7% GST - ouch

[Dr. Phil]

Amused Bystander, come back.
All is forgiven.  

[Amused Bystander]

Hey Dr Phil... was going to respond, as I do enjoy this thread, if for no other reason than to articulate in writing to myself my own scattered thoughts on the singapore economic miodel, having lived here for 5 years.  But life being what it is, most of my posts have been sent around midnight or so, and this one is no exception...

Will tackle the easy one first:  Elderly employment, I fully agree it is of paramount importance to those wishing to pursue it.  I see it with my dad, and personally I also can't quite envisage not working at all, even if I reach a stage of complete financial independence.  But this should be by choice (preferably) or at the very least in "suitable" jobs.  I doubt the eldery cleaners in a hawker centre are there entirely by choice enjoying an oputdoor job and the chance to get fitter... but with a say $500 pension they'll at least have a choice to perhaps work part time, or take their time finding an alternative job (say as a cashier in mcdonalds), they won't be compelled to slog away day after day cleaning up the mess the rest of us leave behind after our hastily eaten meal.  

[petr]

Regarding the vaunted equal wealth distribution of nordic countries, perhaps you were unaware that Sweden's Wallenberg family controls about 40% of the capital on the national stock exchange.

The wealth may be distributed rather evenly, but only after you exclude the Wallenbergs.

[Amused Bystander]

On the scandinavian advantages.  Well we are broadly in agreement.  I take your word regarding preferential govt treatment there to industry, but the important thing is the innovative indutry is there in the first place, meaning products are exported on the basis of technological innovation not just cost.  Singapore produces what anybody else could produce too, so its products are exported purely on cost (though of course minimum quality standards are necessary), so for example in reposne to Unfair, semiconductor chips do require certain quality, so Singapore isn't competing with Myanmar say for their production, but once that level is reached they can't be sold for higher prices, so this industry is still only viable if the production operators are avaialble at $800 salaries, and these works can live on these salaries

[Amused Bystander]

a bit more on scandinavia... not sure Dr Phil if your comment on govertment subsidies implied that you (or others) beleive that a  workable model for singapore would be lower corporate taxes (to attract business here) but higher personal taxes (to fund social security needs).  

In my opinion such a model, whilst superficially appealing, won't work, since a huge difference between Scandinavia and Singapore is that over there most high income earners are local and so are more willing to pay the high taxes.  Here high income earners particurly in the services indutry are mobile (whether they are foreigners or singaporeans) and would quickly shift to HK (say) if there was a radical change in personal tax levels.  

[Amused Bystander]

so to conclude i again re-iterate my view that the tax regime in place of low corporate and personal income taxes (and potentially heading lower) coupled with GST (potentially heading higher in future beyond 7%), is the best model for Singapore.

Note that I am not saying it is wonderful that this should be the case.  I can well understand the moral qualms regarding the regressive nature of this system.  However given Singapore's circumstances I think this is the best possible policy to have.  Attract businesses and employees by a low tax regime, and at least get some extra out of them by taxing their spending...

BTW Unfair and Humptyhump, it isn't the poor who would lose out the most, but the middle class (as a rough guess those earning $3000 to $5000 a month say) since they pay very little income tax in actual dollar amounts (tax rates are start to get meaningful above 40k/year or so) so they will not benefit much from any income tax cuts, they won't qualify for government support, but their spending will incur additional 2% cost, so if they spend $2000/month say they will lose $500 a year.  

It is this group of people the governemt will be most worried about leading to 2011 election, and here 2 scenarios are possible:  either these policies will lead to further economic growth (meaning wage increases outpacing inflation) in which case all is well, or alternatively we'll see another inane NSS handout of billions in the coming years

think this will do me for tonight...

[hmmmm......]

I could not care less about singaporeans and their reaction to GST. They choose the government  and every country has the leaders they deserve.
I'm here to make money and my income and corporate tax is well under those in EU. Good place to earn some serious money.

