Wednesday, May 20, 2015

Why hanker for a safety net or a trampoline when you can have a jet pack ?

Singapore is really lucky, we had a one in a million chance of being ruled by Lee Kuan Yew and after he passed away, we continue to come under the able administration of Tharman Shanmugaratnam.

( I'm not PAP IB, I like Low Thia Kiang's brand of constructive politics as well and actually think that WP will survive the AHPETC scandal. ) 

Lately Tharman's interview with the BBC at the Gallen Symposium has impressed almost everyone. When cornered about Singapore's unwillingness to provide safety nets, Tharman executed an awesome rhetorical manoeuvre saying that Singapore's approach is to provide a trampoline instead.

When I first heard the interview, I was stunned like a vegetable. Our politicians are only beginning to really understand the need for rhetoric in statecraft and Tharman seems so much ahead of the curve. The trampoline is a very powerful metaphor and counters the decades of use by progressives and liberals to employ the term social safety net for welfare schemes. 

Personally, I think we should paint welfare payments as a crutch rather than a safety net. A responsible government would not want its citizens in crutches but would have been considered cruel by international standards if they don't provide safety nets. 

I want to to build on the metaphor of a trampoline and propose that our government has indeed gone beyond providing a trampoline for Singaporeans. 

If you review the tax policies and how transparent we are with taxes, for the folks who learn how to invest and manage their affairs, every Singapore can have a jet-pack if they want to. This is largely from the introduction of REITs and Business trusts in Singapore. 

Over here, Corporate taxes are low and dividends are not individually taxed. No other country can produce this combination of low taxes, public services and high dividend yields. I dare to even challenge fans of Hong Kong to show me where their high dividends stocks are. 

The jet-pack looks like this :

a) If you are single, studied hard, willing to live with parents, work your butt out and save your income.
b) By taking steps to save your income every month preferably at rates higher than 50%.
c) It is possible to accumulate $300,000 of cash before age 35.
d) There is nothing stopping you from reading the blogs of my fellow financial bloggers to figure out a combination of stocks, REITs and business trusts to yield about 8% a year. 

At 8% a year, you can get an annual income of $24,000 or $2,000 a month. And if managed carefully, in perpetuity.

[[ Note that at this point 8% is achievable but considered a risky target ]]

$2,000 a month is enough to pay for all your expenses as a single person.

With the exception of countries like the UAE, no society can provide a welfare payment of $2,000 a month making this jet-pack a viable metaphor on how powerful our low tax regime is.

Which brings me to the second part of the argument about the question Tharman fielded on creativity and freedom. At least from my personal experience, even having dividend payments exceeding your monthly earned income would not necessarily lead to laziness. 

The beauty of dividends is that they are not guaranteed over the long term, your jetpack may run out of fuel. 

I am always in the lookout for more personal security for myself and my family, hence the hours spent poring over legal cases in SMU today. In time, most of us will take the time out to improve ourselves or even run a small business to produce jobs. I still have my dream of leaving a big dent in the legal industry with my programming knowledge.

In short, folks with jetpacks don't just cruise around in the skies. We earned our jetpacks the hard way and is always concerned that we'll run out of fuel. 

I also like Tharman's allusion to the folks in the Bay Area. 

Singapore's tribe of financially savvy can bring its own brand of creativity. It takes knowledge and discipline to build up a portfolio to allow one to retire and stop work. This knowledge and discipline would be useful if we can be unshackled to pursue our ambitions in ways which is not limited to the confines of a normal workplace. 




4 comments:

John Smith said...

hi christopher,

i liked the interview a lot as it gives some insight into what the principles at the top are.

i am heartened to know that he believes people should take responsibility for themselves. and it is the government's responsibility to ensure people are able to do so.

in a way. singapore's transformation is not unlike our own path to financial freedom.

once the goal is identified, the steps are clear and simple. the real challenge is really. the resolve, desire and determination one has to achieve the goal.

in my opinion this is what singapore has that others were not able to replicate

Christopher Ng Wai Chung said...

What do you think about Hong Kong and Shanghai's chances of doing even better than us ?

John Smith said...

i believe you were asking in an economic sense but more broadly, i think Hong Kong and Shanghai will do well in whatever aspects Beijing wants them to provided that Beijing continues to have strong political power.

As long as they do well i am confident they will be better than singapore.

actually, the strategy/plan for any country to outperform singapore is simple. what is the lacking is the execution.

Nguyen Ngoc Tu said...

Yes, I think Singapore is lucky in the development process
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