Hri Kumar: “Any change to the CPF system would mean taking from one group and giving to another.”
Why is this Dishonest? This is the usual PAP trick of presenting their system as the most efficient one drawn up by technocrats and pretending there is no alternative. The variation they sometimes present is that there is an alternative but that it would cost significantly more.
If you want the technical jargon, the PAP is dumbing down a basic concept from neoclassical economics, the notion of Pareto optimality. Pareto optimality states that you cannot make one group of people better off without making another group worse off. Makes sense! Except Pareto optimality does not hold in an economy where there are unemployed resources or excessive government saving such as we have in Singapore.
Hri Kumar: “This is not about politics but about devising the best system in the interests of all Singaporeans
Why is this dishonest? How can anything involving decisions that affect everybody and in particular the distribution of income not be political? Again this is the old trick of pretending that they are technocrats with the best economic model not politicians whose loyalty to the survival of their Party the PAP is greater than their loyalty to the people.
Hri Kumar: “Letting us withdraw our CPF at 55 would lead us inevitably to squander our money (either at the casinos or on trips to Batam!). If this happened then other taxpayers would have to pick up the tab for supporting them.”
Why is this Dishonest? Because I prefer to squander my money in Bintan. Seriously, there is NO EVIDENCE to support the claim that most people would not be able to manage their savings responsibly.
Most pension systems, particularly those praised by the Mercer Global Pension Index Report, such as Denmark, the Netherlands, Australia, and the UK allow beneficiaries to take some or all of the pension as a lump sum on reaching retirement age, or often at age 55 irrespective of the total value of pension assets.
Rather than squandering, the Global Entrepreneurship Monitor found that people in the age group 55-65 are more likely to start a new business in a high tech field than other age groups. So not allowing those reaching 55 to take part of their CPF in cash could be holding back the whole economy’s productive potential.
It does not necessarily follow that people squandering their CPF payouts would outweigh those investing them productively for better returns than CPF provides.
Hri Kumar: If there is greater welfare spending by the government then this would require higher taxes. (According to his analysis of our Budget there are no additional resources available because the PAP government is already spending as much as or more than it earns in terms of revenues after including the Net Investment Returns Contribution (NIRC) from Temasek, GIC and MAS.)
Why is this Dishonest? The Finance Minister’s way of presenting the Budget does not follow the IMF best practice framework. It does not include investment income, realised and unrealised gains and losses on investments, and revenue from land sales. It allows only the NIRC, which is not transparent but supposedly represents up to 50% of the income from past reserves.
Despite much fanfare about how the NIRC of some $7-8 billion a year benefit Singaporeans, they are not actually spent on us, or only a small fraction of it is. The NIRC in fact go straight back into the reserves because the Finance Minister creates new funds. Last year the Finance Minister announced an $8 billion Pioneer Generation Package with a great deal of publicity about how he was helping our senior citizens. Yet as I said at the forum and have said previously, this is entirely bogus. It in fact amounts to smoke and mirrors. Out of that supposed $8 billion only $240 million was seen in actual spending this year on the Pioneer Generation.
Reserves against spending in future years, which may or not happen, should not be included in current spending.
In fact, as I was quick to point out to Hri Kumar, the true surplus is some $30 billion a year or more, or enough to finance spending on the equivalent of four Pioneer Generation Packages in one year instead of being spread over twenty! (See video of my exchange with Hri Kumar on this subject and note the way he dodged the question. He said I could publish my figures on my website, dismissing them as not being reality. The joke is “my figures” were his figures. I was taking them from the government’s own Monthly Digest of Statistics).
Hri Kumar Singaporeans are lightly taxed and get a better deal from their government compared to citizens of other countries with more generous welfare systems
Why is this dishonest? I argued that when we compared how those on median incomes in the UK, Europe and the US were taxed compared to the value of benefits received the citizens of those countries got a much better deal than Singaporeans on median incomes.
I was shouted down by several people who appeared to have been planted in the audience who claimed to have lived abroad and been highly taxed. I pointed out to one young man that as he was probably a high earner and without dependents when he lived in the UK he would have been more highly taxed than in Singapore. However if he had been a median to low-income earner with children he would have received substantial financial support that would have made him a big net gainer from the tax and benefit system particularly when the value of free healthcare and education was included. This would be true for all the European countries. While he would receive less in benefits in the USA he would pay less tax.
