Perspective Unlimited

Tuesday, November 14, 2006

The Economics of GST - Robbing Peter to pay Peter?

A blog claims that increasing GST to fund social programmes is like robbing Peter to pay Peter ( Some of my friends also expressed how the stated intent of the GST increase - to help the poor - sounded like oxymoronic spin.

I feel compelled to say something, from the standpoint of my profession. In reference to the above mentioned blog, the robbing Peter example is incorrect. In a nutshell, the economics of the tax is sound.

The policy maker has to raise tax to finance the necessary expenditure. What is the best way to do it? The best tax is one that does not distort the price signals. The classic one is the lump sum tax. Once the tax is levied as a lump sum, there is no impact on the relative prices between goods at all. Margaret Thatcher tried this with the Poll Tax (every one was to pay a fixed sum) back in 1989. Good economics, but bad politics. People were simply aghast with the idea that every one had to pay the same amount. It led to widespread riots and eventually brought down the her government.

So no Poll Tax. What about others? Income taxes have a negative effect on work incentives, which explains why other countries are cutting, not raising, it.

What about consumption taxes? If the consumption tax is levied across all goods, it does not change relative prices. Prices of all goods increase by the same percentage. So if you are clamouring for exemptions for the poor (such as on food, medical items etc etc), you may be well intentioned, but are in fact introducing changes to relative prices as a result of the tax.

An undergraduate economics student will know that this creates what is known as a excess burden - which is a loss to society. Why? Because the relative prices are distorted by the uneven application of the tax, people over consume those goods that are exempted and under consume those that are not. It becomes a resource distortion to the economy - resources are not allocated to the goods most highly valued, but by the favouritism of the tax.

But of course, at this point, many of you would jump up and say - wait a minute, isn't consumption tax levied on all goods regressive, since the poor spends proportionately more on consumption? Yes and no. Indeed, every one (including, but not only, the poor) will be worse off in terms of welfare with the increase in GST. The trick however is to compensate the poor an amount no smaller than the loss they suffer (economic jargon: compensating variation). The key therefore is how much the Government compensates the poor in terms of income packages elsewhere. The whole package has to be taken into account.

But does this make sense financially, taxing and giving back? GST will affect all of us, but the compensating package will only be for those who need it (however defined). Since the policy maker is not giving every one compensation, it therefore makes sense financially for him. He can either choose to compensate the poor more, or spend on other programmes. He is robbing every one, including Prosperous Peter and Poor Paul. He then gives Paul an amount no smaller than what he takes from him. Peter gets nothing. The policy maker might even have some left for himself.

Explaining the economics is easy, it is rational and it is scientific. But I can understand how dealing with the emotions of the tax increase will be much more difficult. Margaret Thatcher will know.


  • What about the administrative cost of implementing such offset packages? It seems to be a waste of resources to identify the needy/lower income and to give subsidies to offset the hike when it would be better not to increase GST.

    Also, an increase in GST would dampen spending (albeit increasing temporarily before the hike as people take advantage of the 5% GST). Would this be beneficial to the economy?

    Next, and more importantly, while the government has offset packages to give to the Poor Pauls of this world, what about those who either are ignorant or who are too proud to accept financial assistance. It seems to me that those who do not know of the financial help available to them are precisely those most in need of help, such as the elderly or illiterate. As the recent suicide of the man on the MRT shows, there are those who slip through the holes of social support and the red tape involved in applying for financial assistance is probably partly to blame.

    Lastly, what about those who don't qualify for help, but do need it? Like the middle class which does not qualify for subsidies, but aren't that rich? More importantly, how about non-Singaporeans? The student from overseas? The foreign construction worker? The domestic maid? These people won't get any help, and granted it isn't the govt's job to help them. But is increasing GST the best way to raise funds?

    By Anonymous Nevin, at 3:02 pm  

  • Bart,

    The KTM is extremely impressed by your clarity of thought. Rare is this attribute in the Singaporean blogosphere.

