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| Fountain of Wealth, Suntec City, Singapore |
"Singapore is a very low-tax jurisdiction: income tax is extremely low compared to Europe, corporate tax is lower than most countries in the West, GST is lower than most other countries and the government even abolished inheritance tax in 2008. In short, the government in Singapore does not seem very keen to collect taxes compared to other countries! However, when you look at Singapore today - everything is running so efficiently, I love the MRT system (Limpeh's disclaimer: I know some of you locals are dissatisfied with the MRT, I have noted that.), public transport in Singapore is excellent. The police and other public services seem well funded and efficient, the streets are kept so clean and beautiful, the government is able to build public housing that is of great quality - the city is just amazingly stunning and will impress any visitor, well I am certainly impressed. On top of that, the ministers and MPs are extremely well paid compared to their counterparts in the West - there is obviously a LOT of money in the government coffers in Singapore.
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In the oil rich Arab states, the governments are rich because they control the oil production, but in Singapore, there are no natural resources - so if they are neither taxing the businesses nor the citizens' income, then who is filling the government's coffers? Where does all this money come from? We know there are plenty of rich people in Singapore, but if they are not paying high levels of tax one way or another, then how does that wealth make its way from the rich people to the government's coffers?"
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| Money, money, money... |
I tried to explain this to Rob, there's no simple answer to this. I rambled on and on to Rob, talking about everything from COE to ERP to CPF but I can't quite put my fingers on it - is the low rate of tax compensated by the revenues from COE and ERP and other sources, or is the fact that there is no welfare state in Singapore a huge saving for the government which means that they are able to collect less taxes? Or is the system in Singapore simply run so efficiently that whatever money they spend goes a much longer way?
I am very lucky to have a loyal following of readers in Singapore whom I know I can count on - so please my Singaporean friends, can you help explain the situation to Rob and I please? Please leave a comment and share your thoughts. Many thanks. Kum siah, terima kasih!
i have absolutely no training in finance, but my first thought was this.
ReplyDeletehttp://en.wikipedia.org/wiki/Public_debt
Hmmm. "Finance" is a huge topic and whilst I understand one aspect of finance which I do for a living (fixed income products, capital guaranteed products, low/no risk investments) - the management of government debt and taxation is not an area I am that acquainted with either. But Rob does have a fair point: Singapore's government does not seem that keen on collecting tax compared to the UK government, yet public services such as public transport is stunningly well run and efficient, so where's the money coming from if the government is not taxing the people?
DeleteThere is an element of implicit taxation in CPF. The SG government derives a substantial amount of income from its investments in Temasek Holdings. CPF holders get 2.5 percent income from their ordinary account while TH makes returns of at least 8 percent (higher when inflation goes up). Had CPF account holders simply bought TH bonds, they would have got returns of 4.5 percent. At least 2 percent (of your CPF total savings) is pocketed by the Singapore government. You must remember that TH gets enormous returns from the high profits of GLCs in Singapore because corporate profits make up an unusually high percentage of the GDP (and wages an unusually low percentage).
DeleteAlso, Singapore is better able to control its population ageing problem through immigration. Hence, the deterioration in the dependency ratio is not as rapid as that in the West.
But Fox ... you are assuming that TH makes a return of above 2.5% (8% is kinda ambitious for any kind of investment) - so the government is taking a risk with TH being able to continually deliver good returns on their investment and to their credit, so far so good despite some hiccups. One wonders what will happen should things go v wrong @ TH, eg. they make some really bad investment decisions, then what?
DeleteA substantial fraction of TH's investments (GLCs) are in Singapore itself and these companies are very profitable because of the same people who run TH also in the same circle of people who control market regulation (foreign labour, licensing, permits, etc). Notice that TH really doesn't make bad investment decisions in Singapore...
DeleteWell in the world of investment, we're always looking for good returns with low or even no risk - and if TH have put themselves in a position where they have managed to lower the risk factors and enhanced their returns without incurring more risks, then I say, hats off to them. That's what all investment managers are looking to do, even my employers. Now it's just a question of sharing the profit with the people who have given them their CPF money.
DeletePS. On a personal note, I prefer to invest in property. It's hard to go wrong with buy-to-let, it's so straight forward... that's what I believe in and that's what I've done with my money.
I think good examples are SMRT. You borrow from CPF at 2.5%, and the div yield of SMRT at S1.7 exceed 3.5%.
DeleteThe thing to remember is that TH returns part of its investment income to the Singapore government. This appears to be free money but if CPF is forced to pay a fairer rate to Singaporeans, then TH wouldn't have so much investment income to give to the SG government.
