Thursday, 11 October 2018

How to read the news critically

You could almost hear the breathlessness. "Singapore is one of the 10 worst countries for efforts to reduced inequality"!

Notice the first giveaway in the headlines: It't not that SG is WORST in inequality. That is measured by the Gini Coefficient.

Note that Oxfam's beef with us (geddit? OX-fam? Beef? nemmind) is that we are worst for EFFORTS to reduce inequality.

I would be interested to know if a country with very low inequality, and so therefore would make very little efforts to reduce the already low inequality would fare better or worse than a country with very high actual inequality which has a lot of efforts to redistribute wealth.


But let's get to the meat of the issue. The news report is below.

And here is the actual link to the Oxfam Report: The Commitment to Reducing Inequality (CRI) Index. You can read it yourself, and not let a newspaper or a journalist dictate your perspective. Or for that matter, this blogger.

Singapore ranked among bottom 10 countries for efforts to reduce inequality: Oxfam report 
By Faris Mokhtar

09 October, 2018


SINGAPORE — The Republic has been ranked among the bottom 10 countries in the world for its efforts to reduce inequality, according to a global index released on Tuesday (Oct 9).

The Commitment to Reducing Inequality Index 2018 showed that Singapore is ranked 149 out of 157 countries, below Bangladesh and above Laos.

It dropped 63 spots from its 86th ranking last year, when the index was first introduced by Oxfam, a United Kingdom-based charity organisation dedicated to improving poverty.

Nigeria is ranked right at the bottom, while Uzbekistan and Haiti are ranked 156th and 155th respectively.

This year's list is topped by Denmark, followed by Germany and Finland, with Japan (ranked 11th) being the only Asian country in the top 15.

'HARMFUL TAX PRACTICES'

According to the report,
Singapore's low ranking is due to a number of its "harmful tax practices". Though it has raised personal income tax for the rich by 2 per cent, which took effect in 2016, the maximum personal income tax rate remains very low for the highest earners at 22 per cent.
How high should Personal Income Tax (PIT) be? Well, look at the table I put together with the top 5 CRI-ranked countries, Singapore, and the bottom 5 ranked countries. Denmark, ranked 1st has the PIT minimum of 35%. And a max of 56% (all figures rounded to the nearest whole number). In fact the top 4 countries average 50% in maximum PIT. (I've excluded Norway because it has a complicated tax system and I don't have any interest in understanding it).
Oxfam also singled out Singapore and Cayman Islands as territories which encourage corporates and individuals to avoid or evade taxes by having very low tax rates or providing tax havens, while jurisdictions like Switzerland encourage their actions by agreeing to widespread tax exemptions and "sweetheart" deals.

The charity said avoidance and evasion of taxes by corporates and individuals "are costing developing and developed countries alike hundreds of billions of dollars a year".

"Virtually all of this tax avoidance and evasion is undertaken by the wealthiest in society, making the tax system much less progressive," it added.
Tricky. Tax evasion is a crime. Tax avoidance is not. Lumping it together makes it easier for them to make their case.

This is the biggest reason why countries collect far less corporate and personal income tax than they should, the charity said, resulting in sharply reduced revenues that could be used to tackle inequality.

In 2016, Oxfam had named Singapore fifth on a list of the "world's worst tax havens" for its lack of withholding taxes, its range of tax incentives, and evidence of substantial profit shifting.

But the Ministry of Finance defended Singapore’s tax regime and said parts of the Oxfam report were inaccurate, adding that the Republic's tax policies "are designed to support substantive economic activities, in order to create skilled jobs and build new and enduring capabilities in Singapore."

"We do not condone any tax evasion activities or actions aimed at base erosion and profit shifting. Singapore is able to keep the headline corporate tax rate competitive at 17 per cent because we are fiscally prudent and have a diversified tax base,” the Ministry said then.

RELATIVELY LOW LEVEL OF PUBLIC SOCIAL SPENDING

In its latest inequality index, apart from being rated poorly due to its taxation practices, Oxfam ticked Singapore off for its "relatively low level of public social spending".
With 39 per cent of its budget going towards education, health and social protection, the charity noted this is "way behind" countries such as South Korea and Thailand, where half of their budget are directed towards those areas.
This is myopic, narrow-minded, and simplistic measure. Measuring expenditure is simply a measure of effort, not effect. The table below shows the score CRI gave to SG for our spending on Health, Education, and Social Protection. At 0.221 it is the lowest score of the selected countries. I picked South Korea and Thailand because these two countries were mentioned above. Japan, Australia and New Zealand are included because they are at the top of this region (Asia. Sorry Australia and N. Z. I didn't call you "Asian").


Score on spending on Health, Educ, Social Protection
Infant Mortality Rates (per 1000)
Life Expectancy at Birth
PISA score
Japan
0.690
2.0
85.3
528.7
Australia
0.563
4.3
82.3
502.3
New Zealand
0.658
4.4
81.3
505.7
South Korea
0.324
3.0
82.5
519
Thailand
0.344
9.2
74.9
415
Singapore 
0.221
2.4
85.2
551.7

With our low score (0.221) our infant mortality rate is lower than every other country except Japan. Similarly, our life expectancy is higher than every other country except Japan. But Japan scored more than 3 times higher than SG in terms of expenditure. From the CIA World Factbook, SG's expenditure on Healthcare is 4.9% of GDP. We are 144th in terms of spending on health as a percentage of GDP. South Korea spends 7.4% (72nd).

