Another Taxing Issue

What is GST?

At the core of this year's budget debate is the Goods and Services Tax (GST) hike. What exactly is a GST? A common understanding is that when you, as the consumer, purchase things, you pay the GST together with the price of the purchased products. This is a misconception. GST is in fact the responsibility of the seller. The seller is entitled to pass on the costs of GST to the consumers. But there are exceptions. Some businesses, for instance like NTUC Fairprice, opt to absorb the GST. Thus, when a consumer buys things, the consumer pay the agreed fee for the goods and services, the seller provides the goods and services for the agreed amount. The seller then pays the GST out of that agreed price to the tax authority.

Issues of the Heart

The GST issue is a highly emotive one. In HK, many protests against the implementation of GST had caused thousands to throng the streets with signs reading "NO to GST!". In Singapore, our reaction, if any, is far less dramatic. Feedbacks range from rumblings on the blogs, kopitiam talks to occasional sighing. But what exactly is the issue?

Not only because all of us are consumers in one way or another. GST hike is especially debatable because it involves more than just facts and figures. It affects consumption pattern, business decisions and ultimately quality of living. Questions like these are commonly heard: Is the GST hike fair for the poor? Are we robbing the poor to pay the poor? Are there better ways of raising government revenue? Economics students would call these issues that appeal to our value-system (not just rationality) - Normative issues. They are issues of the heart, not just the mind.

The Heart of the Issue

To resolve normative issues mentioned is really beyond the scope of this blog. There are simply too many interest groups and complex repercussions involved. But, one good way to go to the heart of the issue is to understand the regressive nature of the GST.

When we say that the GST is a 'regressive tax', what it means is that when such a tax is imposed on all goods, a larger proportion of the income of the poor is taxed through their consumption of necessities, as compared to the rich. The real 'tax burden' (who actually pays for the tax) is thus greater on the poor than on the rich.

Thus, one of the key highlights of the ongoing budget debate is how the GST hike can be made less regressive for the poor, using the GST offset package and other income assistance measures. According to the budget speech, average households will receive seven times the extra GST they will have to pay each year. In other words, seven years' of offset. The statistics looks impressive.

Many can still question the adequacy and effectiveness the GST offset package and other income assistance schemes. But in my view, one fundamental question is yet to be addressed - the issue of state-reliance versus self-reliance.

The GST hike should be seen in the wider context of our shift from direct taxation (taxing income) to indirect taxation (taxing consumption). It is very likely that GST would be repeatedly revised upwards in the years ahead as taxes on income (personal and corporate taxes) are cut further to maintain competitiveness. Given this trend, more handouts would need to be given to help the poor.

While the move towards indirect taxes gives the general population greater freedom in deciding how much they can be taxed by choosing how much to consume (or save), it may cause the poor to have greater reliance on the government's help. It may reduce work incentive, which is the very thing the government tried to avoid by moving from direct to indirect taxation. (It is believed that people are more motivated to work if they get to keep more of their personal income. That is why income tax has been reduced in recent years.)

There lies the dilemma in this year's budget - Managing the psyche of state-reliance versus self-reliance. The government seems to be grappling with this issue. While giving more handouts to the poor, the government has also given Workfare a permanent status. Workfare seeks to supplement the incomes of low-wage workers based on the principle that the best way to help people is to help them to help themselves, i.e. help the poor to find work and stay in work. Given the forces of globalisation that demand greater resilience and resourcefulness from our workforce, I would think that promoting self-reliance is the way. Workfare is thus a good start. However, the psyche of state-reliance does not put us in a good position to compete in a globalised economy. This is another taxing issue to resolve.

Link: to http://www.singaporebudget.gov.sg/budget_2007/index.html

History Shapes The Way You Look

Recently, this advertisement has been shown quite frequently on Channel 5.



At first glance, it is one of those painfully clichéd advertisements designed to make the viewer feel good about themselves. Afterall in 44 short seconds, it showed the girls heart-wrenchingly triumph over their own insecurities. The advertisement is part of the Dove's campaign to promote increased self esteem among girls in the age, where the idea of beauty invades the lives of young impressionable girls in various mediums.

The campaign which hit Singapore recently, come on the tails of reports of Brazilian model Ana Carolina Reston and Uruguayan model Luisel Ramos' death due to anorexia. In the last few months of her life, Ana Carolina Reston, ate only tomatoes and apples. While it is easy to view these examples as far removed from our realities, you would only need to take a few seconds to look around you.

How pressured are you to live to society's perception of beauty?How pressured are you to dye your hair?Go to the gym, to lose weight, gain muscles? Simply because your friends are?

We all have heard that during the Tang Dynasty, the ideal beauty was Ms Yang Guifei, a favorite, plump concubine of the Emperor Xuanzong. It was allegedly because of her that Tang beauties were depicted as round, plump women in contrast to the earlier Tang period where the ideal beauty were women with slender figures. We have also heard of 1950's Hollywood icon, Miss Norma Jean aka Marilyn Monroe who on her official website, was described as "personified Hollywood glamour with an unparalleled glow and energy that enamored the world. Although she was an alluring beauty with voluptuous curves".

What caused this change? When did the skinny woman become the beauty of our society?

One of the most prominent actresses that changed the conception of style and beauty was Audrey Hepburn who was the complete opposite of her contemporaries Marilyn Monroe and Elizabeth Taylor. By 50's standards, Audrey Hepburn seemed too tall and too skinny. However, Hepburn captivated the audiences with her slender figure, perfect posture, graceful movements and aristocratic manners, presenting the public with a new ideal of woman. In fact, she would come to represent not only a new look but also a new femininity.

