Wednesday, April 27, 2016

We are better off being a Transactional Society !

This week is a good week.

Some dividends showed up in my bank account and it was running dry after I overspent during the 5 days between my last exam paper and the start of summer term. I set aside all my family expenses during the early parts of a three month dividend cycle. What remains in my bank account is a bare minimum I have to pay for my personal entertainment, food and transport.

I have spent over 30 months without a pay check and managed to do this without touching my capital and living entirely on dividend pay-checks. My family has no earned income. In the process, I have also paid 30 months of my mortgages and my entire school fees.

No other society can make it so easy for someone to able this with only 15 years of working life in IT.

But I'm also not a romantic about our society.

The low income and non-existent dividend taxes I needed to build up my portfolio is almost unique to Singapore. The price we pay is that there is no welfare. Every negative externality like cars and alcohol are taxed aggressively. The primary stance towards a person who is seeking help is for them to engage in self-help. Compared to Socialist Europe and all those countries Singaporeans flee to, we can be harsh indeed.

It becomes disturbing that there are now calls for Singapore to become less transactional, to be less kiasu, and to be less optimised with our policies thinking that it would make our society better.

What do 'Social Democrats' and liberal brownshirts want to achieve when what they truly desire is to tax everyone to pay off a smaller proportion of the population which might consist of some needy fellow citizens, but would in reality consist of mostly citizens who are trying to game the system.

If they succeed, I expect the investment community to be the first to suffer.

Liberals in attempting to get rid of the "no free lunch" approach in Singapore will, in the process, eliminate the "cheap lunches" we've had for the past 50 years.

Let me illustrate with an example of unemployment insurance, a hot by-election topic which, ironically,  would have benefitted me greatly when I transitioned into law school.

We can actually create a very rough estimate of the cost of unemployment insurance to the tax-payer. Suppose there are about 3.5m citizens drawing $3770 as median income. Suppose this policy will increase the number of folks leaving work to about 5% of our population every year. If each instance of unemployment will result in a total pay-off of about 6 months of salary in total, the price tag to the tax-payer will be close to $4b, about half of our personal income tax collections in 2014. And this does not include the cost of hiring social workers to administer this payment.

The income tax of everyone working here must increase by 50% to cover the price tag of this unemployment insurance !

Now suppose you create this insurance yourself as a median income salaried worker, all you need to do is to save about $23,000. If you can save $500 of your earned income every month,  4 years of work will secure a contingency plan for your unemployment, not to mention a small investment income stream if you were to keep working.

Of course, my solution cannot cover the weakest members of our society. I wrote this article to illustrate to everyone is that there is a communal solution or an individual solution to every problem.

I've done my small part and have overclocked my community service hours in 2015 to help one disadvantaged family by giving math tuition to their two kids. It remains my most cherished memory in SMU. I see more pro bono hours ahead when I return to the workforce in 2017.

I propose that liberals do the same so that they can assist and gain exposure to the weakest members of our society using their own personal time and resources instead of harping on why Singapore is such a cold, transactional society.


  1. The whole economy is transactional - yr purchase is somebody's income. The government sud be non transactional as all systems keep moving to ultimate madness. Middle way is best with government acting as course corrector and equalizers. We also need a core of good people to protect our social institutions again St ultimate corruption and creeping sense of entitlement.

  2. Welcome back Sek Hong !!!

    We should have a coffee soon with your missus as well as I am having my summer term.