    Please keep writing. :-)


    By Blogger kwayteowman, at 3:41 pm  

  • Well KTM,

    I think you just insulted alot of people with that remark.

    As far as I am concerned, economics is not an exact science. It could be right, it could be wrong that GST is the best way out. Ultimately, I still think that there are other solutions other than leyving a tax that penalises the poor more than the rich.

    And, like I mentioned, you think it is so easy to identify who needs the offset packages? If it was, we could have avoided plenty of suicides, like that of Mr Tan's.

    By Blogger Aaron, at 7:42 am  

  • 1) Excess burden - which is a loss to society. Why? Because the relative prices are distorted by the uneven application of the tax, people over consume those goods that are exempted and under consume those that are not.

    Frente > Theoretically, the excess burden (gee-I didn't study that while I was doing economics at undergraduate level) sounds ok but in practice, it seems mighty strange that people will overconsume medical services and food essentials if these were zero-rated or given lower rating than 7%. Australia practices this and they accept the inefficiency of "excess burden".

    2) Social perspective
    I for one do not mind if my taxes (income or GST) are channelled towards more social programs. But to spend on wasteful acquisition of offensive military capabilities such as Apaches Longbow attack gunships (against what armoured threat? Malaysia?! or amphibious mechanised assault by Indonesia?!) and super-duper long range self-propelled artillery such as Primus?

    The Govt should CUT or maintain military spending. As it is Mindef is this huge behemoth that consumes ever increasing chunk of Govt budget EVERY YEAR. As a reservist who has completed his 10 fracking cycles of reservist training, too much money is spent on HUGE training facilities e.g. Pasir Laba camp, HUGE MESS that can rival a commercial pub anywhere.

    Cut or at least CAP defence spending, cut or CAP ministerial salaries. Channel some of these savings to social programmes.


    By Anonymous Anonymous, at 4:23 pm  

  • One of the economists interviewed by the chinese My Paper 我报 has called the raising of GST plus offset package scheme as 绕圈圈(rao4 quan1 quan1) round-tripping.

    The efficiency losses from this round-tripping may "offset" the supposedly "efficient" manner of taxation through raising GST.


    By Anonymous Anonymous, at 4:28 pm  

  • Thanks for the comments, here are some clarifications:

    - GST is already in place, there is no more administrative costs to any increase.

    - To put in place schemes to help the poor, there will always be administrative costs.

    - It is true that some countries exempt certain goods, but it is perhaps for political reasons. To understand the distortion, think this way. Taxing some goods and exempting others will change Paul's consumption patterns, not in a way he truly wants, but due to the tax favouritism. A better arrangement is to tax all goods, but return Paul a lump sum, which he is then free to spend on ANY good. Paul will be better served this way since he now can make a better choice. I think the round-tripping analogy is not quite right. The well-off will not get the compensation package.

    I think I should limit this to the economics of GST. It would be difficult to discuss the right and wrong of all other aspects of fiscal expenditure in one blog.

    Regards, Bart.

    By Blogger Bart JP, at 10:00 pm  

  • Bart,

    I would agree with you ONLY if the offset package will last the entire life time of the recipient. Of course, this is unrealistic.

    The compensating package is a one-off thing. How long will this package last (my guess is 4 years as one will expect another ang-pow when the next GE comes around) for those who received it even if every single cent from this package is drawn down slowly to offset the 2% increase in GST ?

    What happen after that ? Wouldn't they be stuck with another 2% GST for all their essential goods for the rest of their life ?

    Wouldn't you agree that when the offset package is fully drawn down, the regressive nature of consumption tax will kick-in ?

    By Anonymous Yamasam, at 1:29 am  

  • You know, I've always found that economics is only useful in the classroom when you can make all the assumptions and paint beautiful pictures you like with some models or theories that never work or exist anywhere else except textbooks only.

    By Anonymous Anonymous, at 2:55 am  

  • To justify tax increase with the the argument that only a selection of the community (i.e, lower-income) will receive monetary assistance, to me it's flawed.

    How do one fairly ensure that all of the lower-income earners are really entitled to the assistance; as how do one fairly state that all lower-income earners are covered in the first place?

