Budget 2018 : Make pro-family measures more progressive

Singapore’s workforce has shrunk for the first time since 2003, according to preliminary estimates released by the Ministry of Manpower (MOM) in January. While the dip was a result of a larger contraction in foreign employment, the statistics are a sobering reminder of the dual impact of low birth rates and an ageing population on the workforce in the long run, and the pressing need to get more people into the labour market, including that of greater female workforce participation.

The intertwined issue of birth rates and women in workforce is hardly new. Singapore has over the years implemented pro-family tax reliefs and rebates in a bid to encourage parenthood and minimize the barriers to women re-entering the workforce after childbirth. These include notably, the Working Mother’s Child Relief (WMCR), Foreign Maid Levy (FML) Relief and Grandparent Caregiver Relief (GCR).

In 2009, the Working Mother’s Child Relief (WMCR) was increased for the first three children as part of the enhanced marriage and parenthood rebate. This has been a substantial relief for working mothers.

However, in recent years, the government has increased the personal income tax rates for individuals earning more than S$160,000 per year, and at the same time, introduced a cap of S$80,000 on personal relief claims. This move has invited criticism that it is counter-intuitive to the nation’s wider pro-family aims, given that the cap on the relief impacts the segment of working mothers who are relatively high income earners more than any other demographic segments.

To illustrate the impact, consider the tax payable on income of S$200,000 and S$450,000 for working mother versus that of male resident taxpayers over the last three years. For male taxpayers, the introduction of the increased tax rates as of 1 January 2016 had resulted in an additional tax payable of S$1,452 in YA2018 compared to YA2016 for those earning S$450,000, and a decrease of S$502 for those earning S$200,000. The decrease in tax payable in this case is due to the increase in the Central Provident Fund (CPF) contribution rates, and therefore the increase in relief available.

Compare this with the tax payable for a working mother. Individuals earning S$450,000 per year would be paying an additional tax of S$9,387 and an increase of S$1,227 for those earning S$200,000 per year. Even though they will still pay less tax than a male resident taxpayer earning the same income, the additional tax payable as a result of the cap on reliefs is far more pronounced. This must have an immediate cash flow impact on working mothers, and by extension their family funds.

In view of this perhaps unintended consequence of “penalizing” the high-income working mother, the Inland Revenue Authority of Singapore (IRAS) may wish to reconsider the cap on reliefs for working mothers by allowing them to claim the higher of the full WMCR or the total personal reliefs capped at S$80,000.

An alternative would be to consider extending the WMCR to allow either the working mother or father to claim the relief, where both in the family are working. By doing so, the family can decide the best way to effectively utilise the relief as a whole.

Such an alternative is a timely consideration. According to the General Household Survey 2015, the proportion of dual-career couples in Singapore has visibly increased from 2010 to 2015. Over 75% of married couples under 35 years of age are both working, and this figure falls to just over 69% for couples aged 35 to 49.

There are a number of reliefs that have traditionally been granted solely to working mothers. For example, only females who are or were married are eligible for the Foreign Maid Levy (FML) Relief and Grandparent Caregiver Relief (GCR). Additionally for GCR, the female taxpayer must be a working mother of a Singapore citizen child.

These reliefs could be extended to be shared with males, with the requirement that both the husband and wife are working. This would allow both parties to claim the reliefs and alleviate the tax burden on the family as a whole, even if the cap on the personal reliefs remains.

On the other hand, the Life Insurance Relief, while available to all taxpayers on the premium paid on your own life insurance, specifically allows male taxpayers to claim relief on premiums paid on their wife’s life, provided the male taxpayer is the policy-holder. This is not available to female taxpayers. Given that in most cases both the male and female are working, and that the female may be the policy-holder for the husband rather than the other way around, it seems archaic that this relief remains structured in this way. 

By extending the availability of these reliefs to both parties where the husband and wife are working, the family as a unit can more effectively utilise and enjoy the benefit and additional cash flow. Granted that there are many factors that influence decisions on childbearing and returning to the workforce, fiscals reliefs can help to some extent. More importantly, the changes to the structure of these reliefs to one that is gender-neutral will send a strong signal on the country’s bid to be a more inclusive and progressive society.