Is It Better To Make Less Money?

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19 Jun 2018

Now, before you scream and call me crazy, this may actually be something worth pondering about.

Wanting to make a lot of money clearly makes sense. Everyone wants to be a Millionaire and more. No doubt we want to live comfortably without a care about money and enjoy the finer things in life with our loved ones.

But, what if you were in the middle? Not earning little enough to get subsidies or tax-exemptions, but also not earning enough to feel like you can lead a comfortable life. Then, does it also make sense to be wary of taking a raise if it moves you into another tax bracket, considering higher taxes and fewer government subsidies?

Lower Income Tax

With Corporate income tax being fixed at a rate of 17%, it is common that business owners sometimes over-report their spendings in areas such as entertainment and company welfare. This is in order to report that they make less profits, reducing the overall taxes charged.

As for income tax, people also go through many ways to reduce their taxes. For example, by topping up your special CPF account, donating and so on.

The current personal income tax rates are as follows:

According to this chart, if you earn about $2000 a month, you are exempted from paying taxes. However, if you earn a little more than that, hitting $2,500 a month, tax kicks in at 2% for the next sum of money, 3.5%, 7% and so on.

So the question is, is your pay raise worth it if you fall into a higher income tax bracket that will deprive you of your lower tax rates?

The answer is that the raise is probably worth it. If you have a pay increase of $500/month that brings you from $2500 to $3000, your income tax payment increases by $350 a year, which is a small sum compared to the $500 more you bring home every month that can help in a lot of household expenditure.

One thing to note is that Singapore boasts one of the world’s lowest tiered tax rates for a country that has a higher standard of living compared to others. Tax rates start from 14% in France to 45%.

Government Subsidies and Financial Aid

There’s a whole range of financial assistance schemes rolled out by the government to help lower-income families in Singapore. Despite the subsidies being very comprehensive, many lower-middle income families often closely miss the mark to meet the qualifying requirements. Here are some of the governmental aids available.

Healthcare

A Medical Fee Exemption Card is available for Singaporeans with monthly per capita family income of $700 or less. An example is when a family’s sole breadwinner has a monthly income of $2,500 but has to afford for two children and his or her spouse.

Housing Grants

The Home Ownership Plus Education Scheme (HOPE) helps small, low-income families by providing conditional housing and utility grants of up to $61,000 in total.

The Special CPF housing grant gives out up to $20,000 to lower-income families, according to household income.

Educational Bursaries

The HOPE scheme also helps children from low-income families by providing annual bursaries of up to $3,000 for each child attending pre-school to university to help pay for their educational expense.

To qualify, the family’s monthly household income must be $1,700 and below. Comcare Assistance usually also have a cut-off at a monthly household income of $1,900 to $2,250 and below or a per capita income of $650 to $700.

Benefits under the MOE Financial Assistance Scheme also includes a full waiver of school fees up till pre-u. A bursary of $900 is also available for students studying in Junior College or pre-u.

To qualify for most of the government financial assistance schemes, the family’s household income must be lower than $2000 in order to qualify. Specifically, $1,900 for Comcare Assistance, $1,700 for the HOPE scheme and $2,250 to get a $5000 Special housing CPF grant.

This means that most of the time, a family earning over $2,800 altogether would remove this family from most of the financial assistance benefits even though it is only slightly above the cut-off sum.

It is then arguably better for a family’s sole breadwinner earning $2,200 a month to refuse a pay raise since the benefits may be worth more than a small raise.

Loan Applications

It is, however, harder to take loans such as housing loans when you are in a lower income bracket.

With lower income, you are more likely to have more debt which contributes to a lower credit score and a higher probability of you defaulting on your loan. With fewer collaterals and assets to back yourself up with. Taking a personal loan with no collaterals required often means a higher interest rate which may be even harder to finance.

Conclusion: It’s Better To Make More Money In Singapore

While it is absurd to advise anyone to make less money to reap more governmental aid and benefits, these problems do exist for a small portion of Singaporeans and it is often the lower middle-class people that fall through the cracks. However, this is still something worth pondering about. Yes, it is still better to make more money since more often than not, an increase in income offsets any government aid and subsidies. Working hard to earn more money for a financially stable future does make sense most of the time.

Let’s end off with a quote worth sitting on for a while:

“If you’re in the luckiest 1% of humanity, you owe it to the rest of humanity to think about the other 99%.”

– Warren Buffet”