Letters From Our World-Class Government

Two posts ago, I featured a letter in the TODAY newspaper. The writer, Ee Teck Siew, suggested that when a customer seeks a housing loan, some kind of risk profiling should be done to help the customer determine whether he is able to afford this long-term obligation.

You may or may not agree with this suggestion, but Teck Siew certainly did express his idea clearly enough. His last sentence sums it up: "It is high time a more rigorous regulatory regime, one with a focus on educating consumers, be added to help Singaporeans in their financial decisions."

The Ministry of National Development has now replied. Rather predictably, its response was mostly irrelevant and rather inane:

Monday • December 22, 2008
Letter from Lim Yuin Chien
Deputy Director (Corporate Communications),
Ministry of National Development

In “Risk profiling for homebuyers?”(Dec 17), Mr Ee Teck Siew suggested that the Government and industry associations consider implementing a “fact finding process” to ensure that potential home buyers buy properties they can afford, based on their abilities to service mortgage loans.

Most homebuyers would need to obtain a bank loan upfront. The homebuyers would therefore be subject to credit screening by the banks, which will ensure that the home-buyers can afford the properties they intend to buy. In the credit checks, the banks would typically take into consideration the homebuyer’s income, age and other debt commitments.

Housing and Development Board (HDB) flat buyers taking HDB concessionary loans are required to obtain a HDB Loan Eligibility (HLE) letter before committing to the flat purchase. The HLE letter similarly takes into account the flat buyers’ age, income and other financial commitments to calculate the maximum loan quantum and the expected monthly installments to ensure that the flat buyer is not financially overstretched.

We thank Mr Ee for his feedback.

As I had already explained in my earlier post, it is quite true that the bank will definitely check its customer's credit, before granting him a housing loan. However, as I had also already explained, the bank performs these credit checks for its own benefit, not for the benefit of the customer. Furthermore the bank has no duty to advise the client.

Now if you were going to take a 30-year mortgage to buy a new home, here are some of the issues that you would want to think about first. How many children do you have, or plan to have? Do you expect them to go for higher education, and if so, how much do you plan to save for that? How much are you saving for your own retirement? If you were to become unemployed for six months, would you still be able to meet your mortgage payments?

Do you have aged parents to support? How much money might you need to do that? What are your own career prospects, at least for the foreseeable future? Will you be needing extra capital, to run your own business? How much does your current lifestyle cost to maintain? Does your spouse work, or is yours a single-income family? If the latter is the case, what's the game plan if that sole breadwinner were to lose his job, become ill or die?

You have to think about these kinds of questions, before you decide how much you can afford to borrow. The future can't be predicted with 100% certainty, but that's precisely why you need to do your planning.

These are also the kinds of questions which neither the banks nor the HDB will help you with. Therefore Teck Siew's suggestion was that perhaps some kind of regulatory process could be put in place to help Singaporeans work through such questions.

In its reply, the Ministry failed to address any of the above. It was really a nothing sort of reply. Almost completely meaningless.

Gadis Bispak Imut

• Lihat Foto
• Lihat Foto

The Government Missed By $7,150,000,000. Just Another Honest Mistake.

The Straits Times reported a shocking piece of news yesterday. The article itself did not really highlight the point, but tucked it away somewhere near the end of the article (see bold text below).

ST Feb 26, 2008
BUDGET DEBATE
Rising costs, price hikes top concerns of MPs
They back strategies to keep inflation in check but say individuals and businesses need help to cope
By Lydia Lim

RISING costs and their impact on people's ability to make ends meet dominated the start of this year's parliamentary debate on the Government's Budget.

Many of the 19 MPs who spoke during the five-hour session praised the Budget for being forward-looking and generous, but 13 also voiced concern over a slew of recent price hikes.

MPs from the People's Action Party, Mr Inderjit Singh and Mr Michael Palmer, recited a litany of these increases in the past year alone.