    Can't lower corporate tax due to competition, granted. But spare the lower and middle income group who are struggling.

    Why not just increase tax for the higher-income? Afraid FT might run away? Or as mentioned by in an earlier comment, CUT spending on other costs.

    Because that's what you chould do when you don't have much to spend. Not squeeze every bloody penny from eveyone you know.

    By Anonymous Anonymous, at 3:50 am  

  • well done bart.

    and i concur with KTM. aaron just seems a tad bitter about having been shown to be wrong. *shrug*

    By Anonymous Anonymous, at 4:54 am  

  • Aaron: it's ok, some people like to think that because they can explain or view things in an 'economic' perspective then they must be very rational and 'wise' compared to the emotive masses.

    The arguement on over consumption is a little bit of a trick, there are certain goods that you can never consume more than what you can take, for example, rice, just because if it's GST exempted (in other countries) does not mean every one else will suddenly eat more rice. (Anonomynous pointed that out)

    Saying one variation of a policy is better is just a way of saying hey I am doing normantive judgements here but I am masking it behind economic statements that are supopsed to be positive.

    By Anonymous ted, at 5:31 am  

  • Well KTM,

    You are entitled to your own opinion, but I do not think that I am wrong. Economics do not explain everything. I suggest getting off the armchair and going down to see how the poor are really suffering. You can say all you want about the sound economics because you can afford it. For people who can't, they won't give a damn about economics. I think you can do with some empathy, as well as considering other views other than economics.

    By Blogger Aaron, at 5:44 am  

  • I apologise to the KTM. I was typing too fast. It was meant to be addressed to the anonymous dude who quoted KTM.

    Maybe it's a freudian slip! O_O

    By Blogger Aaron, at 5:46 am  

  • Ok I am a layman here, so this is from my layman point. Theoretically if things like education, healthcare, salt, sugar and rice were exempted from GST, just how do you overconsume such items? I mean if suddenly school fees whether be it private or public is exempted from GST, does that mean suddenly everyone would become a student just because its GST exempt? Or do you suddenly just go see a doctor for no other reason than the fact that you don't have to pay GST on consultation?

    By Anonymous Anonymous, at 6:21 am  

  • "Income taxes have a negative effect on work incentives"

    You considered only the substitution effect and forgot the income effect, which raises work effort. My point is, the issue is an empirical one, and the evidence is decidedly murky. Edmund Phelps has done quite alot of work on this. My sense is that the relationship is non-linear, which complicates the whole thing even more.

    I agree that consumption taxes are more efficient than income taxes, but they are extremely regressive. Offset packages are fine in principle, except for the unfortunate record of tax reform in this country, which has been to exacerbate the income divide (don't check with govt statisticians on this, check with the tax consultants).

    Now the reason why many people are unhappy and don't trust the proposed gst hike, offset package or not, is that ultimately, somebody has to pay for the tax increase. And the lesson learnt is that policymakers religiously avoid 'disincentivising' those at the top.

    Which takes me to my last point ...

    "Explaining the economics is easy, it is rational and it is scientific. But I can understand how dealing with the emotions of the tax increase will be much more difficult. Margaret Thatcher will know."

    Interesting that you should bring this up. I think you may be missing the big picture. The poll tax increase was the culmination of her growing unpopularity. Amongst many other things, she also famously declared, "it's our job to glory in inequality .. and see that talents are given vent to the benefit of all".

    Leaving aside whether you agree with her economics or not, the way it was phrased was typical of her. She used the power of government to ram through her agenda. Her obvious failing, a complete lack of sensitivity & generosity of spirit.

    People care not just about growth but also about fairness. IMHO, one of the reasons Thatcher eventually failed was that she tried to raise the importance of money/status/elitism in UK society to a level people found offensive. I see similarities here.

    The gst increase may have triggered alot of 'emotion', but I suspect they have deep roots.

