Singapore, Taxes, and unemployment

[Gerald Tarrant]

I found this interesting.

Tax cuts are a popular cure for unemployment, but there are strong reasons to doubt that they are a good way to achieve this goal. As I explained a while back:

Where does the money come from? If the central bank prints up $1000 and the government uses it to cut taxes, spending goes up; but that is monetary policy in disguise. The interesting question is: What if you raise spending (or cut taxes) and hold the quantity of money constant? The basic possibilities:

1. You raise spending by raising taxes. This seems like a wash for total spending. (There is a sophistical argument about the Keynesian multiplier that says otherwise, but I won't bother with it here).

2. You raise spending by borrowing. Again, this seems like a wash for total spending. If the quantity of loanable funds stays the same, the government borrows more and the private sector borrows less. If the quantity of loanable funds goes up because of higher interest rates, the government borrows more and the private sector consumes less.

3. You raise spending by printing money. Oh, wait, we ruled this out by assumption.

(Alex Tabarrok concurs; for a contrary view, see Mankiw; here's my reply to Mankiw).

Imagine my surprise, then, when I discovered that Singapore has figured out a stunningly clever way to use tax cuts to reduce unemployment. Instead of focusing on stimulating demand, Singaporean tax policy hits the margin that matters: labor costs. When there is a surplus of labor, they cut employers' share of the payroll tax (known in Singapore as the CPF). Details appear in Henri Ghesquirre, Singapore's Success:

The government directly intervened to temporarily lower the cost of business in Singapore through... its power to lower the CPF contribution rate of employers...

Elsewhere, substantial nominal currency devaluation is often the last and only resort in the face of downwardly sticky nominal wages, often with higher inflation as an undesirable side effect. In contrast, Singapore uses the direct intervention methods at its disposal. In addition, there is built-in wage flexibility, because an important portion of workers' remuneration is automatically lowered if GDP falls short of target.

With flexible wages, of course, it doesn't matter who legally pays the a tax. But the whole problem with recessions is that wages are somewhat sticky - you can have surplus labor for years before wages fall enough to restore full employment. By cutting employers' share of the tax, the Singaporeans greatly speed up the wage adjustment process.

We should expect the Singaporean system to work very well. Suppose we conservatively assume that labor demand elasticity is only -.4. Then a 1 percentage-point cut in employers' share of the payroll tax will roughly increase employment by .4 percentage-points. With a more optimistic elasticity of -1.0, every percentage-point cut in taxation would raise employment by 1 percentage-point. This approaches the Lafferian dream of tax cuts that fully pay for themselves. (In savings-obsessed Singapore, unsurprisingly, they also raise the payroll tax during booms).

Non-economists may have a hard time appreciating the genius of the Singaporean policy, so let me spell it out. If you want to change behavior, the smartest approach is to change the price most directly relevant to that behavior. If you want to cut carbon dioxide emissions, the smartest approach is not to start spending money like a drunken sailor on anything vaguely related to carbon dioxide. The smartest approach is to raise the price of emitting carbon dioxide. Similarly, if you want to reduce unemployment, the smartest approach is to reduce the price of labor. By cutting employers' share of the payroll tax, Singapore does precisely that.

Question for Discussion: What would happen in the U.S. to a politician who proposed a tax cut for employers to reduce unemployment?

From here

[Phantasee]

Question for Discussion: What would happen in the U.S. to a politician who proposed a tax cut for employers to reduce unemployment?

He'd be crucified before noon.


This is an interesting idea, and I think I'm going to have to go over it a little more to figure out what's wrong with it (too good to be true and such).

[Gerald Tarrant]

This is an interesting idea, and I think I'm going to have to go over it a little more to figure out what's wrong with it (too good to be true and such).

This seems to be an alternative to the traditional Keynesian methods of increased spending, and decreased taxes to everyone. The problem with those methods is they have costs which decrease demand (as noted in the article, points 1 and 2). This method doesn't manipulate Aggregate Demand in the same way that Keyne's models did, instead this directly changes the demand for labor by lowering its costs. Think of this more as something for the business cycle than as an overall social policy. Probably not yet relevant to the US.

Costs?

You still have to pay for the tax cut, so notes 1 and 2 in the article will still apply. But since the tax directly changes labor costs, it's positive effects will probably outweigh the deleterious effects of borrowing or other offsetting taxes.

As you noted this is politically unpalatable, and cutting business taxes at the same time the US (hypothetically) was experiencing a recession would have most Liberal pundits furious.

