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Saturday, Nov 18, 2006 - 22:12 SGT
Posted By: Gilbert

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Taxing Two Ways

Nine days to my first final paper (Computer Networks), and on top of that GST's set to rise to 7%. Well, okay, I'm not too bothered about the second event; Since GST is a regressive tax, shouldn't the poorest have the most to fear?

Yes and no, as supposedly the "hike was necessary to finance the enhanced social safety nets needed to help the lower income group". Then, is it a mechanism for subsidizing them by taking from the better-off, i.e. welfare? Lord forbid! That's a dirty word in Singapore! We'll have to wait till next February to hear the details, but two concerns can be identified early.

Firstly, are the safety nets going to be lasting? If I recall, the last time GST rose, much of the offset consisted of one-time Economic Restructuring Shares to the tune of approximately $1200 in total. Now the rise doesn't sound that bad, does it? For an additional 2% GST, a person's consumption would need to exceed $60000 before that $1200 would be expended. The question now is, how long will it take to spend that $60k?

At $10/day, it would take 16 years - but that must be somewhat minimal, roughly three square meals and transportation; But in this sense, the claim that the poorest are assisted the most appears true, for the payment should stretch the furthest. Unless they happened not to have any cash in their CPF account, or were marginally underaged at the time of issue - being 18 years old in 2002 would have meant forgoeing all the money, and presumably the unlucky adolescent would have much the same needs as a 21 year-old "adult".

This all-or-nothing cutoff point is an example of another troublesome point about policies - If some help is available to families with a combined household income of say $800, what happens to those unfortunate enough to take in $850, and scrupulous enough not to underdeclare? Then, if the value of that help is $100, the second family would end up worse off due to an initially marginally higher income.

Ultimately, it has to be seen if lowering direct taxes, which was the whole point of the increase, will bring the rising tide that floats all boats, or herald a race to the bottom.

On a tangent, I wonder if inflation might ever be constructed as a universal tax of sorts - even illegal transactions would not be able to escape its clutch; Probably not, since it would likely to lead of hoarding of items with intrinsic value at levels high enough to matter, and that's a big no-no. By the way, one of its masters, the father of monetarism Milton Friedman, finally lost an argument in a way - he cannot now refute Keynes' statement that "in the long run, we are all dead".

It is true that our tiny island-state will likely always be a follower of major trends in the international arena, which is nothing to be ashamed of really; Why should a domestic cat feel bad about being unable to outroar lions? Leadership in that respect belongs to the likes of the United States' President George W. Bush, one of the most powerful men on Earth.

It was therefore fitting that Bush made a speech at one of the best universities in the world on Thursday, though I had no idea exactly where he was then. Maybe he got treated to some Middle Eastern fare by edchong, but hopefully not too much:


A bird in the hand, is better than two in the Bush
(Apologies to... nah, who am I kidding, it comes with the territory)

Anyway, the security cordon around the President would have made that extremely difficult, and despite his own linguistic gaffes, attempting to approach him without clearance would have resulted in a serious beating around the Bush.

Oh, and I'm still slightly ahead after ten weeks of punting, though Newcastle and Man City fizzled to a draw, and Liverpool were hopeless away again. Why do I even bother? $1040.50/$1000, most of it from my favourite club - let it continue!

$100 on Man U (-1.5) vs Sheffield United (at 1.90) - 1st vs 17th, class will tell.



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