    By Anonymous BW, at 6:45 am  

  • Just one comment right off the top of the otherwise sound logic in your blog entry. Why are we "narrow-casting" and confining ourselves to the govt-defined boundaries of their rationale and just assume that taxations are the only means for govt revenue?

    Aren't we paying world's highest ministerial salaries to these people to grow revenues above and beyond existing revenue frameworks? Why aren't they value-adding?

    By Anonymous Anonymous, at 7:25 am  

  • Same anon from previously. Sorry for the muddled language. In my layman mind, what i meant to say was they appear to be saying there are just 3 apples in the basket and that's it, we have no choice but to find ways to divide and share the 3 apples and some of us will loose out. Question is why aren't they able to add more apples to the basket?

    By Anonymous Anonymous, at 7:30 am  

  • After reading through all the comments, I have some points to make (also as a layman):

    1. Bart is arguing from an economics viewpoint. Issues on who will be getting what offset packages and people slipping through the gaps are recognised problems that have to be dealt with. And I'm sure the government, having announced the raise, is confident of covering all the gaps. Whether they are able to is another thing altogether.

    2. Many argued that the package is a one-off thing but the GST raise is permanent. This has already been brought up in parliament, and as the PM said, we should wait till the packages are announced before commenting.

    3. It's true you can't over-consume certain things like medical services, rice or sugar. But distortion of consumption can happen the other way - that is, non-necessity goods have their GST raised and people start under-consuming them while GST-exempt goods continue to be consumed at the same amount.

    4. The moment people start talking about ministerial salaries, we know they are getting emotional. Please stick to the issue on hand.

    5. Lastly, if you're proven wrong, please do not resort to lambasting others as armchair critics and devoid of empathy.

    By Anonymous Anonymous, at 8:17 am  

  • So.. why not just raise progressive tax rates (if Singapore has them), to directly tax people on their incomes? According to my understanding, GST is levied on all business that have revenues that exceed X amount. Who is to handle the distribution of income? Your post touches these issues, but it does nothing to solve them. The Singaporean government would not be pleased if this were to take on a more critical tone.

    By Anonymous Anonymous, at 8:30 am  

  • 4. The moment people start talking about ministerial salaries, we know they are getting emotional. Please stick to the issue on hand.

    Hmm... Why can't people talk about ministerial salaries? Is it some OB marker thing again? The comment above would seem rather emotional and a tat over-sensitive to me. Although the point about 'narrow casting' and limiting discourse to certain set boundaries appears to be veering off topic, it is a valid one. Perspective unlimited... :)

    By Anonymous Anonymous, at 8:56 am  

  • With reference to point 3: "It's true you can't over-consume certain things like medical services, rice or sugar. But distortion of consumption can happen the other way - that is, non-necessity goods have their GST raised and people start under-consuming them while GST-exempt goods continue to be consumed at the same amount."

    So what is the dear anonymous trying to say with this???

    Taxation in any form WILL distort consumption pattern, it's a matter of looking at the kind of goods: is it normal good/luxury good/inferior good?

    By Anonymous ted, at 9:01 am  

  • Aaron,

    Aiyah, does it seem to you that the KTM is afraid of offending people? :-) However hor, there is a difference between "not being afraid to offend" and "trying to be offensive".

    So, if the KTM has inadvertently offended you, then apologies. The KTM's previous comment was *really* not directed at you (or even at this entry in particular). It was made after the KTM read several of Bart's posts. Posted it here 'cos this was the last entry that the KTM read. :-)

    To conclude, the KTM actually doesn't agree with you that his comment would offend a lot of people. There is so much arrogance and ego in the blogosphere that all the blogger dudes reading the above comment wouldn't think that they are among the ones who are lacking clarity of thought. :-P

    Hands up all you bloggers who have no clarity of thought! :-)


    "It is true that some countries exempt certain goods, but it is perhaps for political reasons."

    True, but this is politics that we are talking about here. It's hard to imagine how exempting rice from GST will induce people to over-consume rice.