This method seems to require the same level of prediction and time lead that most normal Keynesian anti-recession measures need, so a clueless congress won't do any better with this policy tool than with the more blunt Keynesian instruments.

Congress's also need to be disciplined enough to raise the tax after the recession. Yeah, that's likely.

I don't think it's going to be a cureall, but I do think it might be a little more precise than normal Keynesian methods. Also a little more "economic bang" for the buck.

[PainRack]

Costs?

You still have to pay for the tax cut, so notes 1 and 2 in the article will still apply. But since the tax directly changes labor costs, it's positive effects will probably outweigh the deleterious effects of borrowing or other offsetting taxes.

This isn't exactly a tax cut.
CPF here acts as a retirement fund, and the taxes here go into your direct retirement account.
So, what occurs is that when the government lowers the employer payment of CPF, the only party that suffers is the employee, since their retirement funds just shrunk. They're effectively taking a pay cut, albeit, an indirect one.
Any other government can simply do an equivalent by cutting wages across the board.

[Fingolfin_Noldor]

It's one thing to be employed, it is another matter whether you are earning enough to survive. There is no minimum wage, so tough luck if you are a cleaner or some lowly paid clerk or secretary or administrator. Living costs in Singapore are high, and there is no option to live in the suburbs whatsoever. Doesn't help that the rental market is expensive, and at the same time, just about everyone is psyched to buy a flat worth 70K USD at the very least. Mind you, you fund your own retirement fund, i.e. CPF. If the Govt cuts employer contribution, it means less funds to buy a flat, pay for medical bills and a few other things. The CPF has an interest rate is paltry and the Govt does take some of the money for some investments. If no one in Singapore hasn't realised it yet, the CPF isn't enough for retirement, not least you do not get the whole lump sum but only pieces of it per month even when you are old enough to start withdrawing some of it. God forbid you die before you even withdraw most of it.

[Fingolfin_Noldor]

Addendum: CPF also has a certain Tax effect because you are technically left with less money to play with per month. This is far reaching economic implications because it means that on top of income tax, one has to also factor in CPF. Which means our income tax rate only looks low on paper, but with CPF is much higher in actuality.

[PainRack]

He'd be crucified before noon.


This is an interesting idea, and I think I'm going to have to go over it a little more to figure out what's wrong with it (too good to be true and such).

You reduced the price of labour, wonderful. Now, are there any profitable business out there which is expanding or experiencing labour scarcity?

Over here, the CPF cuts were used as an argument to lower businesses costs. The unemployment angle comes from if the enterprise collapse, you're going to have more unemployed out there. The whole angle was based around cutting business costs so that more businesses would set up in Singapore instead of elsewhere or existing SMEs won't go under, as labour costs are supposedly the most significant aspect of their operating expenses.
It doesn't really help though that certain markets are still lagging behind, or increased competition from overseas means that you're still going to have businesses moving away or simply shutting its doors.

And the government has since moved on to other tax cuts, cutting business taxes further, making up for it by increasing sin taxes and GST.

[Fingolfin_Noldor]

The only reason why the Govt keeps cutting taxes and literally bribes companies to come here, is because there are very few incentives to invest in Singapore, aside from the non-existent worker rights laws and very pro-business Government (and laws). There is some incentive in the Financial sector (just about heck of a lot of people work there now as that's where the money is, assuming the US economy doesn't go downhill and we go along with it) as there is some degree of critical mass. Beyond that, companies come and go. I would not advise anyone to go to the manufacturing sector because of the transient nature of the sector.

[PainRack]

It's one thing to be employed, it is another matter whether you are earning enough to survive. There is no minimum wage, so tough luck if you are a cleaner or some lowly paid clerk or secretary or administrator. Living costs in Singapore are high, and there is no option to live in the suburbs whatsoever. Doesn't help that the rental market is expensive, and at the same time, just about everyone is psyched to buy a flat worth 70K USD at the very least.

The rental market in Singapore is simply untenable. On one hand, the tenant must ensure that residents aren't illegal immigrants and a whole bevy of other statues, on the other, land scarcity= high prices. Hell, my friends and I actually calculated that it would be cheaper to rent a condo apartment than say a humdum HDB flat. The increase in space means you can squeeze in more ppl and even if the tenant screws u over, u still get cheaper prices than the equivalent HDB flat.

If no one in Singapore hasn't realised it yet, the CPF isn't enough for retirement, not least you do not get the whole lump sum but only pieces of it per month even when you are old enough to start withdrawing some of it. God forbid you die before you even withdraw most of it.

