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Thursday, February 15, 2007

Government by Taxation

The acronymic joke on our political parties goes: the Peoples' Action Party or PAP stands for Pay And Pay; the Workers' Party or WP stands for Why Pay? and the Singapore Democratic Party or SDP stands for So Don't Pay!

Like many jokes, there is a germ of truth in it. But before we discuss why the PAP has rightly earned its epithet, can any reader or Lee Kuan Yew himself or any of his 10,000 party members and their even larger families and relatives tell us what the Action in the PAP's name means? It's really a dumb word for a political party. You would have imagined that there were lots of worthy words way back then in the 1950s when the party was formed, such as Independence, or Democratic or Socialist (now a little off-colour due to the advance of capitalist thought and practice, more practice than thought, actually), or Workers, etc.

It is perhaps instructive that Lee Kuan Yew himself has never explained what the Action stands for. Action as opposed to Inaction? Dumb! It is also perhaps indicative that the founder of the party saw for himself a vehicle for pursuing his political ambitions rather than any nobler goal of securing Independence from the British, advancing the Workers' cause or championing Democracy -- this last is now very evident, and the chilling point to note is that Democracy was never in the party's beginnings or its founder's mind.

So the PAP means Pay And Pay. Just how do we count the ways?

Like every government, the PAP collects monies from various taxes, such as corporate tax, income tax, consumption tax like our GST, levies on foreign workers, stamp duties, taxes on imports of a wide range of goods, etc. This is of course, normal and to be expected. One of the two certainties. But the PAP goes a great deal farther. It is highly creative when it comes to collecting monies from the people. Even ingenious.

How so? It is not the ambit of this little article to study the whole panoply of taxes but suffices to just point out some of the clever ways the PAP extorts from us, in the most important areas of our lives.

Take the basic fundamental right of shelter, or our flat. I have always wondered how prices of our flats are derived, why it can be so high in some countries and so low in others. For example, in Hongkong, a 1,000 sq ft flat would cost you nearly half a million Singapore dollars (of course, there is a great deal of variation due to location and other factors, so I'm just using very broad figures). A flat of the same size costs about S$150,000 in Singapore and (with very wide variations) about S$50,000 just a few miles across the Causeway in the town of Johor Bahru (even much lower for a low-cost public housing flat).

This would seem to suggest that the price of a flat has little to do with the actual costs of labour and materials that go into making it. I have deliberately chosen Malaysia and Hongkong because they are most similar to Singapore, in many ways. If I had chosen Indonesia, the price of a 1,000 sq ft flat there, in most areas, would be a mere pittance. True, land costs are higher in Hongkong and Singapore and lower in Malaysia. True, labour is cheaper in Malaysia but don't forget that most of our construction workers are foreign cheap labour who probably get less than S$1,000 a month. So the argument is valid that labour and material costs are not high enough to make the vast difference in prices of flats. /p>

What about land prices? Again, it is true that land is pricier in Singapore than Malaysia, but it can be pointed out that flats in Singapore are much higher-rise than in Malaysia so if land prices are higher, they are divided among more flats in a high-rise and therefore cost less per flat, than say, in the low-rises in Malaysia. So land prices are not terribly influential. Also, remember that the PAP has state land for free or pays only a pittance for acquiring private land (thanks to state laws). It has free land to even give away, as announced days ago when it granted 64 hectares of land for the army reservists to build an 18-hole golf course one-fifth the size of Sentosa Island. So if labour and materials are not that important in dictating the price of a flat, and neither are land prices, so why does a 4-Room Flat cost S$150,000 and not say, S$100,000 or even S$75,000?

The reason seems to be more of a captive market phenomenon. We have to live close to our important activities, such as work, family, relatives, friends, schools, food, leisure, recreation, etc. We have no choice. Also, the relative affluence of our people seems to allow flats to be marketed, not on a cost-recovery basis, but on what the market will bear.

Which is probably why it is higher in Hongkong and lower in Malaysia. Except that, in Singapore, the HDB houses 88% of us and thereby controls practically all of the market for housing. It is a market maker in the absolute sense of the word. And because it sets the level of prices for 88% of the housing, it thereby influences the prices of the small percentage of private housing as well. In other words, if the HDB were to halve its prices overnight, prices of all housing in Singapore will drop overnight. Conversely, if the HDB's policy is to inflate its prices gradually every year, prices will steadily rise, both private as well as public housing. And this is what it has been doing. No other country in the world has that much control over its housing prices than the PAP in Singapore, not even in Hongkong, which has a large private housing sector.

In fact, if my memory serves me right, Mr Low Thia Khiang of the WP asked in Parliament decades ago if the PAP were not profiteering from its HDB flats. He mentioned that a quantity surveyor would probably assess the cost of a typical flat at no more than about S$30,000 when it was priced by the HDB at several times that.

It is probably because the PAP is so confident of its policy of inflating prices every year (with minor hiccups due to the economy) that it has this outrageous policy of demanding a 20% cut or tax or whatever you call it of the resale price of a flat when a flatowner sells it on the open market. Which is another example of the Pay And Pay principle.