    Perhaps Maggi would complain that it hurts their instant noodle business. Fine, we exempt Maggi mee too. Moral of the story is that to some extent, if we are careful enough, we can mitigate the distortionary effects by exempting all the substitutes appropriately.

    From a fiscal perspective, how much tax revenue do you think the Government loses by exempting rice from GST and not the Prada bags? :-)

    The KTM agrees with you that administrative costs shouldn't be too much of a concern. Main concern is cheating. Some fellas may try to label their caviar as maggi mee.

    Then we do the usual thing and take out the HUMONGOUS STICK and wave it around a couple of times. Perhaps smack a few fellas in the face and make an example out of them. QED. :-P

    By Blogger kwayteowman, at 9:30 am  

  • Bart,

    Further to my earlier note, since you are relatively new to the Blogosphere, the KTM would like to share with you why he does not allow non-Blogger users to post comments on his blog.

    The KTM finds it EXTREMELY ANNOYING to have to respond to "Anon". After a while, no one has ANY clue which Anon you are referring to. :-)

    There's also a risk of your comments section turning into a sammyboy forum. :-P

    Some people like it 'cos allowing anonymous comments is likely make your blog seem more popular 'cos there will be more comments. You pick your poison. :-)


    By Blogger kwayteowman, at 9:40 am  

  • Perhaps the trouble of selecting which goods to exempt might add too much administrative burden, so applying the tax increase across the board is more convenient and less costly.

    However, my concern is what exactly is the government going to do with that 2%? If they cannot give concrete examples of how they are going to channel this surplus to the people who need it, and for the sustainable future, then there shouldn't be talk about the tax increase in the first place.

    By Blogger chrischoo, at 10:07 am  

  • The idea of distorting consumption may sound weird. An example might help.

    Suppose we exempt medical and education services from GST. Other goods and services are taxed at 7%. Not only Poor Paul's incentives are changed, so will Properous Peter.

    Peter wakes up to find that his Pet School House fees (& what-have-yous), fancy checkups at Mt Elizabeth etc lower by 7%, he then overconsumes these two items. Once exemption is made, distortion occurs for both Peter and Paul.

    Furthermore, exemption raises more difficulties. Food is exempted from UK consumption tax. But is chocolate food? What about chocolate biscuits? Calorie rich Mars bars? Can you exempt Cadbury and not Lindt? Is expensive organic rice to be taxed while Thai rice not? All these will inevitably end up in litigation.

    Notwithstanding litigation cost, the economic loss (excess burden) occurs regardless whether the good is normal or inferior, once prices are distorted by the uneveness of the tax (unless in the very unrealistic case of Leontief preferences).

    Mine is admittedly only an economic argument to show that is logic in increasing GST and giving income support to the poor. There are of course many other perspectives to frame this debate. The difference in opinions is healthy. Really appreciate it.


    By Blogger Bart JP, at 10:08 am  

  • Bart,

    Your economics is impeccable and so the KTM is not disagreeing with your economics. :-)

    Your example of Pat School House is actually not a very good one to explain your point, 'cos if Properous Peter has two kids, he has two kids. Even if fees drop by 7%, he still only has two kids. To consume more, Peter and wife will have to work harder and can perhaps only consume more in 9 months?

    But I digress, just highlighting that the over-consumption argument hinges on the assumption that demand is elastic and over-consumption is feasible.

    You are right. Figuring out what to exempt might be a real headache -- but the KTM would like to highlight two points:

    1. We can start off by exempting some no-brainers like rice and cooking oil (and maybe instant noodles if Maggi complains). Conserve some political capital first. To win the war, can afford to lose some small battles. :-) Seriously, these things are cheap. Wouldn't make a dent on revenues. Everything else no exemption.

    Then start a new "GST Exemption Council" (GEC), brother to the PTC. Get some retired fella who got a lot of spare time to chair the council to review "applications for exemption". Recommendations from council are suggestive, not prescriptive and are submitted to MOF for consideration. With each exemption, MOF looks at the impact on revenue before it decides.

