economics

Sunday, May 10, 2009

A nasty Brown mess
Apr 30th 2009From The Economist print edition

The politics behind Britain’s tax changes are ugly. The economics are worse

JEAN-BAPTISTE COLBERT, Louis XIV’s finance minister, famously said that the art of taxation was like plucking a goose; the aim was to get the most feathers with the least hissing. But tax policy should aim to do more than smother protest: it should also seek to raise the most money with the least distortion to economic activity.
By this measure, Britain’s attempts to fill the fiscal gulf created by recession are a dismal failure and a lesson to cash-strapped governments everywhere. Take marginal income tax rates, announced in the British budget of April 22nd. Once national insurance is added in, effective marginal rates will climb from 31.5% to 41.5% through to 61.5% on those earning just over £100,000 ($147,000), thanks to the withdrawal of the personal tax allowance.
After that, the rate will fall back to 41.5%, before rising again to 51.5% on incomes over £150,000.

The bizarre incentives of income tax are only the start. High earners also face the withdrawal of tax relief on their own pension contributions and a tax charge on the “benefit-in-kind” provided by employers’ payments into their schemes. Depending on how much the employer contributes, this will push marginal rates well above 50%. It will also discriminate against employees in defined-contribution, or money-purchase, schemes where employers match what workers put in. But the effect is not uniform; the convoluted rules will mean some high earners will get more tax relief on their contributions than they did before. What a mess.
As recently as 2006, the government drove through a reform of the pensions rules that simplified a notoriously complex system. Employees could, in effect, make pensions contributions when they felt flush and still get tax relief. Those reforms were a much-needed incentive for employees to build up their pensions at a time when many employers were abdicating responsibility for providing a decent income in retirement. The new rules return pensions to the complexity of string theory.
The best tax systems combine low rates with minimal exemptions. Businesses and citizens should be making decisions based on their economic opportunities, not the advice of their accountants. But Gordon Brown is too clever by half. He introduced a sliding scale that made capital-gains tax highly complex, and then reversed himself, introducing a single rate of 18%. The effect was both to raise the tax rates for sellers of small businesses and to introduce a vast discrepancy between the tax rates on capital and income. An attempt to introduce a levy on foreign workers (known as non-doms) was botched, and may yet drive many high-earners out of the country.
These wheezes were designed chiefly with politics in mind: all those nasty plutocrats deserved a hammering. By putting economics second, Mr Brown has made it harder to balance the books. Waste and lower growth because of poor tax policy will only make the fiscal hole harder to fill. The new tax will do little to reduce Britain’s budget deficit. On the government’s own forecasts, which assume the wealthy will not change their behaviour, the assault on the rich will raise just £7 billion. With avoidance, the tax will raise still less.

Brown’s goose cooked
Although higher taxes would be a mistake in a recession, they are inevitable when growth returns. The rich should pay their share, but governments cannot repair their finances merely by plugging holes or using stealth taxes. The sums are too great. They will have to raise money from the majority of citizens and they should do so in a clear and open fashion.
The aim should be to reform and broaden the tax base. During the boom, the British government became too dependent on financial services, raking in money from income taxes on bonuses, capital-gains taxes on rising share prices or corporation taxes on bank profits. One reason its deficit has risen so quickly is that those revenues have evaporated. They may not return again for some time.
Governments will need new sources of revenue, just as value-added tax, introduced in Britain in the 1970s, became a counterpart to income tax. Carbon taxes are one possibility. The lingering tax privileges of residential property could also go. The need is for decisive action, rather than fiddling. Meanwhile, the Treasury says that it is still “consulting” on the new pension rules. It should consult the book of common sense.

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CORN ---> World hunger Vs. Thirst for petrol?

Labels: cash crops, corn

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This is about the issue of drugs in USA. Drugs is considered a demerit good as the US govt deems it socially undesirable (ILLEGAL) as it imposes much EMC EMC EMC.

In the vid, it tells us that by locking up drug addicts, there is SMC = PMC + EMC as "you never know if the future scientist/artist/etc might be one of those addicts."

-Amanda

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Friday, May 1, 2009

S'pore has reason to be quietly confident despite downturn, says PM LeeBy Hoe Yeen Nie, Channel NewsAsia Posted: 30 April 2009 1839 hrs

SINGAPORE: Even as the world financial crisis deepens, Prime Minister Lee Hsien Loong said Singapore has reason to be quietly confident. In his May Day message on Thursday, Mr Lee said the country must use this crisis to prepare for a different and more competitive world.

