There have been a number of
errors made by netizens regarding important issues that affect all
of us here in Singapore. I don’t blame them for it for it sometimes
require some reading and looking deeper into the facts. The most
common errors concern the minimum wage, our CPF and Singapore
taxation. I will debunk the myths and tell you the
truth.
1) The minimum
wage
Often people complain that
Singapore does not have a minimum wage. Their thinking is that if
the government sets a minimum wage, employers will be forced to pay
our lowest paid workers a higher wage. This is nonsense.
You
cannot raise people’s wages by force. Each of us is paid what we
deserve based on our skills. Employers have the power to hire or
fire. If they think you are not worth the minimum wage,
you will be fired. Here is what
Nobel Prize
winner and economist Milton Friedman had to say about the
minimum wage. The minimum wage causes
unemployment among the lowest skilled
people.
These are the poor. They
are poor because they have low wages. But that is better than no
jobs. No job means zero income. No job also means a loss of
opportunity to gain skills. On the other hand, if a young person
with little skills start with a low wage job, he can gain higher
wages later with working experience. The only way for people to
raise their wages is to improve their skills. The only way to
improve your skills is through education and working
experience.
Do
you want to know how the minimum wage got started? The early
pioneers of the minimum wage were Australia and New Zealand. The
motivation was racism. In the late 19th century, Australia was
flooded with Chinese immigrants.
When they came, they knew
little English and so had to accept a lower wage if they wanted a
job. They were (and still are) physically smaller and weaker than
Caucasians in an era when manual labor was required for most jobs.
The white Australians felt their jobs threatened by these
immigrants and so demanded the minimum wage.
The
minimum wage was imposed at a level that it is not worth it for an
employer to hire the Chinese worker. So they ended up hiring white
Australians. If you don’t believe me that it was racists that
demanded the minimum wage check out
this
link and
this
link.
In
America, the idea caught on in the 1920s. But this time, the
intention was to discriminate against Blacks and not Chinese.
Southern Blacks moved to the North seeking jobs. Contractors hiring
cheaper Black workers clinched building contracts. The white unions
were angry and of course asked for a minimum wage. The first
Minimum Wage law in the US was the Davis Bacon Act passed sometime
in the 1920s with the support of white racists.
Blacks, then as they still
are today, were less educated than whites. So if they wanted work
they had to accept lower pay. Once the law decreed they must be
paid higher than what their labor is worth, they became jobless and
the whites got the jobs.
Don’t believe me that
minimum wage laws started in the west because of racism? I
suggest you
click this
link and this
link. Now I want you to think
what would happen if the minimum wage is imposed in
Singapore.
Well, unemployment will go
up as those with low skills will be fired from their jobs.
Employers will try to automate or replace them with more efficient
workers. Which ethnic group do you think will be the most badly
affected? The group that will be most badly affected will be the
ethnic group with the least education among our ethnic groups - the
Malays.
While they have made
significant progress over the decades, they still lag behind in
qualifications and skill levels. So they will disproportionately
lose their jobs if Singapore imposes a minimum wage. It is
not a good idea to implement a policy that will increase the
suffering of poor low skilled Malays if we want racial
harmony.
Jobless blacks in America,
caused by the minimum wage laws, are very unhappy. These Blacks
became angry at their poverty and at the slightest excuse go on a
riot. That’s what happened in Ferguson, Staten Island and Baltimore
recently. Using alleged police brutality as an excuse, they looted
the stores to get the things they did not have money to
buy.
Finally, the whole idea of
minimum wage is wrong. A job is a contract between two willing
parties. If someone is willing to offer a job at a certain wage and
another is willing to accept it, why should the government
interfere?
If
the minimum wage is so bad as what Nobel Prize winner Milton
Friedman said, why are there so many countries having it? One
possible answer is the sheer ignorance of the politicians. Another
answer is that the policy makers are aware that it is a bad idea
but don’t care because it is popular. I think the second reason is
the more likely reason.
Politicians need to be
popular to get elected. They crave power for its own sake and also
because with power they will get rich one way or another. They know
that the minimum wage is popular because most people do not know
much about economics.
We
are lucky to have a good government who understands economics and
do the right thing even though it is unpopular. Our opposition is
promising the minimum wage because it is popular and they want
votes. Either they are ignorant of the harmful effects or they do
not care. Either way, they are not fit to govern.
2) Issues regarding the
CPF
The
CPF generated a mother lode of misconceptions among netizens. Many
Singaporeans are angry that they are now no longer allowed to
withdraw their CPF money at age 55. This has sparked off wild
theories. One is that the government has lost a lot of money in
their investments. Therefore, they are unable to return us the
money when we reach 55.
