Each society needs to provide some social services to its people, such as infrastructure, education, health care, law and order and safety. The cost of these services have to be paid through taxation.
A fair method of taxation is a flat amount to be paid by all residents or households. As each person or household benefits more or less equally from the social services, they should contribute equally.
Unfortunately, in a society where there is a large disparity of earnings, there are many people who do not earn enough to pay for the cost of living. They will not be able to contribute towards the taxation.
A better method is to impose higher taxes on the high income earners. As they earn much more than the median wage, they are able to carry a larger share of the social cost.
Some people argued that a high tax rate will chase away the high income earners to other countries. This may apply to certain businesses that are globally mobile. There are many businesses that depend on the domestic market of a country. The high incomes have to be earned in the country and cannot be moved away.
In my view, a maximum tax rate of 30 percent of earnings is fair, as it would still leave 70 percent in the pockets of the high income earners.
There are debates on what has to be provided by the state and what should be provided by the private sector. In my view, the basic needs that should be provided by the state up to a standard that is necessary and cost effective. Those with higher incomes can opt to pay for a higher standard of service in the private sector, such as private schools or health care.
If the state does not provide for the basic needs, many people will have to buy these basic needs from the private sector and pay a much higher price, due to predatory practices and a high profit margin.
This has already happened in the financial sector which pays a low rate of interest on the savings and sells bad investment products that cause the investors to lose their savings. In the health care sector, some people have to pay higher fees to private doctors, without getting better outcomes.
It is better for the essential social services to be provided by the state on a cost effective basis, and for the cost to be shared fairly among the tax-payers. The higher income earners should be asked to contribute a larger share.
Tan Kin Lian
Monday, September 28, 2009
Free market (7) - Lower fixed cost
Many small business find it difficult to survive. They have to pay high rental and credit to run their business. These high cost have to be passed to their customers in the form of higher prices.
As business premises and credit are under the control of a few people, they are able to increase the rental and interest rate on loans. They make excessive profit and cause a heavy burden on the small business and the consumers.
These high costs can be controlled by the government through legislative measures, e.g. to set caps on rental rates or the cost of capital, or to provide alternative sources of supply through the public sector.
Many years ago, HDB provide shops at affordable prices. It allows the shop keepers to offer their goods and services at lower prices and make a reasonable profit. If they overcharge and make a larger profit, another business will be set up to provide an alternative at a lower price.
This is competition at its best, in bringing the prices down to a reasonable level, based on the cost of doing business plus a fair margin of profit.
In America, the anti-trust law is designed to ensure that there is fair competition and that any business is not allowed to grow so large that they can dominate the market and have unfair pricing power.
We also need controls to ensure that property owners and bankers do not take an excessive share of the value chain, at the expense of the customers, workers and the small business owners. It is desirable for these business costs to be controlled, to promote a healthy competitive market.
Tan Kin Lian
As business premises and credit are under the control of a few people, they are able to increase the rental and interest rate on loans. They make excessive profit and cause a heavy burden on the small business and the consumers.
These high costs can be controlled by the government through legislative measures, e.g. to set caps on rental rates or the cost of capital, or to provide alternative sources of supply through the public sector.
Many years ago, HDB provide shops at affordable prices. It allows the shop keepers to offer their goods and services at lower prices and make a reasonable profit. If they overcharge and make a larger profit, another business will be set up to provide an alternative at a lower price.
This is competition at its best, in bringing the prices down to a reasonable level, based on the cost of doing business plus a fair margin of profit.
In America, the anti-trust law is designed to ensure that there is fair competition and that any business is not allowed to grow so large that they can dominate the market and have unfair pricing power.
We also need controls to ensure that property owners and bankers do not take an excessive share of the value chain, at the expense of the customers, workers and the small business owners. It is desirable for these business costs to be controlled, to promote a healthy competitive market.
Tan Kin Lian
Australia court allows claims against Lehman
* Australia court opens door to Lehman claims
* Town council to pursue claims for subprime losses
* Ruling is not an international precedent - IMF Ltd
Read this article.
* Town council to pursue claims for subprime losses
* Ruling is not an international precedent - IMF Ltd
Read this article.
Sunday, September 27, 2009
RED Portal (14) - Transacted Prices
I visited a new launch. The prices that are now being marketed are 30% above the transacted prices shown in the RED portal for the same project.
Although the prices in the portal are shown with a transacted date in June, the actual transactions were done about 3 months earlier, when the sale option was signed. So, the prices have moved by 30% or more, within the past 6 months. I decided that the current prices are too high. I will wait for another opportunity.
