CPF forces people to save. 20% of an employee's salary is deposited into this fund, while the employer contributes between 12 - 16%. The employee cannot touch the fund until she retires at 65. Even then, CPF will retain a minimum amount which will be paid out as pension. The balance can be withdrawn by the retiree. This measure reduces the disposable income drastically for Singaporeans, because it raises the savings rate to around 50% of income after tax. But if this were not done, the majority of people would have undersaved and squandered their money. A dependency on the government for welfare and support when they reach an old age will develop. Look at the US and UK. People don't save and depend on the government due to the high taxes. But when people don't save and contribute to the government's coffers instead, there will be a free rider effect because everybody will try to raid the coffers until it is empty. The CPF can be used for medical expenditure and more importantly, to pay for housing downpayment. This is important because it encourages citizens to be home owners.
Getting into the property ladder is very important because real estate rises steadily, by between 5 - 10% per annum. The leverage effect increases the return on equity to 15 - 25% per annum. This ingenious idea by the government raises the wealth of Singaporeans. Owners of public housing, or the Housing Development Board (HDB) saw their homes rise by over 100% in the last 10 years. If a 2 bedroom flat in the suburb previously cost S$100k in 2002, it is worth well over S$250k today. If the owner paid S$10k from her CPF as downpayment in 2002, her networth would have grown by S$160k - 250k depending on how aggressively she paid off her mortgage. The mentality of a home owner differs sharply from a renter. A home owner works hard to pay off her mortgage, pays her taxes promptly and is seldom on a dole. A renter works like a mouse on a treadmill, living from hand to mouth with no hope of gaining wealth.
The OECD countries should learn from the Singapore government. When I travel abroad, from Paris to London to Hong Kong to Shanghai to Tokyo to Sydney, I often marvelled how Singapore's government ranks among the top few in terms of strategic planning and execution. Tokyo, London and Sydney / Melbourne are very well designed, beautiful cities. But Singapore's wealth was by sheer brains and industry. We have no beautiful scenery to behold, no stunning mountains and coastline, climate is hot and humid, people duck from air conditioned tunnels and malls to offices. But the city has managed to grow the wealth of its citizens to one of the richest in the world.
In the next article, you will see how Europe has gotten it all wrong. It attempts to create equality by raising taxes on top earners, financial investments etc. It effectively deterred investments and discourages the wealthy to live there. Entrepreneurs and the wealthy usually create employment, either through the companies they chair or their conspicuous consumption. These people should pay their fair share of taxes, no less than the middle or lower income, in percentage terms. They should not be forced to pay 50 - 75% of their income in taxes. It will deter people to work harder and plunge the countries into a deeper recession. So if you head to Europe, do notice the large number of refugees, or people who are jobless. They do not pay taxes at all and strain the system. If the rich and successful workers leave, who will finance the government?
PUBLISHED OCTOBER 11, 2012
Wealth down, but S'poreans are the world's eighth richest
S'pore's total wealth at US$1t in 2012; 249k millionaires in 5 yrs: Credit Suisse
BY
China will add US$18 trillion in household wealth by 2017, taking its total to US$38 trillion, according to a Credit Suisse global wealth report yesterday. - PHOTO: AFP
YET another report has appeared to say that Singaporeans are among the wealthiest people on the planet. And in five years' time, the number of millionaires here will surge some 60 per cent to 249,000.
But it's not all good news. It seems that Singapore's total wealth in 2012 fell by US$25 billion or 2.5 per cent to US$1 trillion, making it the third richest Asian country and eighth globally, according to the latest wealth report from Credit Suisse.
Last year, Singapore ranked second behind Australia and was fifth richest globally.
Singapore's total wealth declined by US$25 billion or 2.5 per cent to US$1 trillion from mid-2011 to mid-2012, mainly due to the reduction in household financial assets measured in US dollars.
The report, in its third year, defines household wealth as all assets - physical or property and financial minus debt. During the period under review, local stockmarket capitalisation was down 8.2 per cent and the Sing dollar fell 4.3 per cent against the US dollar but house prices rose 2 per cent.
Market volatility saw a 9 per cent fall in the number of millionaires here to 156,000 from 165,000.
But rest assured that the volatility is only a blip in Singapore's march to even greater wealth and Credit Suisse projects that in five years' time, Singapore will have 249,000 millionaires or 60 per cent more.
