifli wrote.
Rebates mean that some Singaporeans may end up paying less for their water rather than more. As this is the first water price increase since 2000, the government has sought to lessen its impact by introducing the increases in stages and restructuring the way fees are charged. Some businesses, such as those in food production, may end up paying more tax, but the majority of businesses and households won’t be hit hard.
Implementing a tax on diesel is designed to encourage cleaner motoring. Singapore must reduce its emissions in line with the Paris Agreement. Effective immediately, the diesel tax has been restructured so it is collected based on usage.
Restructuring, rebates and reductions were put in place to minimise its impact and assist businesses adapt to the new fees. New carbon taxes will arrive in 2019 and drivers will be given time to switch to cleaner vehicles as a new rate is considered. The government must bring down emissions but is offering help to drivers and businesses.
Major cost components of the economy have not increased
These cost increases made headlines because they impacted the population directly. Emotionally, readers feel the pinch and can immediately associate with these increases but by failing to look beyond the headline figures, key details were missed.
Singaporeans ignored the fact that major cost components of the economy have not increased. Residential, office and industrial rents have declined in recent years. After all, Singapore is one of the most advanced places in the world and still offers five-room apartments at a very affordable price of between S$400,000 (US$282,227) and S$600,000 (US$423,370) outside of the cities – even if they are on 99-year leases from the government. Singaporeans continue to enjoy S$2.50 meals at cheap hawker centres.
Perhaps it is fair to say that the ever-increasing costs that Singaporeans complain about is more of a myth than reality.