In addition Singaporeans pay far higher prices for cars and many utility services as well as overpaying for leasehold property as a result of the government’s control over housing supply The PAP have also used rapid population growth as a tool to create an artificial housing bubb
In most advanced democratic countries, including the US, it is only the top 40% of the income distribution, and often only the top 20%, who pay more in tax than the value of the benefits they receive. To claim otherwise is another dishonest PAP tactic.
Hri Kumar: The returns paid by the CPF to account holders compare favourably with those achieved by pension schemes in other countries.
Why is this Dishonest? The Ordinary Account only pays 2.5% p.a. though the first $20,000 earns an additional 1%.
The bulk of CPF balances will be held in the Ordinary Account as only money from this account can be used for property purchases.
Most developed country pension funds have comfortably beaten this target over the last ten years, even though it includes the financial crisis of 2008. Many funds have achieved double-digit returns over this period. Also the interest rate differential between the USD and SGD has been very small or even negative over the last five years, meaning that the costs of hedging foreign currency returns back into SGD has been small.
So it is dishonest to say that the costs of hedging mean that SGD returns will necessarily be lower, at least for the last five years. Which leads to the next dishonesty.
Hri Kumar: Your CPF funds are absolutely safe because you are lending to the Government, which has a solid AAA rating. This justifies the low returns.
Why is this Dishonest? If the government is lending the money to GIC then your money is only as safe as the assets that GIC invests in. The PAP government is using your money in the same way that banks used long-term capital before the financial crisis of 2008: to invest in risky assets. GIC would have to pay considerably more than 2.5 to 4% if it wanted to borrow directly from the market for such long periods (thirty to fifty years) and with no liquidity. You are not able to sell the funds locked up in your CPF like you would a securitized financial instrument. Currently the total assets of Singapore, including Temasek, GIC, MAS and revenue from land sales are shown as around $800 billion in the Statement of Assets and Liabilities while borrowings are over $400 billion. If markets were to fall by 50% there would be insufficient assets left to repay the borrowings.
The PAP government may say that there is no risk of default because your CPF account is in SGD. However this just means that you the taxpayer are guaranteeing repayment of your own CPF money. The government could of course just print money and repay you but that would mean currency depreciation, which would of course devalue your CPF savings
Singaporeans should not be fooled into thinking that their CPF is secure just because they are lending to the government. What is particularly dishonest is the huge conflict of interest between the government compelling you to lend it your money, using it to invest to make higher returns than it has to pay you and not passing those higher returns on to you. That is why we need to force CPF to compete directly with private sector pension managers, not in the half-hearted way that the CPF Investment Scheme works at present.
We should also probably merge CPF with GIC and pass its returns directly to account holders. This would be my preferred solution if it proves impossible to privatize GIC and distribute shares to Singaporeans.
Hri Kumar: HDB owners have achieved far higher returns from the appreciation in HDB prices than they could have achieved by investing in the stock market
Why is this Dishonest? Obviously for Singaporeans as a whole the HDB housing stock is not liquid so any attempt by HDB owners to cash in those returns en masse will just lead to a housing price collapse. The HDB price bubble has been driven, firstly, by the government’s control over land and its monopoly of housing supply. Secondly, by the PAP government’s deliberate policy of population increase, which underpins their whole economic model and will never cease as long as the PAP remain in power. And lastly, by forcing people to save far more than they need and making property the principal asset class they can invest in.
But HDB is only 99-year leasehold, as I and several residents pointed out during the discussion session. I have warned repeatedly about the irrational way that HDB flats are currently priced which takes little account of the time to expiration of the lease. At some point, probably when the government finds it no longer profitable to do Selective Enbloc Redevelopment Schemes (SERS), Singaporeans will wake up to the fact that their leases will be worthless at expiry. There will then be an HDB price collapse, particularly if there is a population growth slowdown.
We need honest alternatives and full transparency not this web of half-truths and lies to convince Singaporeans that a system that serves the ruling PAP elite is in their best interests.