[Dr. Phil]

Amused Bystander I also agree most governments have no choice but to keep corporate taxes low and competetive in order to retain industry; personal tax increases should also be avoided.

Most countries are exposed to Globalisation and compete to attract global investment which can relocate anywhere any time and has no loyalties.

The only defences were the control of access to their own demestic markets for goods, control of their borders to manage immigration and some transparency in the movement of money. Those defences have all been ceded for the greater glory of Globalisation.

Countries with hitherto strong manufacturing bases will lose their industries to locations with cheaper costs of production (mainly cheap labour costs).
The increase in unemployment will reduce revenue and impact on public services.

We could imagine if we go all the way in our quest for cheaper labour, and allow fully automated manufacturing with no employees? The holy grail?
Lets imagine all companies would locate in a tax haven, perhaps their own deserted mini continent, so it would effectively be the sole beneficiary of its profits. How does this benefit humanity? How does this benefit our country?
Why are we forced to accept their goods into our markets and give over all of our money?

Singapore competes in a Global game in which they have no control over the rules.

Singapore has strategic location but everything else was created by your Founder and his government.

Singapore has developed a beautiful island, safe, world-class hospitals, schools, lifestyle which benefits local people and also attracts tourists and draws CEO's and MDs and other Expats who are responsible for their own families in addition to overseas investment funds.

Most importantly it has delivered businesses confidence; a stable currency and government.

Its easy for armchair economists to criticise but Scandinavian countries owe their success to a few beneficial domestic companies with globl reach which continue to accept the greater costs of operating in their country of origin; there clearly must be benefits to keep them there.

A few large corporations and powerful rich families especially in shipping which continue to train their children, employ their countrymen, build their ships in domestic shipyards and do not flag-out their fleets; and they are doing well, very well. Maersk, for example, continues to grow and eat up other large companies.

Their model may be said to be characteristic of latter-day feudalism; but their people dont complain.

What will destroy the mechanism of their finely balanced machine is EU insistance that they open their borders to EU immigration which will compete for the jobs and consume the services.

If you want to copy the Scandinavian model, treat your countrymen like family and do not e destructively critical or devisive.

[poor policies]

"Nice to see some of you so far off topic and relevance. You cannot compare the GST schemes in Europe (Scandinavia) with Singapore's scheme.

In Europe all companies are compulsary registered with IRAS and pay GST.
In Singapore its only compulsary if a company has a turnover > 1 Million.
Most of the re-sellers in Singapore do not hit that amount.

For the consumer in Singapore that boils down to an effective GST payment of < 7%

In the end the consumer in both Europe & Singapore pays the same amount.
However, the Singapore goverment gets a much smaller amount than the government in Europe."

I'm amused that again this is seen from the govenment's point of view, that it will a smaller amount from taxing the people than the government in Europe.

So what and Amused Bystander, how do you think the costs will be passed down to the consumer? I believe Oh My Gawd has highlighted this in a previous post in Pg 2 but I will repeat it for your reference: the higher prices will be rounded up to the nearest 10cents or even dollar. Businesses may also take the opportunity to raise prices. This was what happened in the last round of GST increase. Did the market forces keep the businesses in check? NO, because everyone else increased their prices.

True, a large amount of the day-to-day cost of living for the poor will be in groceries, household products, hawker food, transportation, clothing etc. There will definitely be some increase in items like groceries, household products and clothing. When you make $800 a month as a production worker so the government can keep the highly paid professional from leaving Singapore, and pay a larger porportion of your salary than they do as taxes for essential items,
I bet you wouldn't be so amused. Is this really done to help the poor or the rich, I'm really beginning to wonder.

[poor policies]

"======================
The GST is not the sharpest tool in the toolbox, with wide ranging repercussions, creating new problems without effectively addressing the ones it’s supposed to look into.
==========================
if you list these wide ranging repercusions I'll be happy to address them...."

I believe I mentioned in the same post the deflationary effect on spending that higher GST would have and this would worsen the slower economic growth that has been forecasted for Singapore. Geez, Amused Bystander, can you pay attention before making another posting?