Japan spends 10.2% (ranked 23rd in the world) of their GDP. To get a slightly better Infant Mortality Rate and a wee bit longer life expectancy. I think we got value for money.

On Education, we spend 3% of GDP. And PISA ranked us 1st with 551 points. New Zealand spends 7.4% of GDP.  Australia spends 5.6%. South Korea spends 5%. Japan 3.8%. They scored lower than SG.

The point is not how much you spend, but whether you spend wisely to get the most value for money.

Most businesses and funding agencies are moving away from measuring inputs and efforts. Oxfam shows how out of touch they are with a focus on measures of efforts instead of effect and impact.


Oxfam noted that while spending on education has risen from an average 14.7 per cent to 14.8 per cent of most government budgets, countries such as Vanuatu and Singapore saw some of the biggest decreases.

According to Singapore's Budget report for 2018, however, the Republic's expenditure in education has risen in the last two years.

Actual expenditure for education in financial year (FY) 2016 was about S$12.4 billion, while the revised expenditure figure for FY 2017 went up to around S$12.6 billion. The estimated expenditure for FY2018 is about S$12.8 billion.

Oxfam also rated Singapore poorly on its labour and gender laws: "On labour, it has no equal pay or non-discrimination laws for women; its laws on both rape and sexual harassment are inadequate; and there is no minimum wage, except for cleaners and security guards." 
I'm not going to bother to look up stats on rape and compare with other nations. Again, it is not whether the laws are in the books, but whether women can walk on the streets safely at night or at any time. Singapore is ranked one of the safest cities in the world. Second only to Tokyo. Or you can believe Oxfam and their "book" measure.
AMONG THE BOTTOM IN ASEAN

Within South-east Asia, though Singapore is ranked above Laos, it fared poorly compared to its counterparts in the Association of South-East Asian Nations (ASEAN).

Its closest neighbours Malaysia and Indonesia are in the 75th and 90th spots respectively. Meanwhile, Thailand is ranked 74th, the Philippines is in 94th place, Vietnam is in the 99th spot followed by Cambodia in 121st position and Myanmar in 138th place. Brunei is not in the list.
It is good that our neighbours can sometimes be ranked above us. It will give them... confidence.
Singapore's poor performance could be due to Oxfam's revised methodology.

Since last year, Oxfam's index is based on three key areas — social spending on health, education and social protection, progressivity of tax policy as well as labour policy.

But this year's index saw additional indicators under the tax and labour areas, covering harmful tax practices as well as women's labour rights and minimum wage.

Oxfam noted that its decision to introduce the harmful tax practices indicator is to address concerns that last year's index did not consider the extent to which a country enables companies to dodge taxes. As a result, certain countries known to be tax havens such as Luxembourg and the Netherlands received higher scores.

Meanwhile, it noted that "working women can sometimes experience greater levels of domestic violence in response to greater economic autonomy", and so, it decided to include an indicator on women's labour rights. 
"Can sometimes experience"? It's good to know that Oxfam has a rigorous process to guide its decisions. Unfortunately, we cannot twist and turn to catch their balls as and when they throw new ones. Singapore's decisions are pragmatic and practical and are intended to solve real problems. Not theoretical problems that may or may not happen.

The gist of their report, is that they want countries to be Robin Hood - tax the rich, and give to the poor. Basically, they are measuring or assessing countries based on how well those countries practice social welfarism.

Take the top 5 countries ranked by them.


Overall Rank
Gini Coefficient
Corporate Tax
PIT Min
PIT Max
VAT/GST/ SST*
Tax as a % GDP
Denmark
1
29.0
22%
35%
56%
25%
53.5%
Germany
2
27.0
30%
14%
47%
19%/7%
43.8%
Finland
3
27.2
20%
8%
54%
24%/14%/10%
23%
Austria
4
30.5
25%
0%
55%
20%/10%
47.6%
Norway
5
26.8
23%
0%
23%+8%+(1% - 15%)
25%/15%/10%
54.7%
Singapore 
149
45.9
17%
0%
22%
7%
22.5%
Sierra Leone
153
34.0
no info
no info
no info
no info
17.6%
Chad
154
43.3
no info
no info
no info
no info
12.1%
Haiti
155
60.8
no info
no info
no info
no info
18.9%
Uzbekistan
156
36.8
8%
8%
22%
20%/0%
29.8%
Nigeria
157
48.8
30%
7%
24%
5%
3.5%
*Some countries have different GST rates for different categories of goods and services. 

Apparently to get into the top ranks, you need to have a maximum Personal Income Tax rate of about 50%. And GST of about 20% or more. Note that for SG, our tax as a percentage of GDP is only 22.5%. The top 5 countries (except for Finland) tax revenue is about half their GDP. This says something about their economy. It is almost 50% government "business".

But as I am all about impact and effect, I must say that those heavy taxes really does hold down the Gini coefficient (the lower the better) - they are 30 or lower. So lower inequality. For about 20% GST. (Let's not worry about the maximum PIT. I mean, who are we to ever worry about having to pay the highest PIT tax rate right? That's for the very, filthy rich bastards. Not us working class people! Who will still have to pay 20% GST.)

Worth it?



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