The money reverts to your family and is part of your assets. I have to go reread the new statues to see whether its still considered to be cash or CPF contributions.

The CPF has an interest rate is paltry and the Govt does take some of the money for some investments.

There's no net deduction in your account, the problem is, its a damn shitty rate of interest. To me, the problem is that even back when it was created, CPF was never meant to be a government pension fund. Yes, it was slated to replace pension funds and other civil service funds but it was never meant to act as one.
Expectations of that is one thing, but the rapid expansion of CPF funds into other areas such as education, healthcare, housing and etc rapidly drew down the funds that're available for its one purpose. Retirement. Its telling that you require a special account to fulfill its primary purpose, where lies the Minimum Sum and the monthly payout. Ditto to the new statues regarding annunities which explictly makes it clear that the CPF fund isn't a retirement account at all, neither is it social security or any kind of social network.
Its simply a mandatory savings account, just like what it has been listed as for the last few decades. And the sooner that politicians, economists, insurance agencies and journalists stop making moonshine out of it, the better.

[Fingolfin_Noldor]

The rental market in Singapore is simply untenable. On one hand, the tenant must ensure that residents aren't illegal immigrants and a whole bevy of other statues, on the other, land scarcity= high prices. Hell, my friends and I actually calculated that it would be cheaper to rent a condo apartment than say a humdum HDB flat. The increase in space means you can squeeze in more ppl and even if the tenant screws u over, u still get cheaper prices than the equivalent HDB flat.

Last I checked, the price for a renting a condominium had reached like a thousand SGD a month at least. I could go check since I have foreigner friends who rent apartments. A HDB flat of course would be more expensive since you have to pay off the huge bill in 10/15/20 years or so. It will be really bad for everyone if the economy screws over because the idea of something like a subprime crisis occurring in Singapore isn't something not to be discounted.

The money reverts to your family and is part of your assets. I have to go reread the new statues to see whether its still considered to be cash or CPF contributions.

Of course, but your kids can't get it until they reach a certain age. Which means, in the long run, it is likely the money stays in the Govt's hands. Quite frankly, the logic that since everyone is living longer means they can raise the age at which you withdraw everything is simply bewildering since the older one is, the more likely the medical bill goes sky high and the less money one has, the more likely one ends up dead. Idiots.

There's no net deduction in your account, the problem is, its a damn shitty rate of interest. To me, the problem is that even back when it was created, CPF was never meant to be a government pension fund. Yes, it was slated to replace pension funds and other civil service funds but it was never meant to act as one.
Expectations of that is one thing, but the rapid expansion of CPF funds into other areas such as education, healthcare, housing and etc rapidly drew down the funds that're available for its one purpose. Retirement. Its telling that you require a special account to fulfill its primary purpose, where lies the Minimum Sum and the monthly payout. Ditto to the new statues regarding annunities which explictly makes it clear that the CPF fund isn't a retirement account at all, neither is it social security or any kind of social network.
Its simply a mandatory savings account, just like what it has been listed as for the last few decades. And the sooner that politicians, economists, insurance agencies and journalists stop making moonshine out of it, the better.

This economist Mukul G. Asher gave a nice PPT on the CPF: http://www1.worldbank.org/finance/asset ... gapore.ppt. It's old, but nevertheless a good read.

Quite frankly, no one has openly discussed the tax effect of the CPF. Effectively, on top of income tax, one still has to food out cash for CPF. Given that quite a lot of people never earn more than 10K SGD in their entire lifetime, this will hamper their ability to spend. The ultimate benefactor is of course the Govt because it does not have to food a single cent to any welfare system while investing the CPF and then adding to its huge pile of cash.

[PainRack]

The only reason why the Govt keeps cutting taxes and literally bribes companies to come here,

Every third world country does the same thing. That was one of the issues against globalisation and the argument that a rising tide floats all boats.

is because there are very few incentives to invest in Singapore, aside from the non-existent worker rights laws and very pro-business Government (and laws). There is some incentive in the Financial sector (just about heck of a lot of people work there now as that's where the money is, assuming the US economy doesn't go downhill and we go along with it) as there is some degree of critical mass. Beyond that, companies come and go. I would not advise anyone to go to the manufacturing sector because of the transient nature of the sector.