DeleteFor more info on CPF, you can read http://furrybrowndog.wordpress.com/2011/03/19/a-comparative-analysis-of-real-cpf-returns-and-other-provident-funds/
I'm no expert in this but you should be able to get an idea based on the annual government budget. The biggest contributors of government revenue are corporate income tax, personal income tax, and GST. Motor vehicles-related taxes, asset taxes and stamp duties are not as big, but quite sizable in their own right.
ReplyDeletehttp://www.singaporebudget.gov.sg/budget_2012/revenue_expenditure/index.html
Could the economists reading this blog explain how the components of government revenue differ from country to country?
I can help you with the "savings" that the gov has for utilizing NSmen for the military. Imagine the cost if we were to have to maintain a professional army at the salary point of those who sign on in the army that is half that size!
ReplyDeleteAre conscripts still paid peanuts today? I was paid peanuts in my time ...
DeleteThey raised the allowance a few times in recent years, but I think you get my point. $1k a month for a conscript is still far cheaper than paying full salary for all military personnel.
DeleteIt should not be lost on anyone that the civil servants in SAF are the most handsomely rewarded lot. If we have Corporals and Specs who are on 2.5K a month doing silly stuff like YOG or national day parades duty, you'll see us having less BGs and fancy officer masses.
Hi LIFT, I'd like to give a personal, non-expert, layman, on-the-ground response.
ReplyDeleteThink of a fighting style in which you defeat an opponent by many little cuts.
Yes, a slice here, a prick there, and wait for that buffalo to slowly trickle-bleed from everywhere, then tire and weaken.
Or like in the movie Jurassic Park 2 (Lost World), a pack of little dinosaurs did the same with bites, to their erstwhile human tormentor who got lost and chased far and deep, into the jungle island of Isla Sorna.
I think that sums up the feeling of how the government draws blood from all.
For me, the most used little blade of hidden costs is GST.
Many things bought by many people, draw out a little amount.
Multiply by the dozens of things we spend on,
Multiply by the millions of people buying in Singapore.
Every day.
Multiply that to every year.
Now do the 'little bleeding cuts' to every aspect of people's daily lives.
Power, water, gas utility bills of say $200 per household multiplied by hundreds of thousands, then subtract costs to obtain profits.
Town council monthly fees in tens of dollars multiplied by same household numbers, extract for surpluses.
Repayment for public apartment flat loans.
Phone/broadband bills at say $100 monthly per PERSON.
CPF deductions of hundreds of dollars from millions of salaried workers monthly.
Of course, not all such monies are directly usable into government coffers.
But then there's investment and returns, and all sorts of indirect ways to run the whole humongous, complex nation-wide infrastructure.
City car parking at 50 cents a half hour, suburban (public housing estates, in which most of us live) ones similarly but for an hour, multiply by 12 hours every day, week and month, plus 'cheaper' overnight parking, licences to park and drive multiplied by tens of thousands of vehicles?
Increases of tens of cents, up to several times yearly, for thousands of goods and services, used dozens of times, by millions of people daily?
Public buses. Subway trains. Coffee shop meals. Supermarket and minimart groceries. Fast food.
Everything you can buy from stationery to videos to movie tickets to snacks to games and software to fashion and clothing etc., etc. ad infinitum.
Pay a little more to go out.
Pay a little more to transit in transport.
Pay a little more to enter.
Pay a little more for membership, and a little more to renew it.
Pay And Pay.
Of course, what I've just described above should apply to any world city.
It's just that Singapore seems to have become a world-class expert in micropayments in all aspects thinkable, of day-to-day survival.
Also reminds me of those real-life vampire bats in South America, which draw blood from their gracious hosts across so many nights, without killing them outright.
Or, in the recent words of a hawker acquaintance, "Nowadays, $50 is of such small value here whenever we go out.
Take transport, have a meal together, and very little change is left."
Hi Alan, may I point out to you please that GST in SG is lower than many other countries. In the UK for example, it's currently 20%! As for utility bills, well you should have a look at what I pay and compare - it's not like it's any cheaper in the west.
DeleteCar parks are far more expensive in the UK than in Singapore. Public transport is so much cheaper and far better in Singapore than London. Yet you pay far less taxes than me in Singapore than I do as a Brit in London. That's the bit which I am trying to figure out - does it all boil down to CPF?
I find this observation of Singapore management of government debt and taxation very interesting. Too bad I too am considered a novice when it comes to this type of subject. I am an engineer by trade and am following this thread to learn whatever nuggets of useful information as well.
DeleteThe China auntie that works in my neighbourhood coffee shop in a tiger beer outfit is ranting something similar to what Alan Heah is offering. I am truly wonder why.
Here's another person-on-the-street approach, which just might summarise another prevailing S'porean mindset (but is going to sound oh-so-cliché) —
DeleteThe government has always been an economic genius, and will continue to do so far into the foreseeable future, bless their immortality!
Thank our lucky stars for our great fortune to live in such a well-run (albeit also expensive) country!
