24 August 2011

How Important are Tony Tan's Background, Experience and Knowledge?

There is no need for Singaporeans to fear the future with the right leadership, said presidential candidate Dr Tony Tan Keng Yam.

Is Dr Tan saying that the People's Action Party government formed after the May general election does not constitute the right leadership for Singapore unless and until he is elected as president to complement the government?

In his presidential campaign, Dr Tan repeatedly stressed that his background, experience and intimate knowledge of the financial markets and the global economy will be invaluable.  The possibility (according to him) of a perfect storm of problems affecting the global economy makes it highly likely (according to him) that the next president will be involved in decisions about Singapore's economic future and in this regard, he will be able to contribute and help the government and the ministers to understand the situation better.  Moreover, he knows all the cabinet ministers very well.

21 August 2011

Who is Most Likely to be an Independent President?

Whom would you vote for in the Presidential Election this Saturday?

If the election is for a President to perform the ceremonial functions of a head-of-state, we may choose Dr Tony Tan Keng Yam.  He was a former Deputy Prime Minister and, following his retirement from politics, deputy chairman and executive director of Government of Singapore Investment Corporation.

But the post of President was changed from one appointed by Parliament to one elected by the people in 1993 for one reason.  The Constitution gives the President veto powers in the following five areas — spending of past reserves; key public sector appointments; detentions without trial; corruption investigations; and restraining orders to maintain religious harmony.

In two areas, the President must consult the Council of Presidential Advisers, and his veto may be overruled by Parliament.  In the remaining three areas, the President may exercise his discretion only by concurring with an official view against the Government.  The scope and limits of the President's veto have been dealt with in an earlier post [link].

15 August 2011

Scope and Limits of Powers of the Elected President

What are the scope and the limits of the powers of Singapore's elected President?

Public acts and speeches of the President

Except as provided by the Constitution, the President must act in accordance with the advice of the Cabinet or of a Minister acting under the general authority of the Cabinet in the exercise of his functions under the Constitution or any other written law.

Stated another way: in the discharge of his Constitutional functions, the President can only act and speak as advised by the Cabinet.

But, what about other public acts and public speech of the President that are not related to the exercise of his Constitutional functions — does the President need the advice of the Cabinet?

12 August 2011

Blaming Stock Market Fall on US's Credit Rating Downgrade

Many people link the volatility and the sharp fall in the global stock markets with the US's losing its AAA rating on 5 August.

They are mistaken.

The volatility and the sharp fall in the global stock markets are a reflection of the fear and concern that the US will enter into a recession, and the realisation that there is neither political leadership nor political will to do the necessary to bring about strong economic growth — growth that will result in job creation and bring down unemployment, which will lead to increased demand for goods and services, which will lead to business investment and higher earnings for businesses and individuals, which will lead to higher taxable income with which to reduce the deficit and national debt.

The compromise that allowed the US debt ceiling to be raise will shrink entitlements and other government expenditure, but will not raise additional taxes on the wealthy.  Focusing on shrinking the deficit and the national debt when the recovery is lacklustre will ensure that the recovery remains lacklustre at best or sinks into a recession at worst.  It cannot work.  It won't work.

06 August 2011

Fighting Unemployment or National Debt

When a country faces a stagnant economy, high unemployment and a bulging national debt, what should the government do?

Many economists believe that the government should spend to get the country out of the slump.  When times are bad, the man in the street is likely to tighten his belt because he may have lost his job or he may be afraid of losing his job.  Businesses are unlikely to expand production in the face of weak demand, and may even cut production.  That leaves only the government.  The government has to spend.  But it has to spend wisely.  If the government's expenditure gives the money to citizens who do not spend it, the expenditure has little effect.  The government should spend on projects that will create jobs, such as teaching and security services, and building or upgrading infrastructure.  As the multiplier effect kicks in, it will result in a healthier economy, bringing with it higher employment and higher output, both of which increase taxes while reducing government expenditure on unemployment benefits.

For many months, the US House of Representatives, which is controlled by the Republicans, blocked President Obama's attempts to raise the country's debt ceiling.  They insisted that any such move be accompanied by a reduction of the budget deficit through cutting entitlements without increasing taxes on wealthy individuals or businesses.  It didn't matter to them that the higher debt ceiling was to accommodate budget measures that had already been approved by Congress.  It did not matter to them that opinion polls showed that the majority of their constituents were in favour of lowering the debt by a combination of cuts in entitlements and selective tax increases.

Much time was wasted.  The debt ceiling was eventually raised on 2 August, together with cuts in entitlements.  But no increases in tax.

Meanwhile, the economy was hardly growing.

How can the US economy grow if the (official or U-3) unemployment rate stands at 9.1 per cent.  Almost one in ten adults who want to work, are available for work and have recently actively searched for a job are jobless.

The U-6 unemployment rate (total unemployed, plus all persons marginally attached to the labour force, plus total employed part time for economic reasons, as a percent of the civilian labour force plus all persons marginally attached to the labour force) was 16.1 per cent in July.  Almost one in six adults who want to work and are available for work are unemployed or underemployed.

Consumers are the driving force of the US economy.  If large numbers of them are unemployed or not fully employed, who will buy the goods and services?

The US government itself is shedding jobs, because the Republicans don't want big government.

Companies are not expanding because there is insufficient demand for their goods and services.  Worse still, companies are importing goods because imports are cheaper than those produced domestically.

The US government should provide incentives for companies to produce in the US instead of importing from overseas or relocating offshore, unless such relocation is motivated by a need to be near to their customers.  This is not the time to be charitable, exporting jobs to other countries when there are so many Americans who are unemployed or underemployed.  Especially when those other countries grow economically, politically and militarily as a result of the Americans' generosity (or lack of common sense), and thumb their noses at the US.

