Calculation to show that consumption tax rates for the poor are indeed higher than that enjoyed by the rich.

wallacetan wrote:

Discussn Thread: Property in Singapore taxed less than food and water...why?
cherry6, I have posted 2 replies to your "using property tax to control property price inflation" and "poor subsidizing the rich" statements.

You don't like my answers?
Or you don't want to answer my questions?

Is that why you change (Cosmetic) your statement to "alleviation of poverty"?
And post the same re-worded post in another forum?

Hi wallacetan,
Thanks to discussion/ research (and the CNA 'Talking Point' discussion about low wage workers on Tuesday), my original rant about interest rates being unsuitable for the control of property price inflation (its a last resort measure) (incidentally also the position of MAS (see ST:Tues08May2012: B18: Pre-emptive moves to cope with ballooning asset prices? Mas prefers Striking for stability with targeted steps))

Perhaps the title of my latest essay (this thread): 'Transparent consumption (property) taxes with rebates to all- a way forward towards a modern, compassionate and productive society.' best describes my genuine position- but that's not to say that I've abandoned the previous thread- I read your contributions and will respond at earliest occasion.

In the mean time, it seems that the old thread 'Interest rate' solution to inflation- a case of mere optical illusion?' [link] has since morphed into a discussion about the Euro debt crisis, the executive right for the government to spend tax payer's monies and the efficiency if justified, integrity and solvency of the FED and even confusingly as you have just appended in the post to which I am quoting, the ability of interest rates to prevent new USD created form inflating property prices. I guess economic isn't a simple subject as your reference to 'The Lesson' by Mr Hazlit has amply implied "Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics or medicine-the special pleading of selfish interests."

This thread is currently on CAL as I think public discourse on the specific topic of property taxation is better than the ivory tower discussions about how the flood of $$ creation will inflate prices and how the use of interest rates might then be used to solve this aberration.

In the interest of thread consistency, I shall thus refrain from responding to your quoted question about money creation vs interest rate inflation as a solution to property price inflation. That shall be discussed at the source thread in due course.

Your second quotation from 'Interest rate' solution to inflation- a case of mere optical illusion?' [link(pg4)] as follows shall however be answered as follows:

wallacetan wrote:

The 'Rich' still pays more in dollars with the progressive property tax rebate of 4%.
When will the 'Poor' EVER pay $59K in property tax?
Please explain how does 'Rich' pay $59K V.S. 'Poor' pay $0 in property tax, means "poor subsidizing the rich"?

I think U have misinterpreted '$59K' which refers to the annual value(AV) band to which (subsidised owner occupied) AV within which accrues a 4% property tax rate. A really doubt anybody in SG pays ppty tax of $59K since even by my calculation (see FP this thread) ppty tax at current rates for the still unsold S$108M Sentosa property would be $68.66K according to current tax rates and I don't know of any other private residential properties in SG costing S$108M today.

Your example of the $20K p.a. salaried 'poor man' vs someone earning 10X more is also inappropriate in so far as you confuse the issue of consumption tax rates with total tax paid. That the rich pay nominally more in tax that the poor is not the issue here; what bugs me here is the consumption tax rate upon the rich being less than the effective rate as applied to the poor.

Creating an example similar to your 20K p.a. (Mr P) vs $200K p.a. (Mr R) salaried individuals, and assuming that the AV of their homes is 30% of their annual salaries which is equal to the annual home mortgage payment for Mr R and the rent payable by Mr P, and neither save any of their salaries, the following calculation applies:

Mr P:
GST on Living expenses = 70%*20K*7%= $980
Ppty tax on AV of $6K= $600 (imputed tax on rent payable at 10% for a tenanted property).
Total Consumption tax paid= $980 + $600
Consumption tax rate= $1580/$20,000=7.90%

Mr R:
GST on living expense of = 70%*200K*7%= $9800
Ppty tax on AV of $60K= Zero for first 6K, and 4% on next 54K=$2160
Total Consumption tax paid= $9800 + $2160= $11,960.
Consumption tax rate= $11,960/$200,000=5.98%.

In conclusion at present, using the example a/m indicated, Mr P's consumption taxation rate is approx 32.1% higher than that of Mr R.

A harmonization of the property tax rate with rebates to all citizens however will show the following results:

Poor man: GST on Living expenses (incl AV of property)= 20K*7%= $1400
Change in consumption tax paid= $1580- 1400= $180
Consumption tax rate (Harmonized)= 7% (flat)

Rich man:
GST on living expense (incl AV of property)= 200K*7%= $14,000
Change in consumption tax paid= 11960- 14000= -$2040.
Consumption tax rate (Harmonized)= 7% (flat)

Assuming that in society, there are 3 Mr P to 1 Mr R, the average National Cohesion Dividend (NCD) payable to each citizen arising from harmonized property taxes collected shall be:
[(-180*3)+(2040*1)]/4 = $375

Effect of this asset redistribution assignment:
Mr P: Net gain: $375+180= $555.
Mr R: Net gain: -2040+375= -$1665


It can however be argued that due to Mr P's inability to afford to own his property, Mr P previously (needlessly) paid $600 p.a. unnecessarily as a result of being a tenant in his property, the $555 is merely fair compensation for the hardship and pain that Mr P experienced previously. Many low wage workers the likes of Mr P also have a hard time coping with inflation, more needs to be done to assist the likes of Mr P as Singapore strives to be a cohesive modern island city state.
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10May2012: Luxury in Singapore taxed less than food and water...why?