Saturday, November 18, 2006

"If you believe everything you read, better not read." - Japanese Proverb

***

Some people oppose the GST hike because it is regressive - the rich spend a smaller proportion of their income than the poor, especially on items covered by the GST. Yet, the tax hike should be supported despite - nay, because - it is regressive.

The rich are the most productive members of society, and the poor are the least. Taxing productive people at the same rate as unproductive people not only distorts the incentives to work (and creates deadweight losses in the market) but is grossly immoral.

The Singaporean government recognises this point, which is why it has what is probably, next to Hong Kong, the lowest taxes in the world. In a globalised world, capital and skilled labour are eminently mobile - if you raise taxes, they will just move to other countries. They should thus be taxed lightly, if at all. Lowering corporate and income taxes will thus attract international investors and stop brain and capital drain.

Meanwhile, to make up for tax shortages, the poor can be hit with regressive taxes like GST and even a poll tax; unlike the rich they are unable to migrate and will be hit with the full force of these measures. Some recommend a higher rate of tax on luxury items, but demand for these products is more elastic than for necessities. To raise tax revenue, it makes more sense to tax necessities (ie If you increase taxes on LV handbags, people will buy fewer handbags, but if you increase the taxes on rice, people still have to eat).

If it were possible to fill the coffers this way, a regressive income tax should even be implemented (ie The more you earn, the less tax you pay). This will encourage people to work harder and be more productive, and promote the principle of meritocracy on which Singapore's survival rests.

With these measures in place, we will definitely see more years of robust growth to come.

3 comments:

  1. Anonymous6:56 pm

    In fact when someone doesn't be aware of then its up to other viewers that they will help, so here it takes place.

    Review my blog - macrogol

    ReplyDelete
  2. Anonymous1:57 am

    Whats up! I just wish to give a huge thumbs up for the good
    info you will have right here on this post.
    I shall be coming again to your weblog for extra soon.


    Also visit my site ... cosmetic surgery insurance plan provisions

    ReplyDelete
  3. Anonymous1:35 pm

    Hello! I just want to give a huge thumbs up for the good data you’ve here on this post.
    I might be coming back to your weblog for extra
    soon.

    My web-site - american indian music online

    ReplyDelete