Saturday, February 24, 2018

Hard not to be stressed when basic food and play will incur more tax

By Hazelyn A Yuen 
23 February, 2018

I foresee that the increase in our Goods and Sevices Tax (GST) in future will push up the cost of living further.
[Wow! A psychic! I wish I had the power to foresee the future, like her. I wanna know what numbers will be in the Hong Bao draw.] 
We can cut back on more luxurious travels, expensive cars, premium houses, etc, but we still have to eat, so shouldn’t the most basic food items be largely exempted from GST? 
Such goods are relatively inelastic in price, and if they cost more, demand for them will still not fall.
[OMG! This psychic is predicting that once GST increase, Singaporeans will take fewer holidays, buy fewer expensive cars, and fewer premium houses! What's the GST on houses? Oh wait! There's no GST on property purchase. That's "covered" by Buyer's Stamp duties. WHICH HAS ALREADY INCREASED (for million dollar property)!] 
A GST hike will not benefit producers and consumers, but likely compound the already stressful cost of living domestically.

Even leisure or play is going to cost more, as seen by the tax on digital services which include entertainment content. So, too, will a visit to theme parks or gym classes or the buying of sports gear. How are we encouraged to maintain a healthy lifestyle — which could help to reduce stress — in a pressure-cooker society?

Right! The solution to a "pressure-cooker society" is to spend lavishly on theme parks and gym classes. 


To relieve pressure?

I wonder if you have EVER seen, let alone use, a pressure cooker. 

And yeah, the only way to relieve pressure is to spend obscene amounts of money which you earned in the pressure-cooker economy.

(Sorry. IMHO the price of Universal Studios Park is obscene. Also, gym membership. You may have a different view of course.)

To be fair, though, GST-exemption for basic food items is a fair question. 

But like many fair but vague questions, it leaves a lot to be negotiated and defined. 

Firstly, what is "basic food". I think coffee is basic. Is it?

Secondly, even if we agree that coffee is basic, is it still basic when it is kopi luwak?

Thirdly, do you subsidise coffee when it is sold as a beverage, or the pre-cursor to the beverage, that is coffee beans and coffee powder, or both?

Let's say we look to our neighbour Malaysia to see how they define "basic". I've tried to discover what basic food they subsidised, and to the best of my research, they subsidised rice, wheat flour, sugar, and cooking oil (that is why Roti Canai (we know it as prata) in Malaysia is so cheap).

[Note: there are other subsidies, but these are the food subsidies.]

So the Sr Minister of State for Finance was asked if SG could GST exempt basic food items like rice. 

And she gave a long reply which got her in deeper trouble.

She didn't even mention the GST Voucher scheme.

She tried to answer the question with one of the standard MOF reply - that a GST-exemption could benefit the rich more. And the hilarious meme of her reply was that the rich eat more rice.

Which is not a very good answer.

The better answer is that a GST-exemption for "basic food" items is targeted at the food item, not the poor. That means anyone, rich or poor, can enjoy GST exemption.

The govt's approach is to keep GST simple. Simple means, tax everything. Then, give the poor something.

If basic necessities are GST-exempt, while "luxuries" are not, there is the question of "what is basic and what are necessities?"

If you say for example that luncheon meat is "basic", but cod fish is "luxury", then when someone decides to "upgrade" from luncheon meat to cod fish, they will get GST-ed. Then the complaints that will come is, "why is the govt forcing poor people to eat unnutritious, over-processed food like luncheon meat? By making such low class, low quality basic food GST-exempt, isn't the govt disincentivising poor people from eating healthier food? Is the govt trying to say poor people should only eat unhealthy food like luncheon meat?"

Cannot win.

So is the govt ignoring the plight of the poor?

In Budget 2012, the govt made the GST voucher scheme
 permanent. The max the low income can receive in Cash, is up to $300, Medisave up to $450 (for 65 and above), and up to $390 for Utilities Save. 

If you meet the criteria for all three, that is you are very poor and very old, you would get $1140.

But let's ignore the medisave which applies only to those over 65.

The least U-Save you will get is $230 for ECs and other similar HDB flats. If you live in an EC, you will have a hard time convincing anyone that you are poor. But you will still get the $230. As long as you live in a HDB flat and have no other property. If you have a second property... again, try to convince people that you are poor.

And the cash you receive is only if you earn less than $28k a year, and you live in one property that has an annual value of less the $21k.

That's low income, by any definition.

So how to help the low income - defined here as earning $28k a year or less, and living in a property with an annual value of less than $21k?

Give them GST voucher and U-Save. (We'll ignore the very targeted Medisave which is for the very elderly - 65 and above).

What will the poor get?

At the very minimum - $230 in U-Save. As long as they live in a HDB flat no matter how big or how expensive, they get $230.

That means up to 80% of Singaporean households (those living in HDB flats and have no other property) will get at least $230 in U-Save.

At the maximum, for the very lowest income - $690 - Cash $300, U-Save $390.

That's the very poorest living in rental flats. But most Singaporeans live in 4-rooms flat. If you do and are low income, you will still get $610.

But, you say, $610 is NOTHING! You prefer to have GST exemption for basic necessities like rice.