They've got the best educated, best paid minds on the job, working tirelessly all the time to squeeze out every modicum and iota of wealth with which to run the country.
It is not our place as lesser citizens ('native', yes, but still unworthy) to questions the secrets of their magic, and the art of their technology.
We just need not delve too much into it, although we may gripe all we want (until slammed down).
Move along, move along, there's nothing to see (or think) here.
We don't care that much anyway, we're too busy earning to pay.
I think I can add to Alan's point on multi -cuts. Another is COE, ERP and road taxes. Many are not aware that these are taxes that are shouldered by people who do not own cars. You order a pizza delivery, and the price of pizza is raised to allow the company stay profitable while they incur the cost of ERP, road taxes and maybe management car allowance. Apply that to everything you buy, and you get the picture. The clever part is, the gov tells you only the car owners suffer.
DeleteRoy
Let me reiterate my main point in my original comment, in case it gets missed out in the diversity of opinions: our government is expert in drawing funds from all sources of (micro)payments.
DeleteKindly prove otherwise if possible, that few countries achieve that level of control and success, in ensuring public coffers get filled that well all the time.
Alan Heah.
DeleteIf I am not mistaken, you seem to be rather sarcastic with your comments. More so in your second comment Apr 3, 2012 07:55 AM. I too find myself naive in many areas and am trying my best to learn more. Surely, you have something more constructive to contribute?
According to MAS our national official foreign reserves on December 2011 stands at 237,737.0 US$ million
http://www.mas.gov.sg/data_room/reserves_statistics/Intl_Reserves_FC_Liquidity_Dec_2011.html
http://www.mas.gov.sg/data_room/reserves_statistics/Official_Foreign_Reserves.html
That is a lot of money and the question, “Where is the money coming from” is a valid one. I have another question.
Is there any difference in International Reserves, Foreign Reserve and National Reserve? All these terms are so new to me and I am getting confused.
Hi Fatboy Joe,
DeleteIn answer to your 1st question in your latest response on this thread, that's all the _constructive_ I can _contribute_ for now.
Of course, that can change if I'm inspired otherwise at any future time.
What you deem as 'sarcasm' is also reflective of the realities and frustrations we face at ground level, day in and day out.
What you also deem as 'sarcasm' can also contain actual praise for our government's excellent running of the country.
I have enough of an ordinary mind to treasure the conveniences, benefits and advantages of living here, even as I suffer the relentless gnawing inadequacies of income.
If by 'contributing constructively' you have a much rosier picture in mind, I believe LIFT might approve your future comments of sharings here, as he sees fit.
Hi there,
DeleteLike yourself, I'm an expat working in the UK finance industry now.
Like yourself, I have tried to rationalise why I have to pay stupid amount of taxes in the UK, add National Insurance into the picture and more than half my income is gone!
Let's take UK as an example - given that majority of European countries share the same model. Look at both the income and the expense of the country. The UK has massive amount of income. However it also has a massive amount of expense. Recent news (like telegraph) shows how the expense is broken down - huge amount goes into NHS, military, social services and social welfare. Not forgetting they have huge pension liability to the civil servants.
If the UK was a close economy (no foreign trade etc), the money stays within the country. The wealth gets redistributed. Problem is that they have lots of money leaking out - check the trade deficit. People are consuming cheaper imports. Taxes here goes to the government who then spend (on the big items listed above) which goes overseas and they then have to tax more.
Singapore does not have all these. Is that good? Arguable. On one hand I really hate supporting the YOBs on benefits (sense of entitlement) and can't see why UK is poking its nose into international conflict (there is a cost to be 'big brother'). However I do like the concept of social security, income redistribution - it is very honorable at heart, but abused by people.
Of course the Singapore government also gets alot of money from CPF, COE (my colleagues all gasp at the cost of a piece of paper which can buy a Porsche here), ERP etc. Not forgetting the cost of civil service in Singapore is so much cheaper than the Western countries (no stupid unions back home).
So there you go - why Singapore has lower taxes yet could still have budget surplus and provide efficient services (arguable at times though).
Dear -jinboeng-,
DeleteIf the cost of civil servants also includes ministerial pay at a million or more annual dollars each, then it's not that much cheaper, considering our ministers get paid far more than their contemporaries elsewhere in the world (yes, including Obama).
There is no need for unions to push up such high-ranking pay — those at the top can make their own decisions.
But other than that, yes of course, budget surplus, efficient service, the people and not the government getting squeezed more and more and…
Hi Alan,
DeleteFirst off, I fully agree that our ministers are paid far too much. Whilst I agree on providing a fair and competitive wage, however they are paid far too much - period! Whilst they talk about market benchmark, I wonder why they are benchmarking against top private sector pay instead of 'peer group' pay - what ministers in comparative countries are paid.