The US government should repair and upgrade the country's infrastructure.  Given its debt situation, it is bizarre, and probably unacceptable to its citizens, that it is spending money on building schools in Iraq, Afghanistan and elsewhere in the world, while cutting back on such expenditure in its own country.

The US government should end its involvement in the wars in Iraq and Afghanistan.  Forget about pride or philosophy.  If the war in Afghanistan could not be won after ten years, it cannot be won.  It cannot be won because many Afghans themselves seem indifferent as to whom their rulers are, although they may change their minds rather quickly if the Taliban eventually takes over.  It cannot be won because it is almost impossible to distinguish between ordinary Afghan citizens and ordinary Taliban.  It cannot be won because the Taliban and al Qaeda are very patient and can afford to be patient, but the Americans and its allies cannot afford, and do not want, to stay in Afghanistan forever.  It cannot be won because the Afghan government believes it does not need the Americans (other than their money) and its allies.  It cannot be won because Pakistan allows the Taliban and Al Qaeda to take refuge on their side of the border, in the mistaken and dangerous belief that these terrorists may be useful in their fight against India.  The US should accelerate its withdrawal and save its money and the lives of its soldiers.

Standard and Poor's lowered the US's credit rating from AAA to AA+ on 5 August.  China's official news agency Xinhua insisted that China had every right to demand the US to address its debt problem.  The US should cure its addiction to debt and live within its means, as it could no longer borrow its way out of its mess.  China is the largest holder of US government bonds, the result of an imbalance in trade flows between the two countries, itself the likely result (at least partially) of China's holding down the value of its currency.

Vitriol aside, China has a point.  But it is judicious government expenditure coupled with principled taxation of the wealthy that will produce economic expansion to provide the US with the means to cut its deficit and reduce its debt.

The US is not alone in focusing on fighting debt rather than unemployment.  Many European governments are also shrinking their budgets in order to cut back their national debt despite slow growth and high unemployment.

These countries are probably headed for anaemic growth, if they can grow at all.  They may even slip into a recession.

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This post was updated.

03 August 2011

Liberalising Public Bus Services

Earlier this year, The Workers' Party proposed that the public bus system be nationalised to reduce cost and raise efficiency and effectiveness.

While the idea had its merits, I noted that there were practical difficulties [link].

The Government's response was that it would lead to inefficiencies and high cost instead.

Recently, National Solidarity Party ("NSP") proposed that the public bus system be liberalised to allow the entry of multiple private bus operators who may be smaller and more nimble.  They would respond more quickly to changes in demand; those which didn't would lose market share.

Operators would apply for licences to operate along existing routes managed by Land Transport Authority, or propose new ones.  Such routes might duplicate MRT routes to compete with, and supplement, MRT services.

The Government's response was that operators would cherry pick, going for the popular and profitable routes and shunning the unpopular and unprofitable routes, and the result would be higher fares for the latter.  The existing operators — SBS Transit and SMRT — are obliged to operate services along all designated routes.

NSP says that licence fees should be used to subsidise fares along unpopular routes.

NSP should provide quantitative proof that its model works.

If competition reduces fares along the popular routes, will the operators earn enough?  The operators have also to pay licence fees that must be large enough to subsidise the fares along the unpopular routes.  Presumably, NSP is not suggesting that the Government subsidise, even partially, the fares along the unpopular routes?

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Notes

1. Public Transport: Why the PAP and WP Positions Fall Short of Commuters’ Needs National Solidarity Party (26 Jul 2011).

2. Why “Cherry-Picking” is Good for Commuters National Solidarity Party (1 Aug 2011).

01 August 2011

Treating Donations to Charity Equally and Equitably

When a person makes a donation to an Institution of Public Character (commonly referred to as a charity), a Government approved museum or a prescribed educational or research institution, he/she is entitled to a tax relief equal to 250 per cent of the amount donated.

An approved donation of, for example, $1,000 reduces the donor's chargeable income by $2,500.

For an individual donor, the impact of this depends on his/her chargeable income.

If the donor's chargeable income exceeds $320,000, for which the marginal tax rate is 20 per cent, the net (i.e., after-tax) outlay to the donor is $500.

If the donor's chargeable income is between $30,000 and $40,000, for which the marginal tax rate is 3.5 per cent, the net outlay to the donor is $912.50.

If the donor's chargeable income is less than $20,000, for which the marginal tax rate is zero, the net outlay to the donor is $1,000.

This appears to be an anomaly.

Firstly, a donation is a donation.  The tax relief results in an inverse relationship between the net outlay of a donation and the donor's marginal tax rate.  Why should a donation of any given amount become an outlay that is smaller after tax for a high-income donor than for a low-income donor?

Secondly, this distortion has been magnified as the tax relief was raised over the years.  The tax relief was doubled to 200 per cent of the amount donated in 2002, and to 250 per cent in 2009.  The 250 per cent tax relief, which was applicable for two years initially, was recently extended to 2015.

Thirdly, a donation of any given amount forms a bigger part of the donor's chargeable income and may be a bigger sacrifice, the lower the donor's chargeable income.

The existing tax relief should be replaced by a tax rebate of a fixed percentage of the amount donated.

The Government should consider giving individuals who do not pay income tax a cash amount equal to the tax rebate.  Such individuals will then derive some monetary benefit which they did not enjoy previously, but they will not be getting more benefit from their donations than the wealthy.

In this way, all donors will be treated equally and equitably.

Such change should not discourage donations by the wealthy — if the donations are truly from their hearts.