    2. Ask ourselves, does it really matter whether chocolates get exemption? Does exempting or not exempting chocolates affect the welfare of our people much at all? Perhaps Hersheys and Cadbury might care, but the KTM certainly doesn't. Moral of the story: let's not worry about it. Outsource to GEC and focus on what matters. :-P

    The key lesson of this whole brouhaha is that political capital is finite and it is important to factor the political cost of a policy and to watch out for the packaging (and timing) of a policy. Like it or not, economics has to be tampered with some political realities.


    By Blogger kwayteowman, at 11:37 am  

  • Bart,

    Further to my earlier note, the KTM forgot to mention that he once predicted that sooner or later, the Garmen would have to yield to political pressure to exempt necessities from GST anyway. The KTM still holds this view. We shall see if the KTM is right. :-)

    If the KTM is right and die die the Garmen wil eventually have to exempt, then it's REALLY STUPID not to do so now, because they would then be accused of doing it as an afterthought (which of course, is also true). Understanding the political realities and doing it in advance might have saved some political capital. But of course, the ruling party reserves the right to squander their political capital. :-P

    By Blogger kwayteowman, at 11:50 am  

  • No lar KTM, I didn't feel offended la. Your KTM brand of writing is well-established on the blogosphere and I know better that you mean well, just that I think not very nice la. Don't forget hor, we are Asians leh. One of the Asian thing is face, and saying things to make people paiseh not very nice. But I take your point that blogosphere got alot of ego people, and once in a while you need the KTM's chopstick to poke the ego abit to let out some air.

    And my hand is up. I admit to not having clarity of thought all the time. I think it is only human to be like that, which is why I'm for free speech and debate. The more people talk, the more chances of follies and errors being caught.

    By Blogger Aaron, at 11:55 am  

  • Dear Bart,

    If I sounded offensive in any of my postings, I apologise. Like the KTM, I have to admit that your economics knowledge is excellent, and I do accept your arguments from an economics perspective.

    As you rightly pointed out, your analysis is from an economics perspective. My analysis is not from economics, but from the poor man in the street who goes to IRAS and fills out the tax returns. He knows that he doesn't have to pay income tax, but he eventually cannot escape the taxman because of the GST.

    My argument is more political in nature, although I have tried to respond to some of the economic arguments with my basic economics knowledge. Ultimately, as the KTM concluded, there could be better ways to package the deal. As a communications major (in PR and journalism), there could have been a much better way to send the message out.

    By Blogger Aaron, at 12:00 pm  

  • Ok, this is off topic, but I didn't realise that Bart's from Chinese High too. 大师兄!(translated: great senior!)

    By Blogger Aaron, at 12:06 pm  

  • Don't forget that not only will the poor get income support, the rich will also get a lower income tax rate. So, supposedly, in theory (without knowing the details numbers), nobody is being robbed, and supposedly, nobody will benefit either. The government is merely restructuring the tax so in the end, they don't collect any more (or less) than before.

    By Anonymous george, at 12:11 pm  

  • Aaron,

    Eh, dun anyhow say hor. KTM's chopsticks only used to handle food and not used for poking egos okay! You say like that, scully ENV come after KTM for food hygiene and force him to close shop how? :-)


    Perhaps you forgot the middle-income folks? They don't currently pay income tax (and even if they do, they are not in the highest tax bracket), so the reduction in income tax doesn't help them. Neither will they qualify for the dunno what welfare policies for the poor. :-P

    By Blogger kwayteowman, at 1:24 pm  

  • Well, the economics of GST is indeed complex. But we have been looking at the numbers. I like to think more simpler. We have poor people, the government increases GST to help the people. But we have poor people for a very long time. Why are they suddenly so concerned about the poor people? If the increase really helps the poor people, it is OK. What if it is not? We are talking about politicans here, not charities. Everything they do have some intentions (there are two types here). What we cannot see clearly is their true intentions. Again, we will never know. And, we are the citizens of (whose?) Singapore...

    By Anonymous Layman, at 1:55 pm  

  • The equation is silly.

    they try to add 2% GST to lower coporate tax at the same time offer an offset package to give back the 'poor' their 2% at the same time help them.