Over the years, Singapore has prospered by servicing Asia and the world, and in this time of global uncertainty, the country must stay open to the world by embracing competition, instead of shying away from it. The prime minister said the downturn is an opportunity for Singapore to attract the best talents from around the world and to upgrade knowledge and skills of its workforce. Mr Lee also sounded a note of optimism about Singapore's economic strengths. He said its banking system is sound, wages are flexible and many jobs are still available. Besides employment opportunities in upcoming projects within the tourism industry, Singapore's economic agencies are also continuing to bring in foreign businesses, while helping Singapore companies to sniff out new opportunities overseas. "In Singapore, our response to the crisis has been rational and constructive. Unions, employers and government are working together to find practical solutions to explain to Singaporeans what is happening and what we must do to see through the downturn," said Mr Lee.
He called on employers to cut costs to save jobs and to see retrenchment only as a last resort. At the same time, Mr Lee added that workers, too, can play their part by managing expectations.
They should upgrade their skills to help ensure a more productive and competitive labour force to better deal with economic recovery when it comes.
- CNA/so

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Sunday, March 22, 2009

Agence France-Presse - 3/21/2009 2:26 AM GMT
Singapore may take up to six years to recover: Lee Kuan YewSingapore's recession-hit economy may take up to six years to recover in a worse-case scenario, influential founding father Lee Kuan Yew said.
"The optimistic scenario is, two to three years, we're out of this," Lee told an audience at a local university late Friday.
"At the worst, four, five, six years... Because we are export-dependent," he said, adding the country's "imports and exports are the highest in the world as a percentage of GDP."
Singapore is forecast to slip into its worst recession this year with the economy likely to shrink by up to 5.0 percent. The city-state's worst recession since independence in 1965 was in 2001 when the economy contracted 2.4 percent.
The city-state was the first Asian country to slip into a recession when figures released in October last year showed the economy contracted for two straight quarters in the period to September.
Lee, an adviser in his son Prime Minister Lee Hsien Loong's cabinet with the title minister mentor, said earlier this month the economy may contract by as much as 10 percent this year if exports continue to fall sharply.
The latest trade figures released last week showed Singapore's key exports plunged 24 percent in February from a year ago as shipments to its key markets including the US continued to decline.
The government's official projection is for the trade-dependent economy to contract between 2.0 and 5.0 percent this year after growing 1.1 percent in 2008.

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Saturday, March 21, 2009

THE worst since independence.

That, so far, has been the catchphrase to describe the recession facing Singapore.
But in an exclusive interview with the BBC, Prime Minister Lee Hsien Loong has gone one step further, saying that Singapore is facing its worst economic crisis since World War II.
Singapore's exports are falling at their fastest rate since records began - sliding 35 per cent in January and 24 per cent last month.
Some experts fear the economy will contract by up to 10per cent this year.
In the interview with the BBC's South-east Asia correspondent, Mr Jonathan Head, PM Lee explained how Singapore will cope.

PM Lee: I think it's the most severe since the war.
We've had ups and down before, but this one is not only much sharper and deeper but, I think, qualitatively different because it's a worldwide problem... It's not just a cyclical recession but a financial crisis of the whole global financial system.
Mr Head: Your government has taken a number of unprecedented measures, a huge $20 billion stimulus package, dipping into your reserves for the first time... Are these measures enough, you think, to compensate for the impact of this crisis?
PM Lee: They will help us to reduce unemployment, reduce job losses... they will help companies to remain viable.
But we must understand that what we can do is to buffer the impact. You must wait for the storm to pass.
Mr Head: Do you think this region has been too complacent about its dependence on Western markets in the past?
PM Lee: We've had no choice. I mean, the whole world is plugged in as one globalised world. Consumption, the markets are in America. India and China have been growing rapidly and their markets have been growing rapidly.
But on the world scale, they are still very small, and maybe one-third, one-tenth of the American and European markets put together.
Mr Head: But has there been a failure to focus on developing domestic markets in the Asia-Pacific region, among your neighbours...?
PM Lee: I think big domestic markets, if you're looking at it, will be China and India. The way to develop the markets will be to raise their standards of living, then they have the money to consume.
Mr Head: Looking here at Singapore, what can I understand from you about the huge paper losses that have been made in the two big sovereign wealth funds here, in Temasek and GIC, because on paper, they've done very badly over the last year.
PM Lee: Well, the value of the portfolios have gone down... 20, 25 per cent... everyone has taken a hit, whether you are Harvard, Yale, Stanford or the Norwegians.
If you're in the markets, you have to ride the ups and downs.
Mr Head: Your own family has been quite involved in these funds. Your wife, until recently, ran Temask. Your father's deeply involved in GIC.
Is there a risk that when the news is bad, as it has been over the past year for these funds, that people will tend to blame your family rather than look at the institutions?
PM Lee: I think the way you put it is not the way things work in Singapore.
Minister Mentor is chairman of GIC not because he's my father... it's because he's the best man for the job and he has been chairman since he was prime minister.
And Ho Ching is CEO of Temasek not because she's my wife but because the chairman of Temasek, who is Mr Dhanabalan, and the board decided that they wanted to appoint her as CEO.
And they are there as long as they are effective, performing, and if they don't perform well, they have to take up consequences.
Mr Head: I think you are talking about perception, and perception is important in politics.
In difficult times like this, do you think that, in retrospect, it might have been better for your family just to have a lower profile?
PM Lee: (Laughs) Life would be much easier for me if the Minister Mentor is not my father and Ho Ching is not my wife.
But they are there... this is the way Singapore has worked. I think Singaporeans have understood that this is how the system works, and they will render judgment when elections come.