Except that Singapore still has the world 4th largest oil refining capacity and keys highly in certain industrial sectors such as shipping and hard-drives.
I would rather argue against the service sector, in which fads as well as the lack of a real market in Singapore make it difficult for any lasting company to stand. F&B in particular is lethal.
If you're looking for a job, the best prospects are still in the old niches of oil and maritime related businesses. Divers in particular is still quite attractive and faces low competition(who here wishes to live out on a rig for 6 months at a time?) They offer some level of horizontal mobility, allowing you to go overseas to look for a job if neccesary. People taking business courses however are utterly screwed. They can't compete with ivy grad students returning from overseas as well as foreign labour. And local degrees aren't going to be prestigious enough for you to work overseas.

[Fingolfin_Noldor]

Every third world country does the same thing. That was one of the issues against globalisation and the argument that a rising tide floats all boats.

It will be really interesting to see how much money the EDB doles out for that purpose...

Except that Singapore still has the world 4th largest oil refining capacity and keys highly in certain industrial sectors such as shipping and hard-drives.

I would like to remind you that we used to be the largest producer of hard drives. We do not own that title any more and the electronics sector has been shrinking slowly after the sharp implosion in the last decade. Oil refining doesn't provide that much jobs either and it is a rather small sector compared to the financial sector.

I would rather argue against the service sector, in which fads as well as the lack of a real market in Singapore make it difficult for any lasting company to stand. F&B in particular is lethal.
If you're looking for a job, the best prospects are still in the old niches of oil and maritime related businesses. Divers in particular is still quite attractive and faces low competition(who here wishes to live out on a rig for 6 months at a time?) They offer some level of horizontal mobility, allowing you to go overseas to look for a job if neccesary. People taking business courses however are utterly screwed. They can't compete with ivy grad students returning from overseas as well as foreign labour. And local degrees aren't going to be prestigious enough for you to work overseas.

Divers is a rather exclusive job and not everyone is made out for it. Same goes for pilots, though I wouldn't put SIA on the list of companies to work for if I were them. Maritime will be a good place to work in, so long as Thailand stays in a state of flux and never gets around building the Kra canal.

IVY Grad students? Eh? There aren't quite a lot of them. Sure you have plenty of rich kids sent to foreign universities, but for the most part a lot of them end up working abroad (the pay is not only better, life is too).

Foreign labour goes unsaid. They are flooding just about any sector, and it is really tough competition for everyone. The Govt, as usual, looks at its bottomline, and just doles out enough goodies to keep people happy, while filling their coffers.

[PainRack]

Last I checked, the price for a renting a condominium had reached like a thousand SGD a month at least. I could go check since I have foreigner friends who rent apartments. A HDB flat of course would be more expensive since you have to pay off the huge bill in 10/15/20 years or so.

I was comparing rental prices actually for HDB and condos. A 5 room flat for example can easily go for a thousand SGD a month (depending on number of tenants) whereas a condo goes into 2k. However, when you consider the facillities and larger amount of space, not to mention that you can effectively squeeze more people into a condo than a HDB, renting a condo actually makes more sense if you can live with that many people.

Of course, this assumes the landlord doesn't do his math properly and raises the price of rent according to number of tenants. Of course, it does sorta screw up the point of living in a condo, which is more living space.

It will be really bad for everyone if the economy screws over because the idea of something like a subprime crisis occurring in Singapore isn't something not to be discounted.

The subprime crisis occurs because investment vehicles don't know how much bad debt they have loaded on. Its more complicated here in Singapore since HDB flats are purchased under HDB housing loans, CPF monies as well as any other normal banking loans available.

Of course, but your kids can't get it until they reach a certain age. Which means, in the long run, it is likely the money stays in the Govt's hands.

Your statement doesn't simply make sense. Assuming you die of old age, your children are highly likely to be of mature age, able to receive your assets and investment. I can't find the relevant info on cpf right now, but in the past, it used to be cash.

Quite frankly, the logic that since everyone is living longer means they can raise the age at which you withdraw everything is simply bewildering since the older one is, the more likely the medical bill goes sky high and the less money one has, the more likely one ends up dead. Idiots.

???? Raising the age for withdrawing it ensures that there still money in the ordinary CPF account, the one that's being drawn upon for medisave and medishield.

Quite frankly, no one has openly discussed the tax effect of the CPF. Effectively, on top of income tax, one still has to food out cash for CPF. Given that quite a lot of people never earn more than 10K SGD in their entire lifetime, this will hamper their ability to spend. The ultimate benefactor is of course the Govt because it does not have to food a single cent to any welfare system while investing the CPF and then adding to its huge pile of cash.

