The Government Missed By $7,150,000,000. Just Another Honest Mistake.

The Straits Times reported a shocking piece of news yesterday. The article itself did not really highlight the point, but tucked it away somewhere near the end of the article (see bold text below).

ST Feb 26, 2008
BUDGET DEBATE
Rising costs, price hikes top concerns of MPs
They back strategies to keep inflation in check but say individuals and businesses need help to cope
By Lydia Lim

RISING costs and their impact on people's ability to make ends meet dominated the start of this year's parliamentary debate on the Government's Budget.

Many of the 19 MPs who spoke during the five-hour session praised the Budget for being forward-looking and generous, but 13 also voiced concern over a slew of recent price hikes.

MPs from the People's Action Party, Mr Inderjit Singh and Mr Michael Palmer, recited a litany of these increases in the past year alone.

Taking last December as an example, Mr Palmer said: 'The price of luncheon meat went up from $1 to $3, taxi fares went up, school bus fares went up and even the opposition's Potong Pasir Town Council added to the list with an increase in its service and conservancy charges.'

MPs said that businesses have been hard hit by steep hikes in office rents, and asked for tax reliefs to help them cope.

For individuals, Mr Palmer suggested that part of the Budget surplus of $6.45 billion be used to set up a contingency fund to help low-income families should inflation worsen.

Mr Singh, who chairs the Government Parliamentary Committee for Finance and Trade and Industry, urged a review of the Government's avowed strategy to grow the economy as fast as possible in good years. This had contributed to the current situation of overheating and high prices, he said.

'The 'grow-at-all-costs' policy, with the cost increases triggered or allowed by the Government, have worsened the income divide,' he said.

At the same time, MPs threw their support behind the Government's five strategies to keep inflation in check.

These include allowing a gradual appreciation of the Singapore dollar to rein in imported inflation, and growing the economy so that wages for most workers go up by more than costs.

Nominated MP Cham Hui Fong of the National Trades Union Congress pointed out that last year had indeed been a good year for workers.

Those in the unionised sector enjoyed the highest bonuses since 1990 and the lowest retrenchment rate since 1994, she said.

But fellow NMP Eunice Olsen stressed that in tackling inflation, 'preaching' to Singaporeans to buy cheaper house brands was not a solution, as many people were already buying the lowest-priced options available.

Four MPs - Workers' Party chief Low Thia Khiang, NMPs Gautam Banerjee and Ms Olsen, and Mr Singh - took issue with the wide gap between the Government's projected $0.7 billion deficit and the actual $6.45 billion surplus.

This showed that the Government's 'Budget marksmanship' had worsened, said Ms Olsen.

The four MPs also questioned whether the Government had been hasty in raising the Goods and Services Tax (GST) from 5 per cent to 7 per cent last July, since it did not really need the revenue it generated.

Both Mr Low and Mr Banerjee asked for the GST to be restored to 5 per cent.

But Senior Parliamentary Secretary for the Environment and Water Resources Amy Khor warned against assuming that the economy would prosper and produce a surplus every year.

She said: 'The Finance Minister has been judicious in balancing competing priorities and seeking to invest in the medium- and long-term future, while dealing with the immediate concerns of citizens.'

More than 20 MPs are expected to speak when the debate resumes today.

So early last year, the Government had projected a budget deficit of $0.7 billion. This means that according to the Government's own estimates, in 2007 it would collect $0.7 billion (via taxes etc) less than what it would actually need to spend.

It turns out that the Government scored a massive miss. In 2007, instead of collecting $0.7 billion less than it needed, the Government collected $6.45 billion more than it needed. From who?

You, the people. Of course.

Among other things, it becomes quite evident that the GST need not have been raised in July last year.

In his Budget Speech 2008, the Finance Minister is very quick to try to explain away last year's massive miscalculation:

"We started the year expecting a growth rate of 4.5% to 6.5%, which was also in line with market forecasts. With actual growth at 7.7%, Corporate and Personal Income Taxes came in some $1.0 billion higher than projected. GST revenues also exceeded our projection by about $1.2 billion, mostly from higher consumption.

GST collection arising from the 2 percentage point hike in July is estimated at about $1.4 billion in total, which now just matches the size of the GST Offset Package and Workfare Income Supplement tranches that were distributed in FY2007.

However, the largest boost to revenues came from the exceptionally buoyant property market last year. Prices of private residential units rose by over 30%, much higher than industry forecasts of around 10% to 15% at the beginning of the year. The volume of property transactions went up by over 60%. Stamp duties consequently rose to an unprecedented $3.8 billion, $2.3 billion higher than expected. Other property related revenues were around $1.1 billion above projections. These were large gains, out of the ordinary, and which we cannot expect to see very often.

The overall budget surplus of $6.4 billion was therefore the result of a strong economy and property market."

What is he saying? That the three biggest reasons that the Government collected so much more extra money from the people are:

(1) the property market performed unexpectedly well, leading to a unexpectedly large increase in property-related tax collection;

(2) Singaporeans and companies made an unexpectedly large amount of money, learning to an unexpectedly large increase in income tax collection;

(3) Singaporeans spent an unexpectedly large amount of money, leading to an unexpectedly large increase in GST collection.

By this time, you will conclude that the Singapore government is unexpectedly stupid at managing its own money and making its own financial estimates.

Either that, or you are a very kind person, and always willing to give the benefit of the doubt, and you will say that indeed, the property boom and rapid economic growth in 2007 could not reasonably have been foreseen.

But wait, I have more to say.

Click here for the Government's revenue estimates. You'll see that the Government gets its money by collecting nine different classes of tax, namely:

B10. Income Tax
B20. Assets Taxes
B30. Customs and Excise Taxes
B40. Motor Vehicles Taxes
B50. GST
B60. Betting Taxes
B70. Stamp Duty
B80. Selective Consumption Taxes
B90. Other Taxes

Tharman has told you that in 2007, the Government collected much more money than projected, for B10, B50 and B70.

But there's something interesting which Tharman conveniently didn't tell you. The Government had over-collected money, not just for B10, B50 and B70. But for every single category of taxes, from B10 to B90.

Now how could the Government be so completely off the mark?

Personally, I see two possible explanations:

(1) The Singapore government is unexpectedly stupid at managing its own money and making its financial estimates.

(2) In early 2007, it was the deliberate intention of the Singapore government to make low projections for its revenue, so that it could publicly claim that there would be a budget deficit of $0.7 billion. Therefore more Singaporeans would be willing to believe that the 2% GST hike in July 2007 was necessary.

Which explanation do you prefer?