CPF

[CityFarmer]

Academics and economists in the US or in general are split into two camps - the right leaning ones who tend to be Republicans, and the left leaning ones who tend to be Democrats. The Republican types call for less taxes for the rich and support trickle-down economics. This has largely been the dominant model since 80s Reagan and responsible for the state of the rich-poor divide and inequality today.

I read the article, the same way as I read analyst reports. I focus on facts presented, rather than the opinion of author.

What your opinion after digested the facts (in this case the numbers) presented? Let's forget the author opinion.

It is a cute tale. But fallacious and aimed to argue for less taxes for the rich. What is borne out in the real world shows otherwise.

If the 10th man leaves the table. It just means there is now more beer for the rest. Also it is assumed that the price of beer or the bill is fixed, which is not the case if demand drops as one less drinker now.

So like I said, cute story.

It is a cute tale, but not fallacious. It is as cute as the tale of cruiseship vs sampan 2.0, but very real.

I am not arguing for less tax for the rich, similarly in the "cute tale". It highlighting a fact, the rich is paying more now. Rather than recognising the fact, the "beer group" "solved" the inequality by beat up the tenth man, and push him out of the beer group.

This is not a solution for solving inequality. It is the main point of the "cute tale".

[egghead]

For one, the excess returns earn is not channelled to govt expenditure as we have a balance budget. This means the difference of 2.9% each yr goes into our national reserves and accumulates. It is also possible part of the interest accrued from the excess amount returns into the budget as net investment returns (since CPF proceeds are lumped together with all of Singapore assets)

CY09, here is MOF reply to Gerald Giam on his question of investment return. So of the 2.9% differential, 1.45% (half) goes into our budget spending.

[CY09]

Thanks egghead. So in a way, for every 6.5%, we get 3.6 with govt takes 2.9 as 'fee' for taking investment risk, channelling 50% of 2.9 into our budget as revenue to spend, can we term this 50% as tax?

Did I miss out anything?

[yourusualkid]

It is a cute tale, but not fallacious. It is as cute as the tale of cruiseship vs sampan 2.0, but very real.

I am not arguing for less tax for the rich, similarly in the "cute tale". It highlighting a fact, the rich is paying more now. Rather than recognising the fact, the "beer group" "solved" the inequality by beat up the tenth man, and push him out of the beer group.

This is not a solution for solving inequality. It is the main point of the "cute tale".

Not exactly though, the argument is premised on the model that more taxes equates to higher economic growth. A somewhat problematic proposition considering that it's not a linear relationship and corporate taxes accounts more for of our country's revenue than income taxes. A healthy economy is much more than just having low taxes and encouraging Foreign Direct Investments.

Even if we do take the "tale" to be somewhat true, it would still assume that there would be a bar where it is safe to drink, where liquor prices are stable, where it's a familiar environment (similar bars with the right environment where all things being equal). Which is why it's problematic applying notions of rational economic behaviour models to complex economic issues, where it's more of an issue of political economy than economics.

[piggo]

To be honest, I've only looked at the scheme for my age group. We are only allowed to withdraw anything above the minimum sum. If we don't meet the minimum sum, our houses will be pledged to reach the minimum sum i.e we can be evicted if we live too long. However, thanks to the minimum sum, we'll be automatically enrolled to CPF Life that will give us an approximate 1.2k/mth in living allowances.

I'm not aware that you can be evicted if you live too long just because you pledge your property for the minimum sum. Which policy is that? However, I do know that if you over extend and buy a property that is beyond your means, and that you have to continue paying mortgages long after you stop working, then you may have a problem. But that has nothing to do with minimum sum or CPF; but everything to do with a lack of financial prudence.

So after locking up our savings in a negative real interest rate account... They are only willing to pay us back a insignificant amount after every month. Those who are not blessed with long life, loses... those survivors runs the risk of losing the roof over their heads.

Again, if you are getting the money back, it is not a tax. In the end, you may not get all back, but that is because in an annuity, its risk pooling and those who live long long will get more. And I still don't know where the risk of losing your roof comes from.

Pledging your house value to top up the minimum sum... That's a form of mortgage no? Which means CPF can claim your house to make up for the shortfall... Be it reducing the 99 years lease to something lesser or marking it to market during a downturn. Basically we are forced into a scheme whether or not we like it or not.

"Withdrawing" money from CPF to buy your house is a farce... Because you're just borrowing money from CPF. Upon liquidation, for whatever reason, returning the money (with interests) to CPF is the top priority.

[piggo]

Losing your roof comes when you live past your house's tenure.

[Zelphon]

To be honest, I've only looked at the scheme for my age group. We are only allowed to withdraw anything above the minimum sum. If we don't meet the minimum sum, our houses will be pledged to reach the minimum sum i.e we can be evicted if we live too long. However, thanks to the minimum sum, we'll be automatically enrolled to CPF Life that will give us an approximate 1.2k/mth in living allowances.

I'm not aware that you can be evicted if you live too long just because you pledge your property for the minimum sum. Which policy is that? However, I do know that if you over extend and buy a property that is beyond your means, and that you have to continue paying mortgages long after you stop working, then you may have a problem. But that has nothing to do with minimum sum or CPF; but everything to do with a lack of financial prudence.

So after locking up our savings in a negative real interest rate account... They are only willing to pay us back a insignificant amount after every month. Those who are not blessed with long life, loses... those survivors runs the risk of losing the roof over their heads.

Again, if you are getting the money back, it is not a tax. In the end, you may not get all back, but that is because in an annuity, its risk pooling and those who live long long will get more. And I still don't know where the risk of losing your roof comes from.

Pledging your house value to top up the minimum sum... That's a form of mortgage no? Which means CPF can claim your house to make up for the shortfall... Be it reducing the 99 years lease to something lesser or marking it to market during a downturn. Basically we are forced into a scheme whether or not we like it or not.

"Withdrawing" money from CPF to buy your house is a farce... Because you're just borrowing money from CPF. Upon liquidation, for whatever reason, returning the money (with interests) to CPF is the top priority.

Guess this is the reason why people are selling off their HDB at age 54 so as to get some cash on hand before everything gets locked up and transferred to RA at age 55...

[egghead]

Thanks egghead. So in a way, for every 6.5%, we get 3.6 with govt takes 2.9 as 'fee' for taking investment risk, channelling 50% of 2.9 into our budget as revenue to spend, can we term this 50% as tax?

Did I miss out anything?

Yes, you did.

We put our money into CPF, tax free, to get 3.6% (your calculations). We get to use all of our own money plus 3.6% guaranteed and compounded; plus allowing us to withdraw anytime for property, investment, hospitalization, etc. To meet these requirements, CPF board places most of the money on SSGS. How else to guarantee? GIC/Temasek not going to guarantee. GIC/Temasek can get money from the market much cheaper than what CPF is asking.

As fellow VBuddy specuvestor mentioned before, it will be different if CPF members are willing to accept that their accounts will go up and down. But you know too well the NIMBY mentality don't you? Do you want to be the one to be withdrawing when you turn 55 and the return is -20% for that year? If not, then how? No deal again.

In short, we cannot demand for the 2.9% (much less claiming that is your tax payment) as CPF member because that is GIC's return for taking risk. The good thing is that these returns are used to supplement the annual budget which benefits lower/middle income Singaporeans more than the higher income; and also to grow the asset to generate larger return.

[egghead]

piggo, Zelphon

Could you write to CPF and ask them if pledging your property for the minimum sum means you are mortgaging your property? I don't want to do their job.

[piggo]

Uh... Can just Google for the differences between pledge and mortgage.