If we next consider the car, the PAP principle becomes even more evident. To be entitled to own a car, you fork out about S$30,000 for the privilege, less during recessions when less people bid high. This Certificate Of Entitlement, or COE, is also poorly named because it does not go with the owner who bid for it but instead, goes with the car when you sell it. So it is not so much an entitlement as another tax on the car, in addition to the other taxes, which are: a customs duty of 41 per cent ad valorem; a Registration Fee of S$1,000 for private vehicles and $5,000 for company vehicles; and an Additional Registration Fee (ARF) of 150 per cent of the car's Open Market Value. PAP again.

Decades ago, one letter to the Straits Times Forum grumbled about all this profiteering and wondered if COEs could not be distributed without costly bidding, which invariably drives prices up. The obvious alternative is, of course, a lottery for citizens only or some kind of a socialistic on-a-need basis. But again, with the PAP principle of Nothing Is For Free, nothing came of it.

We have discussed the two big areas of our lives, the house and the car. Next should be our money.I do not intend to venture into income tax because that's for accountants and specialists and involves state spending and funding of state activities. However, a few basic observations of the Central Provident Fund or CPF are in order. For decades now, all who earn a salary in Singapore, have to give up no less than 40% of their salary into their own Central Provident Fund account (up to the first S$6,000 of salary). This is a whopping, mind-boggling percentage of forced savings probably unseen in any other part of the world. This 40% comprises 20% from the employers and 20% from the employees (currently at 16% awaiting restoration to full 40% when the economy recovers).

Thus, the State, every single month, gets 40% of all the workers' salary to play with, and play with, it does, because its track record of keeping our CPF monies safe and invested has been poor (do a Site Search of this website for Mukul Asher's reports on the CPF Board's performance) and because the interest given by the Board is very low, unlike a real pension fund, members get almost no returns and sometimes negative returns on their money -- an 'implicit tax' as Mukul Asher described it.

So, in the 3 big areas of our lives, namely our flat, our car and our salary, the PAP has found ways to take big chunks of our money. It is totally in accordance with Machiavelli's teachings of "The State must be kept rich and the people kept poor." And Machiavelli is no stranger to the leaders of the PAP because no less than S. Rajaratnam quoted him.

This genius for spotting opportunities to levy another tax or levy on any activity needed or desired by the people is carried in all other areas of public policy. For example, to reduce road congestion, you pay to get into the Central Business District or crowded roads (initially by buying a coupon but now by electronic deduction of a cash card when you pass under a toll gantry). If you want to hire a domestic maid, you pay a Maid Levy of S$345, and most maids don't even get paid that much. Similarly for other foreign workers.

In other words, charges and fees for government services are not on a cost-recovery basis, much less a subsidised basis ("subsidy" is a dirty word in the PAP lexicon) but on a cost plus basis, with a nice little profit thrown in. Health care costs are a particularly cruel area to indulge in this kind of policy approach because with few exceptions, nobody wants to be sick or deliberately court illnesses and diseases. The PAP does not seem to understand that we cannot help falling sick. This is because most of the PAP, especially people like Lee Kuan Yew and his Son exercise, eat and live such medically perfect lives, with regular checkups and screenings, that falling ill does not happen, or so it seems.

To conclude, the PAP has slipped, deliberately or unknowingly, into an unthinking mindset that automatically employs money as the main solution to all problems they encounter. If car ownership is too high, tax car ownership. It roads are too crowded, tax road use. If flat-building is limited, make flats expensive. If too many people want maids, tax them. If too many people smoke, tax cigarettes. If too many patients cancel their appointments at government hospitals, penalise them monetarily.

It has become government by taxation. The immediate response to any social or infrastructural problem. The only way to govern. Other ways demand thinking and our PAP leaders have never been particularly strong in that area. Government by taxation is a quick palliative that obviates thinking. It is a fix-all that can be applied quickly and easily. No need to be creative or to consider the human costs. We are all digits that can be manipulated infinitely by money incentives (like the Baby Bonus) or better still, disincentives since that swell the State coffers.

Ironically, government by taxation is very efficient since there are no human considerations to ponder, no social costs to agonise over, and no need to recognise that the policies can be very unfair to those who do not fit neatly into the tidy little categories that these policies are designed for. The larger purpose is often served, but at the expense of the minority who cannot be allowed to be the exceptions to the rule.

Government by taxation may well be very effective and it also gives the PAP control over vast sums of our money. It also explains the paradox of why so many Singaporeans cannot make ends meet while the statistics show that they have one of the highest per capita incomes in Asia. The State must be rich while the people must be poor. There is no such thing as a free lunch, let alone breakfast or dinner. Nothing is for free.

So, dear reader, if you are happy with this big aspect of your life and government, continue to vote for the PAP. It you are one of those overlooked by this 'government by taxation' approach, and want the PAP to begin recognising that there are other, fairer, more humanly acceptable approaches to public policy, send them a clear signal in the coming General Election and vote Opposition. If not, you will surely pay for it.