    I would question if the 2% is really enough to do all these. I think a lot of assumptions are made, but I am inclined to think that it is not enough.

    I think you are only looking at with from the increase GST perspective without factoring the impact of reduced coporate tax. What does reducing coporate tax mean for the big MNC? More profits? Bigger payouts for a job well done to increase the companies bottom line? So what is so difficult about increase income tax. The rich will get richer. If they are reducing income tax too, it means that they are taking from the poor to fund the rich because the rich are the ones that can make sure singapore survives for the long haul.

    Anyway I am no economics expert but the justification you gave made no sense to me. It almost sounds like the government is loaning money from the citizens to do what they need to do (which of course we don't know what they are doing ie subsidising huge losses from overseas investment like optus and shin corp that run into billions) and hopefully able to pump back a bit more money into the system and help the poor. This is the scenario. A poor beggar comes to ask you for help. You say alright please me $2 first and I promise you an offset package that will satisfy you. Now the beggar does not know what the offest package entails. By the time they get done with the adminstrative details on what the offset package is the beggar might have starve himself to death or jump the MRT tracks, because he just gave his reminder $2 to you trusting in you.

    If the government is really interested in helping the poor, they just need to come out with a comprehensive plan to help them not just learn how to fish but also give them the fish to tie them over for the moment. If they took a bit longer to learn how to fish they starve before learning how to catch one. Is this the responsibility of the government? Well the money is definitely with them . They are the appointed guardians to make sure no one gets left behind!

    By Blogger palmist, at 5:37 pm  

  • Greg Mankiw on corporate taxes:

    By Anonymous Guofeng, at 7:14 pm  

  • Margaret Tatcher's poll tax was levied in the context of an existing council system that provided public services to the residents within a certain borough. It was not meant in anyway to be a subsitute for existing tax structures , but instead as a discrete policy to cap funding of local government (mainly administered by members of the opposition labour)who were overspending.

    Even with its introduction in 1989/1990/1991, the amount of poll tax levied per head was different in different boroughs due to differences in government grants (sometimes varying greatly), amounts of taxation paid by local businesses and density of population (same public services provided to a household avergaging two to those averaging five). There were high deliquency rates (by principle or by neccessity) resulting in higehr taxes for the remainder who paid. All in all, burden was shifted to those unlucky enough to be in poorer neighbourhoods - which were usually Labour party dominated (the original intention w as to reduce the amount of grants to fuel their socialist tendencies), high population density, and lower number of businesses. As expected, the poll tax began to rise from its inception due to the inequalities.

    In your abstract, the main justification for a poll tax is to provide an authority with taxation without distorting the market. However, no economy or society exists within an abstract, isolated from all other factors, political or otherwise. A perfect tax in your words may still lead to imperfect results.

    By Anonymous Ibn Battuta, at 9:04 pm  

  • Oh for God's sake, the best way to finance expenditure? Cost-cutting! Trim your bureacracy to increase the productivity!!! Econs 101 can tell you that!

    Do we need so many MPs??? At this price $10k, for complaining about pple complaining??? Do we need to pay ministers so much more $$$ compared to the other world leaders??? So that they can come up with this brilliant solution???

    Oh please, for the love of God, go check your head.

    By Anonymous Anonymous, at 2:15 am  

  • 'An undergraduate economics student will know that this creates what is known as a excess burden - which is a loss to society. Why? Because the relative prices are distorted by the uneven application of the tax, people over consume those goods that are exempted and under consume those that are not. It becomes a resource distortion to the economy - resources are not allocated to the goods most highly valued, but by the favouritism of the tax.'

    as a professor in economics, i must disagree with this statement. if all food items are tax exempted, there is no substitution, and the consumption pattern would be the same. one cannot eat shoes or handbags to substitute for foood. and no food items will be over consumed as you mentioned. further, if one can consume one plate of rice, that is all one can consumed. no elasticity in demand.