Forecasts of the two key components of financial and non-financial wealth are made using gross domestic product and inflation forecasts from the International Monetary Fund's latest world economic database, she said.
Over the last 12 years, despite market downturns and the global financial crisis, average wealth per adult in Singapore has grown by 7.1 per cent per annum, outperforming the global and Asia Pacific average of 5.8 per cent and 6.9 per cent respectively, she noted.
In the last 12 years, household wealth per adult in Singapore more than doubled (rose 129 per cent) to US$258,117 from US$112,800 in 2000.
Household total assets in Singapore are divided roughly equally into financial assets (48 per cent) and non-financial assets or property (52 per cent), reflecting the government's strong encouragement for both savings and home ownership.
"Despite a drop of 4 per cent in the past year, its average wealth per adult places Singapore as the third wealthiest nation in Asia Pacific and eighth globally, alongside many smaller dynamic economies including Switzerland, Norway, Luxembourg and Sweden, as well as Australia and G7 members USA, Japan, France and the UK," said Credit Suisse.
The report said the average household debt is US$45,600. While this is moderate for a high income country, at 18 per cent of net wealth which is also the global average, it is much higher than the Asia Pacific average of 13 per cent.
Asian countries with less developed financial institutions and credit markets like Indonesia (2.4 per cent), the Philippines (2.6 per cent), China (3.1 per cent) and India (3.8 per cent) recorded very low household debt as a percentage of net wealth.
"Looking ahead, household debt is expected to see faster growth in these countries than in the more developed economies in Asia Pacific and the world as credit markets and financial institutions mature," it said.
The distribution of wealth in Singapore shows moderate inequality. More than 80 per cent of the population have assets above US$10,000 and 48 per cent of the population have assets above US$100,000.
EU advances on financial transaction tax
Eleven nations join plan but it is divisive as others have strong reservations
[LUXEMBOURG] Eleven eurozone countries agreed yesterday to push ahead with a tax on their financial transactions, an initiative that several other EU nations oppose but which has been pushed hard by Germany and France.
The breakthrough was a surprise to many EU diplomats who had thought that Germany might fail to convince sufficient countries to join the plan, which has been in the works for two years.
After heavy diplomatic pressure from Berlin overnight, Spain and Italy agreed at a meeting of EU finance ministers in Luxembourg that they would support the measure. Slovakia and Estonia said that they would throw their weight behind it too.
That raised to 11 the number of EU countries prepared to push ahead with the proposal, exceeding the threshold of nine required under EU law to move ahead with legislation using a process called "enhanced cooperation".
Once nine of the countries have formally notified the European Commission, the EU executive and the body charged with proposing legislation of their commitment in writing, the Commission will begin drafting the law.
"Four additional member states intend to join enhanced cooperation, so it means that we arrive to 11 member states," EU Tax Commissioner Algirdas Semeta said. "When we will receive nine or more formal letters, only then the process will start."
As well as Spain, Italy, Estonia and Slovakia, the proposal has already been formally backed by Greece, Portugal, Austria, Slovenia and Belgium as well as Germany and France.
Yet it remains deeply divisive. Within the eurozone, Finland, the Netherlands and Ireland have strong reservations, and outside of the single currency group, Sweden is a vocal opponent of a tax it attempted to impose in the 1980s, only to see much of its trading shift to London at heavy cost.
"We still think that the financial transaction tax is a very dangerous tax," Finance Minister Anders Borg said ahead of the meeting. "It will have a negative impact on growth."
Britain, home to the region's biggest trading centre, has a stamp duty of 0.5 per cent on share trades, raising almost £3 billion (S$5.9 billion) in the financial year to April 2011. It will not join the scheme and has lobbied Cyprus to stay out as well.
Mr Borg's scepticism was echoed by the Dutch finance minister. "The Netherlands is not in favour of a financial transaction tax," said Jan Kees de Jager. "We are even reluctant about introduction in other countries."
It is not clear how much money the tax will manage to raise or how any revenue generated will be deployed. Germany and France have hinted in recent weeks that it could be used to finance a single budget among eurozone countries, but that is not supported by many others that back financial transaction tax.
The Commission has said that a tax on stocks, bonds and derivatives trades from 2014 could raise up to 57 billion euros (S$90.7 billion) a year if applied across all countries. - Reuters
