1) As you claim Hong Kong has some form of insurance in the form of China and previously UK. 1st doubt is if there is really any form of insurances from UK, how come there is alot beggers in Hong Kong’s streets, the property prices are raise so high etc. Plus from what i know, UK practically is leaving the former governor of Hong Kong to handle the economic and living condition etc. The UK government wont step in and the Hong Kong’s people know about this thus i think they wont hope that UK will come and help them if anything goes wrong.

2) As you mention, we need to balance the books since we cut corporate tax. There is alot of ways to balance the books. One way is to cut unneccessary costs like ministry expenses. And i’m sure you should know what i mean by cutting ministry expenses. If the government is sincerely in govern and work to help people, i doubt they will mind that their wages is being cut in order to balance the books just like they encourage us to have pay cut in order to have job and especially they have some rebates in certain areas etc.

3) Make wisely in the investments especially when using public funds as to make the money grow but not making losses.

I think you misunderstood me. I never claimed that Hong Kong’s success was not due to its own efforts. In fact, it is just as you pointed you, Hong Kong made its own success.

I just saying Hong Kong has some form of “insurance” in the form of China, and previously, the UK. If somehow Hong Kong has problems in future, there’s someone to fall back on. We don’t have anyone to back us up. That was really what I meant. The link to the GST is that since we cut corporate tax, we need to somehow balance the books (which is through the GST in this instance). Hong Kong can cut their corporate tax but it will not have the same pressure to introduce a GST because they have China to go to for help if they really cannot cope.

1. I don’t think South China Morning Post editors will have an answer. I’ll try Hu Jintao.

2. I don’t have a macro-economics lecturer. In anycase, if I ask 100 macro-economics professors, I probably will get at least 10 different answers. Who should I believe?

Why do I agree with the GST hike? See the reasons given by the government. By the way, if you read my entry properly, it’s a conditional agreement. Conditional on the premise that the move will result in a stronger economy in future. I don’t think that it’s too late to change the government at the next GE if the promise of delivering fails.

Let’s wait and see. Miracles can happen.

The easiest way to test your arguments
1. would be to email editors at South China Morning Post that China will “take care” of Hong Kong.

2. tell your macro-economics lecturer that macro-economics is like selling ice-cream. and that we need to match corporate taxes of *competitor\tax heaven of choice* or perish.

Btw, what is your reason that GST is nccessary again? what was the reason given for the GST hike again?

Anyway, a balanced article here on economics and welfare if you have time (not directly related to SG budget of course but interesting reading)-> http://delong.typepad.com/sdj/2007/02/martin_wolf_see.html.
(Replace “America” with “singapore” )

Thanks for the critical insight. I’ll respond point by point.

1) You are right that I am assuming that China will bailout HK if it fails economically. I cannot be sure that China will definitely bail Hong Kong out, but I can be fairly certain that will happen. Yes, Hong Kong is autonomous for now, but the power of Beijing is quite obvious, for example considering how the Basic Laws were changed relatively arbitarily. Hong Kong isn’t as autonomous as we like to think.

Also, it is not in the interest of China to see Hong Kong fail. It will affect the entire Shenzhen area, which is experiencing very high economic growth right now. And, yes, we can sell things to China as well, but who will be preferred? Would China prefer to deal through Singapore, or Hong Kong? If I have something that’s so good at home, it is only logical for me to support and use that. Further, we don’t even need to talk about official bailouts. Because Hong Kong is part of China now, things are easy to arrange. Hong Kong can be given preferential treatment in China’s domestic market compared to Singapore.

Lastly, I think it’s unfair to compare rural communities with the urban cities. China too has a limit to the amount of funds it has. I think it would be more logical to bail out Hong Kong or Shanghai than to bail out Inner Mongolia or Tibet. Ultimately, I think that Hong Kong is more economically secure than Singapore because it is part of China, and China still has vast amounts of potential.

2) I totally agree with you on this. There is only a limit to how low we can go regarding corporate taxes. However, that is not a problem now because we are not looking at cutting corporate tax from say 5% to 3%. We need to look at the competitors now. If people indeed are cutting down their corporate tax rates, we don’t really have a choice right? If McDonalds sells cone ice-cream for 50cents, KFC would not be able to sell their cone icecream unless it is similarly priced.

I did note in my previous article, and I still stand by the last part of it, that we cannot compete on cost alone. Yes, we have to lower corporate taxes if everyone is doing it because that’s just the way life is. However, we have to increase the value of the non-tangibles. We need more creative people, we need to be able to stomach challenging conventions, we need to be more receptive towards alternative ideas. The PM talked about a more inclusive society. I think we are progressing a little slow on that front. If we don’t do that fast enough, there’s nothing left to differentiate Singapore from other countries if we ever come down to 0% taxes.

3) Yes, there’re administrative costs. However, the administrative costs are incurred only for 5 years max. Unless we can cut the GST, in future, it’s here to stay indefinitely. What’s 5 years of admin cost compared to indefinite years of income? I think the government is providing the offset package to buy time for people to get used to the idea of 7% GST. However, like I mentioned under point 1, the additional 2% increase in GST is not a problem if our increase in wages is far above that. It is up to the government to make sure that happens.

3 points:

1) Hong Kong can fall back on China?
- Pls elaborate. Hong Kong is run pretty automomously from China. Yes, HK has the great hinterland of China to outsource manufacturing and as a market to sell their goods/services but isn’t that the same for Singapore? I.e. Malaysia is also a hinterland but we tend to frack up the relationship with them that SAF is here to invade them to defend our economic sovereignty?

You assume China will bailout HK economically if it fails. Does China bail out its own depressed rural communities? I do not quite agree with the comparison.

2) Cutting corporate tax rates
- this is measure that addresses the hygiene factor of attracting investments to Singapore. As it is now, EDB is already offering many different type of economic incentive schemes e.g. OHQ etc that allows concessionary tax rates way below that of the standard corporate tax rates.

Hence, using corporate tax rates as the main tool in attracting investments will hit the law of diminishing returns eventually. When that happens, what will we do? Decrease it to zero?

3) Round-tripping
- Tax first, give back more
- Question: why take back if you’re going to give back.
- Analogy: I want to give you $2, but I take from you $1.90 first then give you later $2. Shouldn’t I just not take the $1.90 from you first and give you net $0.10 if that is my intention? Imagine the administrative costs of administering the GST credit package.

We get the govt we deserve. Thanks to all who voted for the MIW.