Okay. How much rice does your family eat? $600 is the GST for approx $8500. To save $600 in GST, your family needs to consume more than $8500 of rice in a year. I dunno how many members of your family are rice bins... so I dunno how realistic that figure is. For your household.

Ok. it's probably not all going to be rice.

Do you spend $8500 on basic necessities at NTUC Fairprice, Sheng Siong, and Giant every year? What is basic? Rice, flour, sugar, and cooking oil?

Would you spend more than $8500 on these in a year? If you do, you will benefit more from a GST exemption of "basic food". 

That's over $160 a week in "basic necessity" groceries. You have to exclude snacks (potato chips), soda (coke/pepsi/F&N), candy, beer and wine, and anything else that might be considered luxury (is bacon a luxury? I consider it a necessity, but some people say I'm crazy... about bacon).

And say you do. Say you are one very odd household that spends $8500 a year on rice, flour, sugar, and cooking oil. That's YOUR household.

Would the average low-income household prefer to have $600 or GST-exemption?

Okay, what if you are NOT a low income household and you ONLY get the U-Save of $230 because you live in an EC.

To save $230 on GST-exempted basic food, you will need to spend $3,285 on basic food items a year. 

Is it worth it? 

I dunno. Maybe it is. FOR YOU. 

But this is IRRELEVANT.

Again, is this what the low-income would want?

The argument against GST uses low-income households to argue that GST burdens them unduly. If those people truly care for the low-income, even if YOU spend more than $3285 on basic food, and would benefit MORE from a GST-exemption for basic food items, switching to such a scheme would be BAD FOR THE LOW INCOME. But if you still want that, you are a Donald Trump, using the poor as a pretext to do what benefits yourself.

So there it is. Do you want GST exemption for "basic" groceries" or do you want the GST Voucher scheme?

Do you spend more than $160 EVERY WEEK on basic groceries, if so, you would want a GST-exemption for basic food. FOR YOURSELF.

Your last desperate defence: But you don't buy ALL your groceries from NTUC, Giant or Sheng Siong. You buy most of your weekly groceries from the wet market.

If so, you already don't pay GST on those things you buy from the wet market. So you don't even know what you are complaining about.

============

The Basic Necessity Basket.

What's in it. So you think you might spend $8500 on basic necessities? Here's what $8500 will buy.

Rice = approximately $1.60 per kg. 5300kg (for $8500)

Sugar = approximately $1.60 per kg. 5300 kg (for $8500)

Cooking Oil = approx. $5 per Litre. 1700 litres (for $8500)

Flour = approx. $2.50 per kg. 3400 kg (for $8500).

Rice

Each person needs about 400g of rice a day (it is not clear if this is cooked or uncooked. For simplicity, I will assume uncooked. But just note that this may be cooked rice). That's about 150kg per year per person.  5300 kg of rice will feed 35 persons for a year. For a family of 4, you will need maybe 600 kg. For a family of 8, 1,200 kg. Let's go with $1,200 kg. At $1.60 per kg, that's 
$1920 per year. 

Sugar

The recommended amount of sugar a person should consume is 25 gm. Or just over 9 kg a year. So for a family of 4, almost 40 kg, and for the family of 8, almost 80 kg. But of course, we take more sugar than we should. But not all at home. Most of our sugar probably comes from sugar-sweetened beverages, or food, and the amount of sugar we consume at home is probably limited to some homemade beverage or some foods. So not sure if 80kg is enough, or too much, or too little. Let's err on the side of being too generous and just make it 100kg a year. At $1.60 per kg, that's $160 a year.

Cooking oil

The recommended amount of cooking oil a person can consume a day is 20 gm. Or about 7.3 kg a year. Except that oil is sold in litres. So... 7 litres? Or 28 litres for a family of 4, and 56 litres for a family of 8.

Except... we don't consume ALL the oil we use. For some cooking, we deep fry the food and then we discard the oil. So assuming the 56 l is for consumption, let's almost double it to 100 l to cover deep-frying. Of course some families may deepfry foods more frequently, so this is a speculative estimate. If you have a more reasonable estimate, please offer it with your rationale. So 100 l a year at $5 a litre = $500 a year.

Flour

Flour is used for baking and some cooking (battered food, deep fried). Most casual cooks use very little flour on an annual basis. Certainly, I get the sense that the amount of flour used is considerably less than the amount of cooking oil a cook would used in a year. But I am Chinese, so maybe Indians make more roti (is that racial stereotyping). So... 50 kg of flour a year for a Chinese family? Or the weighted average of a Singaporean household - and by weighted here, I mean "aga-aga". Is 50 kg too much for a normal modern household. Of course if there is a baker in this household, that may not be enough. So 50 kg of flour a year is just a proposal. Again, let me know if you think it should be higher or lower, and of course why. At $2.50 per kg, that would be $125 per year.

Total Basic Necessity Food basket= $1920 + $160 + $500 + 125 = $2605 (please check my math!)

Assuming I underestimated everything, let's DOUBLE it to $5210 a year. The GST on $5210 would be $365. 

So my approximate projection is that if we have GST-exemption for the above 4 basic necessities, we will only save $365 in GST.

Compared to the $600 that the low income would get in GST vouchers.

The decision should be clear.



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