CPF IS a tax. Nobody has ever discounted the inflationary pressures of CPF. Just look at the discussion about how CPF increases labour costs for business here.
As for the government not giving any money to welfare........ first of all, the interest from CPF is from the government.
I honestly think that what the opposition here says is true, that the government is highly likely to be funneling in cash from other areas to shore up the CPF board. Of course, we can't know that since the information is classified....................................
Secondly, the government does provide welfare services. The whole damn thing rests in that politicians like to argue that CPF IS welfare. It isn't. It isn't even a retirement account, the way its protrayed to the public. Its a mandatory savings account, the same way it been listed in our governemnt services decades ago.

[PainRack]

It will be really interesting to see how much money the EDB doles out for that purpose...

THAT, information is public. Albeit buried under a morass of various boards. And its not just EDB. Remember, PUB also plays a role since they pay lower utility rates.Customs & excises also play a part in import duties and other stuff and of course, land taxes and etc.
To put it simply, when figures such as 500 million, 18 million dollars set aside to build up Biopolis come in, its not the full figure.

I would like to remind you that we used to be the largest producer of hard drives. We do not own that title any more and the electronics sector has been shrinking slowly after the sharp implosion in the last decade. Oil refining doesn't provide that much jobs either and it is a rather small sector compared to the financial sector.

Ah..... I see. You're right about "small" sectors though, our more stable niches aren't really receptive to an influx of new blood. Electronics isn't a stable sector and thus is a hella bad job market.

Divers is a rather exclusive job and not everyone is made out for it. Same goes for pilots, though I wouldn't put SIA on the list of companies to work for if I were them. Maritime will be a good place to work in, so long as Thailand stays in a state of flux and never gets around building the Kra canal.

Divers technicians isn't that exclusive though. Taking care of divers in a hyperbaric chamber sounds easy enough, albeit the social and other aspects of working at sea sucks.

IVY Grad students? Eh? There aren't quite a lot of them. Sure you have plenty of rich kids sent to foreign universities, but for the most part a lot of them end up working abroad (the pay is not only better, life is too).

There's enough of them out there to screw you.......... After all, the civil service also retires its students out onto the market after a few years.

[Fingolfin_Noldor]

The subprime crisis occurs because investment vehicles don't know how much bad debt they have loaded on. Its more complicated here in Singapore since HDB flats are purchased under HDB housing loans, CPF monies as well as any other normal banking loans available.

The HDB has been cutting back on loans and the middle class if I am not wrong has no access to them. Everything through banks.

Your statement doesn't simply make sense. Assuming you die of old age, your children are highly likely to be of mature age, able to receive your assets and investment. I can't find the relevant info on cpf right now, but in the past, it used to be cash.

Does not work that way. There are strict rules on how CPF is withdrawn, and just because it got larger because your dad adds to that pile doesn't mean you can draw a sum any larger per month. Note: PER MONTH.

???? Raising the age for withdrawing it ensures that there still money in the ordinary CPF account, the one that's being drawn upon for medisave and medishield.

On one hand you complain about the paltry interest rate, and you want the Government to retain that cash and continue giving out that paltry interest rate? Which is better? Investing in it and getting larger returns, or letting it sit in the Government's coffers? Not just that, why do you even need a CPF account by then? You don't trust yourself with your own money? Not just that, Medisave/Medishield cannot be used to food the entire bill, am I right? Some of it has to come from your own pockets. I will be really surprised if it is otherwise, since there are practically tonnes of Government policies ensure there's no free lunch.

CPF IS a tax. Nobody has ever discounted the inflationary pressures of CPF. Just look at the discussion about how CPF increases labour costs for business here.

Pfft. They never discussed the effect of CPF on the people, only businesses. Mention that CPF is a tax to some of the pro-PAP buffoons and they go laughing hysterically as if they are looking at a fool. Fact of the matter is that it affects people just as much as businesses, as it kills the spending power of people. We are, by and large, one of the top few countries with the highest proportion of savings for a very good reason, and that is detrimental to the domestic economy.

As for the government not giving any money to welfare........ first of all, the interest from CPF is from the government.
I honestly think that what the opposition here says is true, that the government is highly likely to be funneling in cash from other areas to shore up the CPF board. Of course, we can't know that since the information is classified....................................