Others believe in the
reverse. Instead of losing their money, they think that the
government is making money out of our CPF money. They think that
government is getting a better return with their CPF money than
what CPF pays us because Temasek reported a 16% rate of return
since it started. Therefore, the theory goes, the longer they hold
on to our money, the more money our government makes. Some are
wondering who is managing their CPF investments, accusing them of
lack of transparency. Is it Temasek or GIC? Or who else?
I
will tell you the facts based on publicly available sources. Let me
start with the most stupid misconception floating on the
internet.
2a) Government lost a lot
of money in their investments and so can not pay CPF members at age
55.
This is the most laughable
theory, revealing the sheer ignorance of some Singaporeans. Even if
the government did lose every single cent of our CPF money, they
can still pay us. How? Simple. They can always print more
money.
The
US government has US$18 trillion in debt. They overspend each year,
but they always managed to pay the bills, including the interest on
their debt. That’s because it simply prints or borrows money
whenever they are short of money. Besides printing and borrowing
money, all government can also raise taxes to pay their debts. So
even if this wild rumor is true, CPF members will get paid. Of
course, printing money is a drastic step as it will cause inflation
and the currency depreciation.
But
it is not even remotely true.
Temasek has
made 16% rate of return since inception. That is very good. On
March 2014, its net portfolio value was $223 billion. Total
CPF
balances
amounted to $253 billion in 2013. GIC reported a
rate of return of 4% in US$ terms over a 20 year period. Its
net asset value is unknown but at least we know that it is not
losing money. Both companies are audited by large international
accounting firms. So you can be sure the numbers are
accurate.
2b)The government is underpaying CPF
members with a low interest rate because it wants to make money by
investing it. This is also why it does not want to return all our
CPF money at 55.
It
is ridiculous to say that the interest rate is low. Government has
been generous with the CPF interest rate.
The
CPF is paying us 3.5% on our ordinary account and 5% on our
Special, Medisave and Retirement accounts. This is very generous.
To see how generous, you have to ask yourself how much interest you
can earn if you invest elsewhere in a risk free asset.
Investing in CPF is risk
free because the return of 3.5% to 5% is fixed and guaranteed by
the government. The government cannot go bust because it can always
print more money. If you were to put it in a fixed deposit in a
bank, your return is also fixed, but is not risk free because the
bank can go bankrupt. The bank, unlike the government cannot print
more money to pay you. Currently,
the one
year deposit in OCBC is 0.25%.
If
you invest in a longer term asset, you will get higher return. The
longest term asset with a fixed return and zero risk is the 30 year
Singapore government bond.
This bond is currently yielding about 2.75%.
This means that
if you are willing to hold the bond for 30 years, you will get a
rate of return of 2.75% which is less than what CPF is paying
you.
So
much for that theory that our government wants to hold our CPF
money as a cheap source of funds. Why “borrow” our CPF money at
3.5% to 5% when it can borrow money in the bond market for only
2.75%? Don’t you think that people who come up with these
cockamamie theories are a little soft in the head? If CPF were to
close down and the money returned, could you find a risk free
investment that pays you an interest rate of 3.5% to 5%?
I
know what some of you are thinking. You will be saying that since
Temasek has made a return of 16%, shouldn’t they pay us 16%? But
that would not be fair or prudent. Temasek invests in risky assets.
They can and do sometimes lose money. There is no guarantee that
they can make 16% return in the future. The rate of return must be
related to the riskiness of your asset. Since CPF is risk free, you
must compare the interest rate with other risk free assets or at
least very low risk assets. If you don’t believe me, go ask any
professor in Business or Finance at the National University of
Singapore (NUS).
If
all these theories as to why our government is not returning our
CPF money at 55 are rubbish, what then is the reason? The answer is
simple. We are all living longer than at the time when CPF was
first started.
In
1955, the average life expectancy was 63 years. So after retiring
and collecting your CPF at age 55, you got an average of 8 years to
enjoy your retirement before kicking the bucket. But today,
Singaporeans live till an
average age
of 84 thanks to having the
world’s
most efficient health care system.
Common sense will tell you
that you can no longer retire at 55. Therefore, you cannot take out
all your CPF money at 55 as before. The government has converted
some of it into an annuity so as to prevent some Singaporeans from
squandering away all their money on China girls or gambling or
whatever. I know what some of you will say. It is my money and I
can do what I like with it.
In
that case, why not simply ask for the CPF to be abolished? You will
be paid in full each month, including what the employer would have
contributed to your CPF account. The whole idea of CPF is
compulsory savings. This implies that whoever started CPF believed
that most people are too stupid to save and invest wisely for their
retirement. That’s why they must be compelled to save.
