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5/26/2008

What's wrong with subsidies?

"I read the newspapers and the simplest thing is to write and say, subsidise. Rice, oil, bus fares, even putting seat belts on school buses. That is the surest way to go downhill” LKY I don't agree with his views on this. Subsidies or handouts are different forms of welfare. If one is wrong, both are wrong. Anyway, I don't think Singaporeans are asking for subsidies to the extent of giveaways at below cost. Market subsidies is one thing that can be cut for essential items. Profit in essential goods at times like this can also be cut as long as the importers are not losing money. Making profits on such items at such times leave much to be desired. Then there is the huge petrol tax that can be lowered without affecting govt revenue when petrol price was much lower. In fact it should be cut to lower business cost. Nobody is expecting a blanket subsidy for everything. Fine tuning a little here and there to help the people is what the people expect of the govt.

15 comments:

Anonymous said...

They "subsidize" millions dollars for their pay, but subsidize nothing for the people.

Matilah_Singapura said...

What LKY didn't expalin when he meant "go downhill" is that subsidies are economically unwise.

Firstly, there is "moral hazard". Then there is a problem with "externalities".

A big problem is that subsidies invariably end up driving prices up even further. The "natural" un-interfered reaction to high prices is that people CUT BACK on their use of an item which has risen in price, thus conserving it.

When use is lowered, demand drops and so do prices. If you subsidise the good to "overcome" the high price, demand will stay the same, or increase and eventually there'll be shortages and higher prices.

And all that money which were spent on "helping" people overcome high prices is now GONE. Subsidies can drive the budget into deficit, which means you now have to BORROW to pay for the subsidies.

What should a govt do when price levels start rising to "painful" levels?

1. Reduce taxes -- cut the GST back to original 3%. This is DO-ABLE.

2. Cut the tax on fuel -- used to be unheard of. Australia is doing just that.

3. Stop the banking system and reserve bank from INFLATING the money supply.

4. Get out of the way of profiteers and speculators -- these people restore "order" to the market very quickly.

redbean said...

why would people want to make generalisation? are people asking to kill the golden goose? can't people look at the views of people objectively, realistically and rationally?

there are areas where we are not even talking about subsidies, just remove the tax. and for essential items, no one is asking for across the board subisidies or reckless subsidies. just cut down on the profits during times like this.

that is all people are asking. sensible people will only expect sensible assitance and expect sensible people to react sensibly.

Anonymous said...

Australia really hasn't said anything definite about cutting back petrol tax. Both petrol excise and the GST combined accounts for almost 50% of what Australian consumers pay for petrol. Sure, we know that there's collusion re: petrol prices among retailers (and this is unlikely to change unless there's a whistleblower) - but the bulk of the blame is on the Aussie government.

Rolling back 5 cents on the petrol excise as proposed by Nelson is NOTHING. And Turnbull for some cheap political shot was against it. The right wing is more right than the left, but Turnbull will never get my vote.

Matilah_Singapura said...

> can't people look at the views of people objectively, realistically and rationally? <

They "can" but for the most part they "won't". People are more prone to form their opinions emotionally, not objectively or rationally.

The great majority also are economically and financially illiterate. They think that the govt can solve every single problem on earth. They don't just think it; they EXPECT it.

Anthother think I did't mention about subsidies: when subsidies are given, the businesses supplying the subsidised goods make record profits -- a free kick from the govt at the taxpayers expense.

Matilah_Singapura said...

anon 648

I can't stand that poncy millionaire socialist Malcom Turnbull. I don't think he's right-leaning at all -- despite his success in investment banking.

Turnbull's very bad when it comes to tax. He likes to tax. He favours a strong, well funded state. A republic under Malcom Turnbull doctrine would be intolerable,

For the last 4 Federal elections, no party has got my vote.

There is no real difference between the Libs-Nationals coalition or the ALP -- although they purport to be ideologically different. Neither party whilst in opposition have EVER defended the liberty of the people, and when the parties come into power.

Every federal treasurer has delivered bigger and bigger budget surpluses -- which menas they are taxing too much, and every new federal govt has tried to centralise more power in Canberra, chipping away more and more at states' power and autonomy.

The people of Australia really do indeed get the govt they deserve!

Anonymous said...