Interest comes from CPF comes from the Government who uses OUR money to invest in stuff and covering up all the crap they have done with it. Q
Secondly, the government does provide welfare services. The whole damn thing rests in that politicians like to argue that CPF IS welfare. It isn't. It isn't even a retirement account, the way its protrayed to the public. Its a mandatory savings account, the same way it been listed in our governemnt services decades ago.[/quote]

[Fingolfin_Noldor]

Oh darn.. anyhow, edit for the last paragraph:

Interest comes from CPF comes from the Government who uses OUR money to invest in stuff and covering up all the crap they have done with it

Secondly, the government does provide welfare services. The whole damn thing rests in that politicians like to argue that CPF IS welfare. It isn't. It isn't even a retirement account, the way its protrayed to the public. Its a mandatory savings account, the same way it been listed in our governemnt services decades ago.

Welfare for the bottom. Sucks to be in the middle class really.

[Fingolfin_Noldor]

There's enough of them out there to screw you.......... After all, the civil service also retires its students out onto the market after a few years.

From what I hear from someone, it actually sucks to be a Perm Sec too early in the career of a PSC scholar. The reason being that the re-employability chances in the private sector are smaller. Of course, the PAP's policy of keeping things in the family ensure one can re-divert to the public sector, which is filled to the brim with PAP lackeys from which the PAP can draw its own talent from.

That aside, some break their bonds early so as to increase re-employment chances. For good reason of course. Many of the jobs in the civil service have little relevance to much of jobs in the private sector and if one aims for the top, one starts racing earlier.

Of course, in a country like Singapore, your life is pretty much predetermined from a very young age unless you were born to a lot of money....

[PainRack]

The HDB has been cutting back on loans and the middle class if I am not wrong has no access to them. Everything through banks.

Even with the cuts in CPF contributions, the majority of people STILL pay them through CPF loans. Ditto for housing loans.
The corollary is the question of bad debt. So far, the property market here is still "stable" enough that finanicial insitutions aren't going to collapse here simply because some people won't pay. Repossession and selling them is still viable, unlike in the states.

And I don't think you're referring to how subprime crisis in the US can affect the local economy here bad enough that we go into a recession.........

Does not work that way. There are strict rules on how CPF is withdrawn, and just because it got larger because your dad adds to that pile doesn't mean you can draw a sum any larger per month. Note: PER MONTH.

When you die, that money goes to your children. CASH. That was how it worked. I'm unaware of whether any changes has been made yet.

On one hand you complain about the paltry interest rate, and you want the Government to retain that cash and continue giving out that paltry interest rate? Which is better? Investing in it and getting larger returns, or letting it sit in the Government's coffers? Not just that, why do you even need a CPF account by then? You don't trust yourself with your own money? Not just that, Medisave/Medishield cannot be used to food the entire bill, am I right? Some of it has to come from your own pockets. I will be really surprised if it is otherwise, since there are practically tonnes of Government policies ensure there's no free lunch.

And? First of all, your statement STILL makes no sense.
Explain what you mean by

they can raise the age at which you withdraw everything is simply bewildering since the older one is, the more likely the medical bill goes sky high and the less money one has, the more likely one ends up dead. Idiots.

For your remainding comments,
There's also the valid issue that for the majority of people, CPF linked investments have done worse than CPF returns. The movement to link CPF monies to investment is already there and one can argue that if you have the spare cash to play in high return investment, CPF monies can adequately replace the percentage you should set aside as "safe" investment.
As for Medisave/Shield, 1k of the bill is paid by you, the rest is by Medisave. Although I heard that some people deliberately stiffed the bill and let the government recover costs from Medisave...... I find it unlikely that this is done without a finanicial cost though.

Pfft. They never discussed the effect of CPF on the people, only businesses. Mention that CPF is a tax to some of the pro-PAP buffoons and they go laughing hysterically as if they are looking at a fool. Fact of the matter is that it affects people just as much as businesses, as it kills the spending power of people. We are, by and large, one of the top few countries with the highest proportion of savings for a very good reason, and that is detrimental to the domestic economy.

If your clique honestly don't know about how CPF cuts down on their spending power, please introduce me to them since they're obviously so filthy rich that a 20% cut in 1.5k pay doesn't affect them.

And of course, in reality, CPF isn't a tax. Its mandatory savings. Are you just trying to blow off steam or something? Cause you're not making a point.

Interest comes from CPF comes from the Government who uses OUR money to invest in stuff and covering up all the crap they have done with it.

Its a fixed rate of return. Your point being? You stated that the government doesn't foot a cent in welfare while sucking up cash from CPF returns. That's highly unlikely. The returns is reflected in the interest rate minus the cost of operating the system, and welfare services are paid for by the government in other areas.

Welfare for the bottom. Sucks to be in the middle class really.

