Responding to 小凤仙 on the Oz vs SG debate part 1

Thanks to Singaporedaily, I have read a short article on Leong Sze Hian's blog (not written by him but by 小凤仙) comparing and contrasting the relative merits of life in Australia vs Singapore. In the article, the writer 小凤仙 focussed on two points: the higher income tax in Australia and the trade off in terms of shorter working hours. 小凤仙 feels that the higher income tax is a terrible bane on the life of Australians (and that eating out is more expensive) and that Singapore is better off without those who have no desire to work beyond 5 pm. As an ex-Singaporean who has emigrated to the UK, I would like to respond to these points if I may. I have broken this down into three parts, so if you're ready, let's begin with part 1.

Part 1: Income Tax and other forms of taxes

Singapore is a low-tax haven, you pay extremely low rates of income tax compared to other countries in the West. That is a fact. However, it all swings in roundabouts - the less tax you pay, the less you get in return from the government. Allow me to quote SM Goh who left this comment on Leong Sze Hian's blog:

Let's compare and contrast Australia & Singapore today. 

"To begin with, I am not saying Australia (or anywhere else) is better than Singapore, but when you are comparing quality and costs of living, and taxes you should look at the whole package: Australia has healthcare, unemployment, education and other benefits, whereas Singapore don’t, even though our taxes are lower. Cars in Australia costs 10% of what they cost in Singapore. $1m will only get you a shoebox condo here, but go see how much space (and garden) you can get in the outskirts of Sydney. A HDB flat costs $400K, but remember it is only for a 99-year tenure. Trains in Sydney costs a bit more than here in Singapore, but you get a seat with no elbows in your face. Husbands in Australia can leave offices at 5pm to have a wife-cooked dinner with kids, but more families in Singapore have to be dual-income to cope with rising costs, and staying later at work to compete with the same FTs who are pushing up costs."

Sure, the working professionals in Singapore may be very pleased to pay less taxes than their counterparts in Australia or the UK - but they are not paying the price of this low tax regime. Take this story featured on TherealSingapore today about the elderly in Singapore who have no money to retire on and are forced to continue working despite their age. Allow me to quote Petition to remove Tin Pei Ling as a MP's comment on the issue on Facebook:

"How do you feel when you see an elderly lady rummaging through trash bins to look for empty aluminium drink cans? Another clearing dishes laboriously in a food centre or cleaning the premises of a building? When a disabled person is trying to sell you packets of tissue paper at the hawker centre or outside the train station? And when an old man is loitering around void decks, looking to collect cardboard pieces to sell? How do you feel?"

Such is the system in Singapore - working professionals pay far less taxes because the government chooses to look the other way when it comes to taking care of people like the elderly and the disabled. Of course, if you have a good job and plenty of money - you can always choose to look the other way when a 75 year old woman comes to clear your dishes at the food court and pretend that you didn't see her. The system in the UK is somewhat different - the much higher taxes we pay goes to fund the welfare state, which provides a safety net for the vulnerable (such as the unemployed), the disabled and the elderly. I am in two minds about the welfare state - after all, there are times when I feel "damnit I am working so hard and paying so much taxes and they're giving my tax money to those who are unemployed? This is so unfair to hard working people like myself who have to pay taxes." 

Such is the system in the UK - there is a Robin Hood element to income tax, ie. if you're rich, then you're expected to pay a lot more taxes so the government can spread the wealth around and help the poor. This is the kind of social contract we have with the state - but it's not just the poor and unemployed who benefit from this system. Those who are in employment (such as myself!) also enjoy all kinds of rebates and benefits from the state. Allow me to quote Mike who left this comment on Leong's blog:

"You’re right in highlighting that the tax is higher, eating out is more expensive but life is more than that. I’ve been in Australia for 4 years, the tax is high but I get rebates for my kids to buy books, computers, rebates that encourage me to live a greener lifestyle. My electricity bill is about $300 per quarter and I stay in a 2 storey house when my bill is about $300 per month in Singapore when I stay in a 4 room flat. We cook our own meals and even though we don’t get to eat $100 wagyu burger or drink fancy mineral water, we can cook a decent spread and a lot more veggies and fruit.

Australia is actually a really sparsely populated country!