I will try to look for another source to capture the latest transacted prices, based on the sales options, and put them into the RED portal.
Lesson: do your research before visiting a new project launch. Visit the RED portal: www.easysearch.sg (Real Estate Data)
Although the prices in the portal are shown with a transacted date in June, the actual transactions were done about 3 months earlier, when the sale option was signed. So, the prices have moved by 30% or more, within the past 6 months. I decided that the current prices are too high. I will wait for another opportunity.
I will try to look for another source to capture the latest transacted prices, based on the sales options, and put them into the RED portal.
Lesson: do your research before visiting a new project launch. Visit the RED portal: www.easysearch.sg (Real Estate Data)
Elevated covered walkways
I suggest a network of elevated covered walkways to link the MRT station and bus interchange to various parts of the town. This will encourage brisk walking. Read this.
Attracting business into Singapore with lower taxes
Some people argued that low taxes are needed to attract people into Singapore to create wealth and provide employment for the people.
Do not be fooled by this argument. Let us look at the facts.
The two sectors that created the most wealth and employment in Singapore were the banking and property sectors. These sectors generated huge profits and employed large numbers of people in marketing, sales and the back offices.
They created false wealth by generating a huge bubble in asset prices. Many people thought that they were wealthier when the bubble grew and the prices of their assets inflated. Unfortunately, high property price is really a burden that has to be paid over a lifetime and is a major contributor to the high cost of living in Singapore. The burden is higher for the future generations.
The bubble has now burst and caused the global economic crisis. Singapore has its share of the pain.
There is no point in attracting business into Singapore, through lower taxes, if the outcome is to create false wealth and to leave a heavy burden on future generations.
Tan Kin Lian
Do not be fooled by this argument. Let us look at the facts.
The two sectors that created the most wealth and employment in Singapore were the banking and property sectors. These sectors generated huge profits and employed large numbers of people in marketing, sales and the back offices.
They created false wealth by generating a huge bubble in asset prices. Many people thought that they were wealthier when the bubble grew and the prices of their assets inflated. Unfortunately, high property price is really a burden that has to be paid over a lifetime and is a major contributor to the high cost of living in Singapore. The burden is higher for the future generations.
The bubble has now burst and caused the global economic crisis. Singapore has its share of the pain.
There is no point in attracting business into Singapore, through lower taxes, if the outcome is to create false wealth and to leave a heavy burden on future generations.
Tan Kin Lian
Free market (6) - Opportunity to work
With advances in science and technology, it is possible for the goods and services needed by all the people to be produced with less hours of work and higher productivity.
If the required quantum of work is shared fairly among all those who are willing to work, it will be possible for each person to work lesser hours that they do now.
In a competitive environment, some people will work longer hours to ensure that their jobs are secure. This will cause other people to be unemployed.
The business owners can pay lower wages when there there is a limited supply of work and an over-supply of workers looking for work. With lower wages, they can make a larger profit.
This is a short sighted approach. If people have lower wages or are unemployed, they will have less money to spend on other things. This will further reduce the demand and contract the economy.
A better system is to have the work fairly distributed among the available workers, so that everyone will be employed and can enjoy a fair wage. They will have money to consume other services, such as leisure and entertainment. This will create demand for the production of other goods and services.
A healthy economy depends on the ability of people to get employment at fair wages. It requires legislation on the maximum working hours (so that the work is fairly distributed among the workers) and a minimum wage, so that all workers will earn enough to meet the cost of living and be able to have additional money for savings or to be spent on leisure.
Tan Kin Lian
If the required quantum of work is shared fairly among all those who are willing to work, it will be possible for each person to work lesser hours that they do now.
In a competitive environment, some people will work longer hours to ensure that their jobs are secure. This will cause other people to be unemployed.
The business owners can pay lower wages when there there is a limited supply of work and an over-supply of workers looking for work. With lower wages, they can make a larger profit.
This is a short sighted approach. If people have lower wages or are unemployed, they will have less money to spend on other things. This will further reduce the demand and contract the economy.
A better system is to have the work fairly distributed among the available workers, so that everyone will be employed and can enjoy a fair wage. They will have money to consume other services, such as leisure and entertainment. This will create demand for the production of other goods and services.
A healthy economy depends on the ability of people to get employment at fair wages. It requires legislation on the maximum working hours (so that the work is fairly distributed among the workers) and a minimum wage, so that all workers will earn enough to meet the cost of living and be able to have additional money for savings or to be spent on leisure.
Tan Kin Lian
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