That's true for virtually everyone. Means testing and the sandwich generation squeeze is simply something that's going to screw over everyone in the middle class.

[The_Nice_Guy]

If you manage to earn enough, forget about leaving CPF where it is. Put it into a fund, or something else with low liquidity and high returns. It's been said before by plenty of people: CPF on its own is not enough for retirement, not anymore, even as a mandatory savings for retirement, even ignoring all the other... distractions painrack mentioned.

There's the Ordinary Account part of CPF which you can draw on quite safely for investment, since the interest is so paltry that an investment of any worth will yield better returns. The other part, the special account, has an interest of about 7%, so it's still not so bad...

My own personal take on CPF is that we don't NEED mandatory savings. Give us the whole monthly sum, let us make our own decisions. We don't need a nanny state to keep picking us up when we fall, and if folks are silly enough not to prepare for retirement through savings or investment despite all the reminders to do so, who are we to argue otherwise?

Can you trust the guvmint to take care of your money? I like the current guvmint(the horror!), it's still comparatively competent to the rest of the world, but if given a choice, I sure as hell would avoid CPF entirely and use the extra money in my own ways.

The problem stems from the premise laid out at the start of this discussion: any sudden shocks to the system would require a much longer time for wages and employment to adjust without guvmint intervention using CPF. Higher possible wages or an assured job with the guvmint holding onto a significant portion of my money?

Hmmm...

[ray245]

Cool...we got 4 singaporeans on this board now...

Well...I can't say I'm as knowledgable in this issue as other 'adults'.

Just asking, do you all have any information regarding the government's proposals to any future changes?

Given that people and the government start to notice that CPF can't really last you over 85....

This means people who is over 85 would still need be taken care by their children...

[PainRack]

There's the Ordinary Account part of CPF which you can draw on quite safely for investment, since the interest is so paltry that an investment of any worth will yield better returns. The other part, the special account, has an interest of about 7%, so it's still not so bad...

Unfortunately, Ordinary Account only allows "restricted" investment in various funds. And since you can't draw upon it, you can't rely on this for an emergency. Its just.......
At best, Ordinary and Special accounts can only be relied upon to provide the equivalent of a savings insurance program. You put in cash every month, at the age of 55 you get the equivalent of a lump sum payment and then an annunity for the rest of your life(well, that's now. Previously, it was an annunity for as long as your remainding cash holds out...... which actually worse off since the annunity is utterly incapable of even providing adequate nutrition, much less other costs of living)
The movement towards linking insurance savings programmes to CPF is frankly the ONLY part of the latest CPF change that makes sense. Use money that people are forced to save to invest in savings.

My own personal take on CPF is that we don't NEED mandatory savings. Give us the whole monthly sum, let us make our own decisions. We don't need a nanny state to keep picking us up when we fall, and if folks are silly enough not to prepare for retirement through savings or investment despite all the reminders to do so, who are we to argue otherwise?

Can you trust the guvmint to take care of your money? I like the current guvmint(the horror!), it's still comparatively competent to the rest of the world, but if given a choice, I sure as hell would avoid CPF entirely and use the extra money in my own ways.

I would actually argue that we do need mandatory savings...... for medical bills. The alternative is to shift it to a socialised system similar to NHS.
Frankly,for the purpose of limiting consumption, I rather co-payment be based upon components of medical bills, rather than being a portion of the entire bill.

The problem stems from the premise laid out at the start of this discussion: any sudden shocks to the system would require a much longer time for wages and employment to adjust without guvmint intervention using CPF. Higher possible wages or an assured job with the guvmint holding onto a significant portion of my money?

Hmmm...

The OP premise is utterly flawed. It assumes the penalty for taxation is loss of income for the government, that's not true in Singapore case.The tax cut doesn't pay for itself at all since there is no revenue loss whatsoever. What it does is simply reduce costs by reducing wage costs. A forced wage cut to say, as opposed to one that works through the free market.

Just asking, do you all have any information regarding the government's proposals to any future changes?

Given that people and the government start to notice that CPF can't really last you over 85....

This means people who is over 85 would still need be taken care by their children...

last you over 85? Try 55. Unless the majority of Singaporeans become much richer, there's simply not going to be enough money to last you through any medical emergency. Even if you're in a C class ward, you're not going to be able to pay for any form of chronic illness. And means testing now means C class wards is no longer an option for the middle class.

The only reason why the Singapore government keeps harping about Confucius is simply because it desires the elderly to be taken care of by their children. In no other aspect of our society is it Confucian in nature. I don't see us advocating a liberal criminal/prison policy, do you?