[poorpolicies]

"=======================
when the government can clearly afford to give out a higher amount in New Singapore Shares, and it has such a higher foreign reserve
========================

with this i agree. NSS handout was stupid. And on foreign reserves, the government has indicated that they'll move towards recognising capital gains in the budget (and not just dividends / interest collected) which is a positive move"

Amused Bystander, you missed my point. Whether giving out NSS is a smart move or not is not the issue. It's about the government having the money to do so. In that case, why do they need to tax the citizens to raise the money they already have?

[poorpolicies]

"On the scandinavian advantages. Well we are broadly in agreement. I take your word regarding preferential govt treatment there to industry, but the important thing is the innovative indutry is there in the first place, meaning products are exported on the basis of technological innovation not just cost. Singapore produces what anybody else could produce too, so its products are exported purely on cost (though of course minimum quality standards are necessary), so for example in reposne to Unfair, semiconductor chips do require certain quality, so Singapore isn't competing with Myanmar say for their production, but once that level is reached they can't be sold for higher prices, so this industry is still only viable if the production operators are avaialble at $800 salaries, and these works can live on these salaries."

Amused Bystander, so the difference between Scandinavian countries and Singapore is that the former's products are based on technological innovation while the latter's are based on price. Then why isn't Singapore aiming to go high tech?

For sure, the cost of living here is much higher than Myanmar and there's no way we can compete on price alone.

Yet, local salaries are not high enough to support the PM's grand vision of a safety net for the poor, unlike most parts of Europe.

To reiterate my point, the people here are caught between a rock and a hard place because the whole economic strategy is wrong. It's time the government starts rethinking what it is really after. Of course you can be greedy and demand everything- low salaries and a safety net- but ultimately who ends up paying the price? Given the regressive nature of the GST, it's up to anyone's guess.

[poorpolicies]

"a bit more on scandinavia... not sure Dr Phil if your comment on govertment subsidies implied that you (or others) beleive that a workable model for singapore would be lower corporate taxes (to attract business here) but higher personal taxes (to fund social security needs).
In my opinion such a model, whilst superficially appealing, won't work, since a huge difference between Scandinavia and Singapore is that over there most high income earners are local and so are more willing to pay the high taxes. Here high income earners particurly in the services indutry are mobile (whether they are foreigners or singaporeans) and would quickly shift to HK (say) if there was a radical change in personal tax levels."

This is another thing that the Singapore government gets totally wrong- running Singapore as a company instead of a country. The government thinks first and foremost about dollars and cents. It does little or nothing to instill a sense of national pride or identity, or a sense of "we're all in it together" rather than "the poor has to be taxed more heavily so the rich can stay and become richer". No wonder people, including the locals, treat Singapore as a transit stop they are happy to get out of once they can.

Perhaps the Singapore government can again learn from Scandinavia on this too. Despite the higher income taxes, the sense of belonging the people have is much higher. I was on a business trip to Finland once when the taxi I was in was caught up in a jam because of some road works. When I asked the taxi driver what the road works was for, he said, "We're fixing this road up so traffic will be easier during winter." "We", not "they" or someone else. Will Singapore ever reach this stage of identifications? Not when the country continues to be run this way.

[poorpolicies]

"I can well understand the moral qualms regarding the regressive nature of this system. However given Singapore's circumstances I think this is the best possible policy to have. Attract businesses and employees by a low tax regime, and at least get some extra out of them by taxing their spending..."

Singapore's tax rates are nowhere near the 50% levels of Europe. Will raising a 2-3% of the low income tax rates make a huge dent in comparison?

And is this country being run for the benefit of its citizens or foreigners?

[Ralph Wiggum]

Whilst I think the merits/demerits of the change are very debatable I have to say it's a fascinating insight in to the transparency of government and the media in it's introduction.

Perhaps I'm wrong but I can't remember this being in the manifesto that the People's Party campaigned on not so long ago.  

As an earlier poster said, the glee with which a tax increase was communicated in the "free press" was hilarious.