Taking last December as an example, Mr Palmer said: 'The price of luncheon meat went up from $1 to $3, taxi fares went up, school bus fares went up and even the opposition's Potong Pasir Town Council added to the list with an increase in its service and conservancy charges.'

MPs said that businesses have been hard hit by steep hikes in office rents, and asked for tax reliefs to help them cope.

For individuals, Mr Palmer suggested that part of the Budget surplus of $6.45 billion be used to set up a contingency fund to help low-income families should inflation worsen.

Mr Singh, who chairs the Government Parliamentary Committee for Finance and Trade and Industry, urged a review of the Government's avowed strategy to grow the economy as fast as possible in good years. This had contributed to the current situation of overheating and high prices, he said.

'The 'grow-at-all-costs' policy, with the cost increases triggered or allowed by the Government, have worsened the income divide,' he said.

At the same time, MPs threw their support behind the Government's five strategies to keep inflation in check.

These include allowing a gradual appreciation of the Singapore dollar to rein in imported inflation, and growing the economy so that wages for most workers go up by more than costs.

Nominated MP Cham Hui Fong of the National Trades Union Congress pointed out that last year had indeed been a good year for workers.

Those in the unionised sector enjoyed the highest bonuses since 1990 and the lowest retrenchment rate since 1994, she said.

But fellow NMP Eunice Olsen stressed that in tackling inflation, 'preaching' to Singaporeans to buy cheaper house brands was not a solution, as many people were already buying the lowest-priced options available.

Four MPs - Workers' Party chief Low Thia Khiang, NMPs Gautam Banerjee and Ms Olsen, and Mr Singh - took issue with the wide gap between the Government's projected $0.7 billion deficit and the actual $6.45 billion surplus.

This showed that the Government's 'Budget marksmanship' had worsened, said Ms Olsen.

The four MPs also questioned whether the Government had been hasty in raising the Goods and Services Tax (GST) from 5 per cent to 7 per cent last July, since it did not really need the revenue it generated.

Both Mr Low and Mr Banerjee asked for the GST to be restored to 5 per cent.

But Senior Parliamentary Secretary for the Environment and Water Resources Amy Khor warned against assuming that the economy would prosper and produce a surplus every year.

She said: 'The Finance Minister has been judicious in balancing competing priorities and seeking to invest in the medium- and long-term future, while dealing with the immediate concerns of citizens.'

More than 20 MPs are expected to speak when the debate resumes today.

So early last year, the Government had projected a budget deficit of $0.7 billion. This means that according to the Government's own estimates, in 2007 it would collect $0.7 billion (via taxes etc) less than what it would actually need to spend.

It turns out that the Government scored a massive miss. In 2007, instead of collecting $0.7 billion less than it needed, the Government collected $6.45 billion more than it needed. From who?

You, the people. Of course.

Among other things, it becomes quite evident that the GST need not have been raised in July last year.

In his Budget Speech 2008, the Finance Minister is very quick to try to explain away last year's massive miscalculation:

"We started the year expecting a growth rate of 4.5% to 6.5%, which was also in line with market forecasts. With actual growth at 7.7%, Corporate and Personal Income Taxes came in some $1.0 billion higher than projected. GST revenues also exceeded our projection by about $1.2 billion, mostly from higher consumption.

GST collection arising from the 2 percentage point hike in July is estimated at about $1.4 billion in total, which now just matches the size of the GST Offset Package and Workfare Income Supplement tranches that were distributed in FY2007.

However, the largest boost to revenues came from the exceptionally buoyant property market last year. Prices of private residential units rose by over 30%, much higher than industry forecasts of around 10% to 15% at the beginning of the year. The volume of property transactions went up by over 60%. Stamp duties consequently rose to an unprecedented $3.8 billion, $2.3 billion higher than expected. Other property related revenues were around $1.1 billion above projections. These were large gains, out of the ordinary, and which we cannot expect to see very often.

The overall budget surplus of $6.4 billion was therefore the result of a strong economy and property market."

