1. there are only 2 kinds of taxes; income taxes and consumption taxes.
2. income tax is the difference between what you earn and what you can spend.
3. cpf is something that you earn but cannot spend.
4. from sg$800/mth to sg$2000/mth, the income tax rate in singapore is around 30%. it is progressive until around sg$5000/mth, whereby cpf contribution is not required anymore. official income tax is slightly progressive beyond this point. but overall, the income tax system, including cpf, is regressive beyond $5000/mth as cpf contribution stops at sg$5000/mth.
5. in most systems, people pay income tax, but get benefits. e.g. retirement, medical, unemployment, etcetc
6. in singapore, the single most important benefit is the recouping of the cpf money, which generally behaves like retirement benefits. people who earn below sg$800/mth do not enjoy this benefit.
7. in most systems, the high income earners are expected to pay more tax to subsidise the low income earners
8. in general, consumption taxes are regressive. lets say an average person needs sg$800/mth to fulfill basic needs. anyone earning sg$800/mth is taxed a full 7% of his/her income. someone who earns sg$5000/mth may spend sg$4000. sg$1000 of his/her income is untaxed.
9. there are generally 3 kinds of equitability:
i) making sure everybody has the equal income
ii) making sure everybody has the same oppotunities
iii) making sure the 'last man' is not too far behind
10. in general, socialist systems have been so poorly run as to bring the aim of ensuring equal income a poor reputation. moral hazard is a major issue affecting productivity.
11. in general, as the wealth gap widens, opportunities become less equal. the poor are busy being poor. the rich afford better education, have more capital and are able to bequeath wealth to their offspring.
12. in general, measures of the wealth gap, like the gini coefficient, are an accepted norm for estimating societal equitability.
13. the HDB system was started to provide affordable housing for singaporeans.
14. 1 in 7 or 8 HDB loans are in arrears. 70-80% of singaporeans do not think housing is affordable.
15. for a median wage earner(sg$2200/mth - no official income tax, sg$1760 take-home after cpf, total of sg$760 contributed to cpf of which sg$440 is the employee's contribution and sg$320 is the employer's), a normal 4-room HDB unit in a normal HDB estate may cost sg$400000. The HDB loan interest rate is maybe 2.5% - that adds sg$10000 per year to the cost of the house. If the house were to be paid off in a normal timeframe of 20 years, the total cost would be sg$600000 - sg$2500/mth - about 100% of his income( of $2520/mth, including employer's cpf contribution) during that 20 year period!
16. assuming he could actually use all his cpf money to pay for his house he will not enjoy $760/mth*12mths*20years=sg$182400 worth of retire benefits when he can finally take money out from his cpf account, even if we do not take into account the interest that cpf pays.
17. why is he paying for the house alone? because his spouse would be taking care of their kid(s) full time to give them the as equal an opportunity/education/blah as anyone else(anyone else wealthier). anyway this is not realistic since he obviously cannot use 100% of his income to pay for his house.
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18. a more realistic family would have 2 median income earners of $2200/mth each, and they can use only 2/3 of their CPF money(the Ordinary Account) to pay for their flat. that'd be around sg$1000/mth of cpf for paying for the house.
19. they would pay for the flat over 30 instead of 20 years. total of sg$700000 = about sg$1944/mth.
20. they will have to top up ~sg$900 out of their income-after-cpf to pay for their house.
21. their combined income-after-cpf would then be sg$1760x2-$900= ~sg$2600
22. they would hire a maid for sg$800(including extra food to feed the maid?) to look after their kid(s).
23. they have sg$1800 household disposable income.
24. they may hire 1 or 2 tutors. thats sg$400-sg$800. to give their kid(s) an equal opportunity!
25. utilities may cost them sg$200?
26. they have sg$800-1200 for living expenses. for 2 working adults + 1 or 2 kids.
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27. this couple would have used up 30 years' worth of cpf money to pay for their flat.
28. can they both retire at 65 with their cpf monies?
29. if they got married at 30, and had their kid(s) by 35, their kids would be repeating their cycle just as they finish theirs. i.e. they too, have sg$800-1200/mth household disposable income. so they cannot depend on their kids for financial support, i suppose.
30. they would still have 15 years' of cpf 'savings', assuming they started their working lives at 20 and they always earned median income.
31. to them that would be worth about $136800+interest each.
32. they would have to leave sg$18000 in their medisave required amount.
33. so now at 65, they can withdraw a montly payout from their $120000 cpf minimum sum, plus whatever interest accrued of the cpf 'savings' as a lump sum now.
34. 15 years' compound 2.5% interest would be around $45000 i think.
35. their monthly payout from cpf would be in the region of sg$500-600/mth? and if they spread their sg$45000 out over 20 years they'll have another sg$200/mth?
36. suddenly now they're retired they're rich! sg$800/mth each!!!
37. and when they die, the house hopefully can be sold and their kid(s) would have something to inherit! and with that they could probably afford a car as well! and live on better than the sg$800-1200/mth that their parents had...