    what is philosophically or morally wrong is the concept of taxing the poor or making the poor pay as much as they can. and when they are about to become mrt jumpers, then throw them a few crumbs. or the generosity to play santa claus and make the poor come begging for it when they need not if not because of the higher tax or higher cost of every basic things they need.

    a more enlightened being, a merciful person, will not come out with policies that required the poor to beg for mercy.

    i also post at

    By Blogger redbean, at 3:14 am  

  • Agree with Red Bean. I do have a question - if the budget says that 1 % is spent on health or social services, do they report how many precent is actually used up at the end of the budget period? If 2 % of GST is slated for the poor and X billion is collected in GST and x billion is budgetted for the poor, can we know how much is really spent on the poor at the end of the budgetted year? And if it is not spent because "Mr Tan did not apply for it" where does it go to? To Mrs Ho and Friends punting habits? I know welfarism is a dirty word and MPs / CCC volunteers should not actively ask - do you need a handout? So I think the rationale of the GST rise - to help the poor - is a tad too unbelievable. It will be interesting to hear the parliament debate and how they can package this for the66.6%

    By Anonymous Anonymous, at 5:12 am  

  • Hi Bart, I've written a long post that probably can't fit comfortably into your comment box. I hope you will read it on my blog

    In essence, I think the GST hike is economically sound, but I wonder if it is the most efficient way.

    I am worried that we focus too much on the hike and neglect that the government is also moving to change the constitution with regards to capital gains from investing national reserves.

    I was very impressed with your post. In terms of writing, it was a pleasure to read, but maybe you can simplify/explain/annotate the economic jargon? I understood most of what you said, but then again I happened to major in Econ as an ugrad.

    Like KTM said, keep writing!

    By Anonymous Anonymous, at 5:56 am  

  • Did I just see a post which Aaron spoke singlish? That's a first I believe

    By Blogger Chris, at 9:51 am  


    Just because my blog has been viewed 312 times in the last fortnight or so, LKY got his ISD agents living and operating in the flat above mine to vandalise my fridge spoiling all the food in the freezer, about $100 worth or so. By now, my aircon, electric typewriter, fax machine, computer hard drives, DVD players, etc, etc, have been vandalised costing me more than $2,000 in repairs/replacements.

    These vandalism attacks are not new and have been ongoing for 15 years. I have long documented these in soc.culture.singapore. To know more, if you are interested, do a search there using the search term... RH: LKY crimes... Or visit my blog above, which details proofs that LKY rigged the Cheng San GRC election in 1997. I have 2 eyewitnesses to this sordid deed. That is why Cheng San disappeared from the electoral map after 1997. LKY lost there and could not afford to contest it ever again.

    Robert HO

    By Blogger Robert HO, at 1:57 pm  

  • Well your suggestion of 'robbing' both Prosperous Peter and Poor Paul, and at the end of it all giving back the Paul more than what was taken is refreshing. sounds logical at the first glance.

    Possible - if economics was that easily appliied into real life. but this isn't the case so unfortunately. If university economics could be that effective, then why till now the problem of resource misallocation is still pretty much in existence?

    I agree with Aaron (the guy who wrote the blog claim in the first paragraph) that instead of using GST increases (which is bound to stir emotions), why can't other more direct hands-on approaches be utilised. I mean, why don't Poor Paul be given money straight out in terms of 'financial packages' instead? Adding GST into the equation just confuses thing.

    Yes, I do agree that GST taxation is one of the plausible ways to solve this problem - but I'm sure there are better ways out there.

    Keep writing =)

    By Anonymous Jimmy, at 10:57 am  

  • Hi the economic expert,

    Any comments on

    By Anonymous Anonymous, at 12:56 pm  

  • To Jimmy:

    You ask the following:

    >...why don't Poor Paul be given money straight out in terms of 'financial packages' instead?

    Well... that _is_ what an offset package is. Now ask yourself: Where is that money going to come from? Well, they could tax _you_ directly from your income tax, which is bound to annoy you, or they could raise GST.

    I mean, just because the government mints money doesn't mean it's free to mint it whenever it wants.

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