What is he saying? That the three biggest reasons that the Government collected so much more extra money from the people are:

(1) the property market performed unexpectedly well, leading to a unexpectedly large increase in property-related tax collection;

(2) Singaporeans and companies made an unexpectedly large amount of money, learning to an unexpectedly large increase in income tax collection;

(3) Singaporeans spent an unexpectedly large amount of money, leading to an unexpectedly large increase in GST collection.

By this time, you will conclude that the Singapore government is unexpectedly stupid at managing its own money and making its own financial estimates.

Either that, or you are a very kind person, and always willing to give the benefit of the doubt, and you will say that indeed, the property boom and rapid economic growth in 2007 could not reasonably have been foreseen.

But wait, I have more to say.

Click here for the Government's revenue estimates. You'll see that the Government gets its money by collecting nine different classes of tax, namely:

B10. Income Tax
B20. Assets Taxes
B30. Customs and Excise Taxes
B40. Motor Vehicles Taxes
B50. GST
B60. Betting Taxes
B70. Stamp Duty
B80. Selective Consumption Taxes
B90. Other Taxes

Tharman has told you that in 2007, the Government collected much more money than projected, for B10, B50 and B70.

But there's something interesting which Tharman conveniently didn't tell you. The Government had over-collected money, not just for B10, B50 and B70. But for every single category of taxes, from B10 to B90.

Now how could the Government be so completely off the mark?

Personally, I see two possible explanations:

(1) The Singapore government is unexpectedly stupid at managing its own money and making its financial estimates.

(2) In early 2007, it was the deliberate intention of the Singapore government to make low projections for its revenue, so that it could publicly claim that there would be a budget deficit of $0.7 billion. Therefore more Singaporeans would be willing to believe that the 2% GST hike in July 2007 was necessary.

Which explanation do you prefer?
Gadis Bispak Imut

• Lihat Foto
• Lihat Foto

More on Town Councils & Their Sinking Funds

I just received an email from an SPH journalist who wished to interview me about town councils and their gigantic sinking funds.

She says that her likely angle will be about netizens expressing their unhappiness about how town councils are using the conservancy and service charges paid by Singaporeans.

I still do interviews with non-mainstream publications, academic researchers, foreign university students etc. But it has been my personal policy for quite some time now to avoid contact with the mainstream media. So I will decline this interview.

However, if any of you netizens out there feel strongly about this matter and are interested in speaking to this journalist, please email me (memek-bugilin@gmail.com) or leave your contact details in the comment section below. And I will ask the journalist if she would be interested in getting in touch with you.

A reader by the name of Coder had earlier left many detailed comments on my town council post and has obviously done some good research into the matter. Coder, it might be particularly interesting for you to speak to the SPH journalist - do consider.

And thanks for your earlier comments.
Gadis Bispak Imut

• Lihat Foto
• Lihat Foto

A Flawed Survey

ST Oct 17, 2007
80% of readers say ST is important to their lives
By Oo Gin Lee

……. Addressing the Forum writers in the auditorium at Singapore Press Holdings' Toa Payoh premises, ST editor Han Fook Kwang noted that a readership survey in April found that nearly eight in 10 of the paper's readers polled in face-to-face interviews considered it an 'important' or 'must-read'.

Aha. Here we see something known as “survivorship bias” at work. The flaw in the survey is that its sample population comprises only people who currently still read the Straits Times. Thus the survey excludes all those people who had already stopped reading the Straits Times precisely because they considered the Straits Times to be “unimportant” or “unnecessary”.

Survivorship bias is a concept often mentioned in the financial world, in relation to the performance of unit trusts and mutual funds. For example, a fund manager may claim that more than 75% of its funds have outperformed the industry average. This sounds like an impressive statistic - until you find out how many funds the manager had already shut down, precisely because they performed below the industry average.

We say that there is a "survivorship bias", because the "more than 75%" statistic is based only on the funds that still survive. Those funds which had already died from their own poor performance are conveniently dropped from the survey.

Gadis Bispak Imut

• Lihat Foto
• Lihat Foto