[Xisiqomelir]

Let's all be frank here. The CPF is the slush fund used to paper over Temasek's tragilarious "investments", as overseen by Ho Ching.

[Fingolfin_Noldor]

Even with the cuts in CPF contributions, the majority of people STILL pay them through CPF loans. Ditto for housing loans.
The corollary is the question of bad debt. So far, the property market here is still "stable" enough that finanicial insitutions aren't going to collapse here simply because some people won't pay. Repossession and selling them is still viable, unlike in the states.

And I don't think you're referring to how subprime crisis in the US can affect the local economy here bad enough that we go into a recession.........

Not true for the last few years. CPF loans do cover part of the costs, but you still have a huge bill to pay over the next decade with bank loans. Whereas MAS is probably stricter than the Federal Bank in the US, it doesn't change the fact that people are taking huge risks with huge loans and it doesn't take much effort for the local economy to go downhill when someone sneezes, even literally speaking.

When you die, that money goes to your children. CASH. That was how it worked. I'm unaware of whether any changes has been made yet.

Perhaps I am wrong. Conceded on this point as the CPF website seems to affirm this. I need to do some digging.

And? First of all, your statement STILL makes no sense.
Explain what you mean by

they can raise the age at which you withdraw everything is simply bewildering since the older one is, the more likely the medical bill goes sky high and the less money one has, the more likely one ends up dead. Idiots.

Let me restate this: I do not see the logic of extending the withdrawal age limit because of the paltry returns. By that age, one has more time to do investments and so forth which reap far better returns than the pathetic interest rate, which is worse than even the savings account I have now in the US. Further, the older one gets, the larger the medical bills and thus one needs more money. Putting more money in a pathetic fund isn't going to increase the nest egg.

For your remaining comments,
There's also the valid issue that for the majority of people, CPF linked investments have done worse than CPF returns. The movement to link CPF monies to investment is already there and one can argue that if you have the spare cash to play in high return investment, CPF monies can adequately replace the percentage you should set aside as "safe" investment.

I have been told by friends etc. that unit trusts are the worst possible place to put funds in and there are much better funds with much better guaranteed returns. One needs to however, have sufficient funds to divert them to these managed funds. Of course, one could cynically construe this irritating lack of flexibility as the Govt's attempt to dissuade people from using CPF for anything.

As for Medisave/Shield, 1k of the bill is paid by you, the rest is by Medisave. Although I heard that some people deliberately stiffed the bill and let the government recover costs from Medisave...... I find it unlikely that this is done without a finanicial cost though.

And eventually, the Govt will come clamping down.

If your clique honestly don't know about how CPF cuts down on their spending power, please introduce me to them since they're obviously so filthy rich that a 20% cut in 1.5k pay doesn't affect them.

For your information, the domestic economy has, until quite recently due to the sudden jump in the economy which I doubt is sustainable since all things are cyclical, been in the doldrums. Retail sales were weak, and

And of course, in reality, CPF isn't a tax. Its mandatory savings. Are you just trying to blow off steam or something? Cause you're not making a point.

It has a same effect as a tax. Deal with it. Tax takes away money that people can use. So does CPF. You can use it on housing and a few other things, but daily necessities, no. And housing is still a huge bill compared to housing in the West. This is not steam, this is economics.

Its a fixed rate of return. Your point being? You stated that the government doesn't foot a cent in welfare while sucking up cash from CPF returns. That's highly unlikely. The returns is reflected in the interest rate minus the cost of operating the system, and welfare services are paid for by the government in other areas.

At a pathetic fixed rate of return. And welfare services are largely out of reach of the middle class which forms the bulk of the population.

Welfare for the bottom. Sucks to be in the middle class really.

That's true for virtually everyone. Means testing and the sandwich generation squeeze is simply something that's going to screw over everyone in the middle class.[/quote]

[Fingolfin_Noldor]

Ghetto Edit:
*For your information, the domestic economy has, until quite recently due to the sudden jump in the economy which I doubt is sustainable since all things are cyclical, been in the doldrums. Spending power is weak, even compared to that of the US. In fact, we hardly spend money on the big ticket items in Singapore, which leads to a lack of demand and competition for even certain electronics.

[ray245]

Please, since when has the average singaporeans been attracted to the latest HD-TV or Flat screen tv other than the people who can really afford it...

Furthermore, most singaporeans will be more than happy to get illegal movies, PS2 games from other country than to buy them( yes...the connection between games and elctronic is pretty weak) ...