However let's take a macro perspective at this. Fact is that a few million dollars are small in the context of a national budget which runs into billions. If you consider that we have a few hundred thousand civil servants with average salary lower than that in the UK. That's a much bigger number. Think about the NSF police man and soldier, compare that to the full time very highly paid service in the UK. Do you know the train drivers here get paid about 30K pounds per annum? That's like SGD$60K in today's exchange rate, S$90K several years ago.
I don't disagree that in Singapore, we are getting squeezed. The middle income are usually the worst off - pay taxes yet hardly getting help. Whilst the Singapore government has numerous flaws, arrogance being one of the biggest, however knowing many other countries well (as I'm in a global role), I do think Singapore is quite good.
Hi Limpeh, what I'm asking does not have any relevance to this topic, my apologies. I'm an engineering student at a top UK university and I will be graduating in a year's time. I'd like to seek your opinion and advice (probably as a blog article) on the international job prospects for Singaporeans abroad, since you have experience working in various countries, on issues like income tax, and the value(if any) of obtaining permanent residency elsewhere. From example, many Singaporeans are now flocking to Hong Kong in light of the better tax rate and career advancement opportunities.
ReplyDeleteCheers
Hi Flickerz, I'm on a tight schedule here as I am rushing for a meeting at 11:30 am - have you read all my other posts on finding a job and working abroad on my blog? There's plenty of info there already and those posts probably have answered all your questions (albeit, not all the info at the same place specifically for you) - esp this post I did for Naedyn last year.
DeleteBut in a nutshell for now. You're looking at this the wrong way round - you're putting the horse before the cart, you realize that?! Salah lah kawan, sangat salah leh.
You pick the job first, not the country. The terms and condition of the job (money, prospects, fun factor, career progression, company you're working for, the team you have, colleagues, work environment, perks that come with the job, package that may include things like accommodation or loads of travel etc) trumps the country. With the right job offer, I've worked in countries and cities I have absolutely HATED (Bangkok, Dubai and Shanghai - hated them all so much but the money was good) but with the right amount of money - hey, it was worthwhile to do for a while.
Thanks so much for all your replies guys - please keep them running, I am reading them all and learning :)
ReplyDeleteBesides taxation, the govt does investments that brings in the money, eg. GIC. You might want to take a look at this website: http://www.gic.com.sg/about/overview
ReplyDeleteHi Limpeh,
ReplyDeleteI have a couple of ideas but unfortunately I don't have any figures on hand now. Do share your thoughts on them.
1) Public housing. How the prices of new public flats are determined is not made transparent. The govt does not release figures on land price but then again this begs the question of how it is determined in the first place. Many Singaporeans take up 30-year loans using a large part of their monthly CPF contribution to pay them off, leaving them with possibly inadequate to retire on. Could this be considered a very slow but lethal form of taxation as well?
If prices of public housing are indeed artificially inflated, and the government makes a large profit margin with each flat sold, I can imagine this being a good source of income for the govt.
2) Gambling revenue. Singapore Pools is owned by the government. Now I don't have any statistics but almost everyone I know has betted with them at some point in their lives - some more so than others. And considering all the legal gambling activities catering to every need is owned by the government, I won't be surprised if this is a steady source of income for the govt too.
Not forgetting taxes from the 2 casinos. Last year alone Singapore casinos raked in more than US$5.4bn in revenue - compared to US$6.1bn for Las Vegas casinos. Not to mention the $100 admission fee levied on locals to enter the casino. I'm making an educated guess here but I'm fairly certain the casinos do not get to keep them but it in fact goes to the authorities.
What do you think?
Cheers,
Marilyn
another thought that came to mind, considering that the vast majority of flat owners are in debt to hdb... that these people are paying interest every month.
Deletesaid interest is not an insignificant amount (at 2.6% annum i believe). for eg, a relative of mine is paying something like $500 + $250 per month for the flat, where $250 is purely the interest component.
pulling numbers completely out of thin air, if 333,333 households pay $250 in interest every month, we're looking at $1 billion a year in interest alone.
ps: singstat.gov.sg says there are just over 1.1 million resident households as of 2011.
Thanks everyone for the active debate going on here - I am not responding to each of you personally as I have a lot of shit to deal with at work this week (don't get me started, aiyoh); I have 2 directors and one is on leave this week so I go to the other director to say, hey David said we can do this and this other director said, "David never said anything about this to me, no we cannot do this, you need to get David to confirm this in writing" and I'm like but David's on holiday, aiyoh. So I have to find plan B to try to keep the investors happy etc - lagi susah I tell you.
ReplyDeleteI am nonetheless reading the debate and learning from you guys - thank you very much for contributing your ideas. I hope to run more discussions like that in the future.
http://www.yoursdp.org/index.php/perspective/special-feature/1513-singapores-future-as-a-financial-centre-part-i
ReplyDeleteany thoughts?