Cecil Beaton, an English fashion and portrait photographer wrote that "Audrey Hepburn's appearance succeeds because it embodies the spirit of today. She had … the striking personality that best exemplifies our new Zeitgeist. Nobody ever looked like her before World War II; it is doubtful if anybody ever did. Yet we recognize the rightness of this appearance in relation to our historical needs. And the proof is that thousands of imitations have appeared."

What was this "historical need" that he mentioned? At what point of history did Hepburn emerge and what did the different image she portrays signify for women?

The World Wars were important turning points in history, not only in terms of politics but also in the social cultural realm, particularly the Second World War. Hepburn, herself was the product of poverty and malnutrition, while living in the Nazi occupied Holland during the Second World War.

Before the war few women followed careers. Most jobs for women were ‘traditional’ roles such as nursing, secretarial or caring jobs. However, with millions of men joining the armed forces, more workers were needed to fill their places in the factories. This changed the traditional views of women. Job opportunities in ammunitions factories for working-class women allowed them to earn a much higher wage than before. Women became machinists, lumberjacks, dockers and railway engineers. Attitudes changed – people supported these changes. In the United States alone, saw the number of women employed in the shipbuilding increased from 39 to 200,000 by 1943.

Because of the changing social and economic role of women, the way women presented themselves (i.e.: the way they dressed) went through a radical change. The First World War (1914-1918) had a pronounced effect on women's fashion in the Western world, particularly hemlines. Hems rose to mid calf length by 1916. Large numbers of women were recruited into military organizations on all sides, and put into a variety of uniforms, which also influenced the shape of fashionable dress. Women were literally, as well as figuratively, wearing the trousers.

During the inter-war years, trousers for women became acceptable for the upper classes. When the Second World War broke out, women and utility trousers became inseparable. Women's clothing went through the greatest changes in, both due to shortages, and due to large numbers of women engaging in work outside the home during the war. In fact, men's suits were re-cut into women's suits, complete with the tailored details and shoulder padding previously found in the male garments.

Thus perhaps, when the war ended, the need to move away from the traditional physical conception of beauty saw the shift of an "ideal woman" move away from Marilyn to Audrey. However it should be kept in mind that in contrast to the emancipated models of today, Hepburn looked the way she did due to circumstance, and not design.

The Economics Of Prostitution

Economists are proving to be quite a controversial lot indeed..

Two well-respected economists Lena Edlund (Columbia University) and Evelyn Korn (Eberhard-Karls-Universitat Tubingen) have created a minor stir in academic circles by publishing "A Theory of Prostitution" in the Journal of Political Economics (a major journal of the field).

Three noteworthy points about their theory:

- Wives and whores can be considered competing economic "goods" that can be substituted for each other (i.e. men buy, women sell). However, spouses and prostitutes aren't exactly alike. Wives, in truth, are superior to whores in the economist's sense of being a good for whose consumption increases as income rises--like fine wine. Prostitutes, on the other hand, are more like "inferior goods"(i.e. income rises, demand falls).. One reason suggested was that wives can produce children that are socially recognised as coming from the father.. And Edlund and Korn quite successfully back it up with data that shows that prostitution tends to be less common in wealthier countries.

- Another point brought up by the model is that the primary reason for the high income earned through prostitution, a seemingly low-skilled but high-pay profession is not with the risks associated with the practice of prostitution but rather that prostitutes greatly diminish their chances for marriage by virtue of their occupation. Men generally don't want to marry (ex)prostitutes, and so women must be relatively well-compensated in order to forgo the opportunity to marry... in fact, the model goes further to postulate that seen from the flip side, "the only downside of marriage for a woman is the forgone opportunity for prostitution"! umm..

- One last prediction the model makes is that the income differential paid to prostitutes will rise with the status the culture accords wives. That is, if wives are valued highly, would-be prostitutes are giving up a lot by becoming prostitutes and will require more money to do so. And if wives have few privileges, would-be prostitutes aren't giving up much to become prostitutes and thus need less inducement to do so.

Is real life really so simple?

Wives or whores? Are our options really so limited?

As with all Economic models, simplifying the real world is necessary for us to better understand the workings of the world around us but in this case, I find the whole scenario rather bleak! what about the third category of women, namely women who work in regular jobs but choose not to marry? According to all the latest global statistics, this is a growing class of ordinary citizens in every developed country.. (in US for example 50% of women remain single!).. clearly this model needs some serious reworking… for one, i can't quite imagine that's the path many of my friends are considering taking just because they're unmarried! :O

And what about the role of love and companionship in marriage? Don't these factor when we're making one of the most major decisions in our life like whether to get married?

Of course marriage always comes with certain opportunity costs (ask the men who surely will agree!), but i'm not quite sure that many women will think along the lines of lost income from such a stigmatised trade when the time comes to consider whether to marry.. Alas how bleak life will be if we just looked at opportunity costs in dollars and cents! Or am I just being naïve... after all, the model did further make a point that for most women (even my mother, for instance!), being a wife proves to be the largest source of income..

As to the point of why prostitution pays so well, i suppose this is something i don't have a particularly good alternative explanation.. if i have to guess, it is probably a demand and supply thing .. if men stop wanting it so much, i'm sure prices will fall.. but then again, it may still boil down to the high "cost" women pay in terms of social stigmatisation if they choose to venture into this trade.. compensating differentials, if one may put it more formally..

Which to me means the best way any government should try to address the issue of prostitution is not to impose legal penalties against it but rather to try to improve the economic prospects for women in terms of other trades and perhaps also that of men as well so they'll end up "demanding" less of the "inferior" good (i.e. prostitutes)..

Well, that's certainly something to think about..