I'm wondering if Turnbull is doing this leftist crap for mere populism. The Liberals have lost the plot and abandoned their idealogical roots.

Howard was at least ideologically committed i.m.o. - the problem was that his focus was on political short-termism (which is the case in any democracy). It was hard to convince people of the necessary economic reforms anyway - Australia's a socialist-loving, tall-poppy country. Very much an Aussie thing to decry capitalism.

As for greater centralization of power into Canberra's hands - well, the State governments are an even more appalling lot. Personally I don't care if they are stripped of all power and autonomy.

Anonymous said...

Sort of funny too that you prefer a high-taxing, socialist, welfare-state country like Australia over Singapore haha. Minus the lack of political and media freedom, Singapore is more aligned to capitalist ideals than Down Under.

Anonymous said...

i look at it that we are really sacrificing more in order to accumulate more. and that the issue is not so much about subsidies or clutch mentality as it is about the rise in costs of living via fares, gst and other increases that have caused so much hardships. do these costs and taxes have to go up becos we have "no choice"? despite owning the world's biggest sovereign wealth?

Matilah_Singapura said...

To anons 809 & 811

I'm not, and never will be "aligned" to any country. The whole planet is my home, IMO.

Australia is the perfect place to LIVE, IMO. I like the outdoors, and I like solitude.

Speaking of economic freedom, S'pore is 2nd place, Aust is 4th place. In fact, in the finance sector, Aust is a lot more free than S'pore -- who has a kiasu MAS looking over everything.

ALL politics in Australia -- one of the most robust democracies (majority rule) is POPULIST. If you as a politician want MAJORITY vote, you'd better promise the people, and hope that they believe you. Aust will have higher taxes than S'pore because the people WANT welfare. Welfare is a sacred political cow.

This is the reason why LKY is not keen on full-blown democracy. He believes the masses will vote in a welfare state.

There are a lot more hard-core capitalists in Oz as there are in S'pore -- if not the country would be poor. Unfortunately, there is an on-going battle between the people who like making money, and the also powerful people who would presume to take it away from you "for the common good".

It is for that reason that I live in Australia, but conduct my business in a lower, less regulated territory.

I believe the call it "the best of all worlds" according to what your self-interest dictates.

Anonymous said...

it is not alright to subsidise and give our poor citizens more welfare beyond the pittances they are getting, but it is alright to give practically little to no strings attached scholarships and bursaries to foreign students in the neighbourhood. and be charitable and magnimous to giving away our money to the impoverished in other countries, such as flood victims etc. i thought the principle must always be charity first at home before anywhere else. and whether singaporeans are ultimately grateful or not should not be part of the decision process becos the money belongs to the people, not any single individual. instead of being control freaks about the issue, this govt should be seen to be happy and ready to help our needy in a soft and understanding way, like china's Wen Jiabao appears to the Chinese, without bringing up the issues of clutch mentality and subsidies all the time.

Matilah_Singapura said...

It is because the state decides that you get the moral hazards you mentioned.

Who is to say that giving bursaries is more or less important than helping the needy with subsidies?

How does a state judge? It can't. The best the govt can do is "guess".

I don't agree that charity begins at home. Charity is, and should remain an individual choice.

Being "unable to afford something" due to a high price is no MORAL BASIS for an automatic claim on the rest of the memebers in a society.

redbean said...

we are not talking about blanket subsidies or subsidies like what the malaysians and indonesians did to their petrol. those are huge below cost subsidies.

here we are contented with a lowering of cost through lowering of profits. can all the essential service providers managed their organisations with the same profit or a little lower profit for a year or two with a lower of the price of their services?

no one is asking for subsidies. no one is asking for help.

Anonymous said...

another example, singpost had quietly raised the postage stamp charges exponentially over the years from 5cts to 26cts today. at this rate, it would exceed 50cts very soon. this extremely profitable organisation having hiked stamp charges more than 400 percent, is expected to continue the process perpectually to grow profits and swell their huge cash horde. instead of forever whining about subsidies and clutch mentality, and distracting us from the main point, the govt could address the issue of these highly profitable essential public service providers contibuting to the uncontrolled and unfair rising costs as a result of their monopolistic nature.

redbean said...

beyond the govt's control. also they do not want to distort the market. must let market forces do the natural.