There are people who will
not only spend every cent they earn but also get into credit card
debt. I have a strong feeling that the people who are most unhappy
about not being able to completely withdraw at 55 are the ones most
likely to squander away their CPF money. Thanks to our government’s
wise policies,
our CPF is
ranked one of the world’s best retirement
fund. As in the case of the
minimum wage, our government’s policy is correct though unpopular.
To do the right thing even though it is unpopular is a sign of good
government.
Some people have asked who is managing our CPF money.
Is it GIC or Temasek? It is a lot more complicated. You see our
government has at least four sources of funds - 1)taxes 2)CPF
3)land sales 4)bond sales.
They will spend some of this money on civil servants'
salaries, building infrastructure and so on. The remainder is our
"reserves" or in layman's terms our savings. This is held by
Temasek, GIC and MAS. So the key thing to note is that our CPF
money is conmingled with our sources of funding.
This means that nobody is specifically tasked with
managing our CPF money.
3) Our taxes are too
high.
This perception came about
because of the GST, ERP, COE and other charges. They conclude that
our government is taxing us too much. Is this true? Let us look at
the facts. The main taxes in every country are income tax, GST or
VAT and Company tax. Other minor taxes are property tax, estate
duty, capital gains tax, stamp duty, road tax etc. In the case of
Singapore we have COE, and PARF which, to the best of my knowledge,
do not exist in other countries.
You
can compare worldwide taxes for the three main taxes in
this
link and
this link. Singapore’s company tax
of 17%, the top income tax rate of 22% and GST of 7% makes it one
of the lowest tax jurisdictions in the world. Let me give you an
example for comparison. In the UK, company tax is 20%, the top rate
of income tax is 45% and VAT is 20% for most things. There is no
VAT for food.
You
will no doubt ask, “What about the car taxes like COE?”
These don’t generate much
revenue for the government. You will notice from our
2014
Budget, COE, ARF and PARF (called
vehicle quota premiums) amounted to only $3.67 billion or only
about 6% of Operating Revenue.
To
see if our government taxes us heavily you have to look at total
tax revenue as a percentage of our GDP. Then we compare this number
with other countries. Fortunately,
the
CIA has done a comparison for
us.
In
2014, Singapore government's tax revenue amounted to only 15% of
GDP. In layman’s terms, it means that our government only took away
15% of what we earned on the average. “What we earned” includes all
the salaries, profits, rent, interest earned by people living in
Singapore.
Now
let’s see what other governments did. The comparable number for the
UK, Australia and New Zealand are 40%, 33% and 41% respectively.
This means that they have taken a bigger chunk of the people’s hard
earned money.
What have the people gotten
in return for the money they paid the government? A government is
supposed to provide services to the people. This includes security
from external and internal bad guys. This means protecting us from
foreign enemies and local criminals. The government must also
provide education, healthcare, infrastructure and so on for the
taxes we pay them. Besides all this, it must create jobs by
attracting investors.
So
with the little money it taxes away from us our government must of
necessity spend less money on education, health care, police,
infrastructure, etc. Are we more unhealthy, uneducated, crime
ridden with crumbling infrastructure as a result?
The
answer is ‘no.’ We are healthier, have better schools, have lower
crime, have fewer jobless people than most western countries. If
you don’t believe me, here are the facts. Our health care system is
ranked the most efficient in the world as stated above. The
World
Health Organization ranked Singapore’s healthcare
as the 6th best
in the world.
As
a result,
Singaporeans’
life expectancy is the 3rd highest in the world at 84 years.
Those who say that our government does not spend enough on health
care just because western countries spend more have missed the
point. Our tax $ is well spent and it is the results that counts.
The Ang Mo governments spend taxpayers’ money wastefully and that’s
why they spend more. That’s why
we are
ranked the most efficient healthcare by Bloomberg. We spend less
but live longer.
Our
education system ranks 3rd
best in the world. Our top University, the NUS,
is
ranked 25th
best in the world. That’s better than any
Australian university or NZ university. But NUS loses out to
Cambridge, Oxford and Imperial College. The crime rate is low in
Singapore. The
Homicide
(murder) rate is 0.2 per 100,000 people in
Singapore. The comparable
number in the UK, Australia and NZ are 1.0, 1.1 and 0.9
respectively.
The
unemployment
rate is 2.8% in Singapore as compared to 5.7% in
Australia, 6.2% in New Zealand and 7.5% in the United Kingdom. I
chose Australia, UK and NZ to compare with because, like Singapore,
they are all wealthy countries that have the British Parliamentary
system and use English as the working language.
In
general, we can say that our government has taxed us less and in
exchange gave us better schools, healthcare, more jobs and security
than the others. I think 99% of Singaporeans focus on the
ministers’ pay. I prefer to look at the taxes we pay and what
we have got in return. It seems that we got more for less than most
First World countries.
Swinging Singapore