I work hard here.. maybe even harder than in Singapore. Life is not perfect but for some reason, there’s a smile on my face. My kids smile a lot and laugh a lot too.. when they go back to Singapore for a visit, they are one of the few kids I see laughing. The rest are bespectacled kids with sullen faces whose most common words are.. i’m bored.. very sian.. What was that statistic? 1 in 4 will wear specs? Gosh. At the end of the day, you want a happy life don’t you. If you can find yours in Singapore, that’s good. But why find fault with other people’s choices. If you wanna point out certain facts, go ahead. Why feel disturbed?"

If you are solely focussed on trying to maximize your take home pay by paying less income tax, there are various ways to do so. Of course, living in a low-tax haven like Singapore is one way, but it is by no means the only way to do so. For example, whilst one pays very high levels of income tax in the UK, it is pretty common for a company to 'top up' an employee's salary by offering generous 'allowances' which are tax-free because allowances are treated like expenses rather than income. Furthermore, there are various tax avoidance schemes which are totally legal - such as setting up an offshore company to channel your earnings through an low-tax offshore jurisdiction. For those of you not familiar with this, let me offer you a very simple lesson on "offshore finance 101". 

Are you ready for offshore finance 101?

Imagine if you have a British man in London called Mr Rich - he earns millions of pounds a year and thus is subject to up to 50% income tax on his income. Ouch. Mr Rich decides that no, he doesn't want to pay that much income - so he then uses a tax consultancy to create an offshore company called "U Can't Touch This" which is registered in a low-tax jurisdiction like Jersey. Mr Rich then becomes an employee of "U Can't Touch This" - so if you want to use the services of Mr Rich, you don't pay him directly (for that would fall under income liable for tax), instead you pay the company "U Can't Touch This". As an offshore company in Jersey, the money paid to the company is subject to about 1% income tax instead of up to 50% if the money had been paid directly to Mr Rich. This is big business and totally legal. 

If this story sounds familiar, then you're right - I am merely retelling the story of what comedian Jimmy Carr did. As a very successful and popular comedian, he earns millions every year and has been channelling his earnings through a K2 tax shelter in Jersey to avoid the full whack of the British income tax system. In doing so, he didn't break any law but it did raise the issue of how some people can quite easily dodge their tax liabilities without ever breaking the law. 

Furthermore, if you're looking at your career only in terms of how much tax you pay, then you're definitely going about it the wrong way. Lagi salah lah aiyoh! First and foremost, you should be asking questions like, "What do I really want to do? What are my ambitions? What kind of skills do I want to develop whilst doing this job? What kind of work experience would I like to have? What kind of company do I want to work for?" Let me focus on the two industries where I do have experience: finance and media. 

If you wish to work in finance in Singapore, then it is a great place - Singapore is a global financial centre, a wealth management hub and also supports a substantial fiduciary industry. There are plenty of successful banks, asset managers, fiduciary consultants and insurance companies all hiring local and foreign talents alike in this industry. On the other hand, if you wish to work in media, the outlook is far less rosy. Walk into a multiplex cinema in Singapore and you will see that the choice of films are dominated by Hollywood Blockbusters, Hong Kong/China movies and perhaps a small number from other countries like the UK - any Harry Potter fans out there? Once in a while, you may get the odd Singaporean film which may get a limited screening, that is, if it can actually get past the censors. Singaporeans watch Hollywood blockbusters all the time, when was the last time a cinema in Los Angeles or London actually screened a Singaporean film - say, one of Jack Neo's productions? 

The fact is, we simply don't have a tradition of film making here in Singapore and whilst there have been baby steps over the last 20 years to start a film industry from scratch, it is still for the very small, limited local market. So if you are an aspiring film maker - you may find that you are better off moving to Hong Kong, Los Angeles or London, to work for successful directors there who are making extremely successful films with huge budgets, simply to gain the right kind of work experience by working for the most successful people in the film industry. You're simply not going to gain the same kind of work experience working a local film maker who simply doesn't have the same kind of experience nor budget. So if you are a budding film maker, you should be far more concerned about where you can get the best work experience, rather than how much tax you pay per se. 

So there you go, whilst Singaporeans do enjoy paying very low taxes, the system is not without its flaws and this shall be explored in far more detail in part 3. In the meantime, let's move on to a more light hearted topic in part 2 here which will be all about food and eating out. Hmmmm.