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Drop in annual pay ahead for civil servants
By Loh Chee Kong and Cheow Xin Yi, TODAY Posted: 20 March 2009 0710 hrs
SINGAPORE: With the dismal economy showing few signs of recovery, civil servants can expect their pay package to shrink in the year ahead.
TODAY has learnt that civil servants — who are awaiting news on their annual performance bonuses and pay increments as the financial year draws to a close — received a circular via email from the Public Service Division (PSD) in the Prime Minister’s Office, priming them to “expect to see a drop in annual salaries” this year.
Senior officers will see a larger percentage cut. But deserving civil servants will continue to be rewarded with performance bonuses and increments — albeit at lower levels than last year.
Dated March 16, the circular, a copy of which was obtained by TODAY, was signed off by PSD director (leadership development) Ong Toon Hui.
Contacted by TODAY, various civil servants in several ministries, including rank-and-file staff and those in junior management positions, confirmed receipt of the circular.
The news should perhaps come as little surprise, given that civil service pay is in part linked to economic performance, with components such as the GDP bonus — which will be zero this year, noted the circular.
But even so, one civil servant who works in education was “surprised”, given how the public sector has been ramping up hiring — by 18,000 over these next two years, to be precise.
She was comforted by the fact that deserving employees would be rewarded. “If they deduct our performance bonus, everyone is going to be very demoralised,” she said.
While the Amalgamated Union of Public Employees could not be reached for comment, Mr G Muthukumarasamy, the general-secretary of the Amalgamated Union of Public Daily-Rated Workers, was optimistic tweaks to civil service monthly wages would not affect those in the lower income group, as their pay was “already so low”.
Still, civil servants TODAY spoke to understood the rationale for the smaller pay packages.
The floundering global economy has spawned retrenchments and pay cuts in the private sector, and while civil servants typically do not have to fear lay-offs, it would “not be logical” for them to be similarly shielded from pay cuts, a 24-year-old civil servant said. “If you manage to stay employed, you are luckier than a lot of people out there who are retrenched.”
In fact, Singapore National Employers Federation vice-president Bob Tan said he feels any salary adjustments would correct a current “misalignment” with the private sector.
“The public sector works on a slightly different basis, you don’t see them going out of business... (but) you can’t have a situation when the public sector is earning so much more than the private sector.”
In the circular to civil servants, Ms Ong said in such difficult times, “all Singaporeans must stand together”.
“We look forward to your active contribution to helping Singapore and Singaporeans overcome the current challenges and return as quickly as possible to better times,” she wrote.
Soon after the downturn’s onset, the Government had announced in November changes affecting civil servants’ annual pay package for last year. They did not receive the special Growth Bonus and saw their Annual Variable Component (AVC) — which is also linked to economic performance — halved.
Under the pay formula, a substantial part of the annual pay of Senior Permanent Secretaries and Ministers is linked to the GDP growth rate.
Noting that the official GDP forecast of minus five to minus two per cent for this year “will most likely be revised further”, Ms Ong said there would be “zero GDP bonuses” this year, with the AVC to be cut further.
With the National Wage Council set to meet next month or May for its annual deliberations, Ms Ong said the civil service would follow its guidelines “in deciding the exact adjustments to salaries”.
She added: “It is safe to say that if economic conditions continue to deteriorate, further adjustments in salaries will likely become necessary.”
Companies to follow suit… or exploit?
As Singapore’s largest single employer with more than 60,000 staff, the civil service’s announcements on salary adjustments are closely watched by the private sector.
Companies that have resisted cutting pay so far might “take direction” from the public service, said Mr Josh Goh, a senior manager at recruitment agency The GMP Group. But he cautioned against firms — especially those that have already implemented pay cuts — from exploiting the situation.
“If the company, after the first round of cuts, can manage the cost well, there’s no necessity for them to go for a second round,” he said.
On the cards
- A drop in annual salaries, with senior officers seeing a larger percentage drop
- Civil servants on salary ranges will get merit increments, though lower
- Zero GDP bonus, reduced AVC
- Performance bonus will be paid based on individual performance to encourage officers to excel
- TODAY/yb

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