Is our CPF the highest “implicit tax” in the history of the world?
I refer to the article “Taxing CPF, SRS savings could raise $1b” (Straits Times, Jan 12).
It states that “Prime Minister Lee Hsien Loong and Finance Minister Heng Swee Keat have warned that the Government needs to raise revenue to fund increasing social expenditure.
Actually, this begs the question of whether the Government should fund the expenditure from financial reserves accumulated by past governments or by raising taxes from earners today.
Both options involve real costs. Society must pay today or in the future. But leaving aside this issue for another day and assuming that the preference is to raise tax revenue today, let’s consider how additional revenue should be raised.
Our second suggestion is: Rescind the tax relief on contributions to the Central Provident Fund (CPF). CPF contributions up to specified limits are exempt from income tax, and the returns on CPF investments accumulate tax-free.
Again, like the SRS, this sounds helpful for retirement. But there is a cost – in foregone revenue to the Government.”
Since we know that the current CPF balance is $353 billion – let’s make some assumptions…. historical annualised returns of GIC – 6.0 per cent… historical weighted average CPF interest rate – 3.5 per cent… start date of 1981 – the year GIC was formed
… historical annual increase in net CPF contributions less withdrawals – 4 per cent
Difference between 3.5 and 6.0% is about $180b?
From the above, computing the CPF balance now assuming 6.0 instead of 3.5 per cent, is estimated to be about $500 billion.
Does this mean that the “cumulative loss” of Singaporeans’ CPF may be about $147 billion ($500 billion at 6.0% – $353 billion balance now)?
And what about the loss to Singaporeans, from now into the future – as long as the CPF interest rates are much less than the actual returns derived from our CPF funds?
The above may be an underestimate as Temasek started in 1974 (not the 1981 used in the computation), and also the CPF interest rates and returns derived from CPF funds in the early years, may have been higher than the assumed 2.5 per cent differential between 3.5 and 6.0 per cent.
Any Govt keeps pension fund returns?
Are there any national pension funds in the world that keeps so much of the returns derived from its citizens?
In this connection – I agree with the remarks “listed three things that leaders must do to build trust with their people.First is to be upfront and help people understand the issues at stake and the trade-offs involved in policy considerations.
Second, they must keep finding new ways to communicate with people, especially in an age when “inaccurate or misleading information can ‘go viral’, possibly clouding a person’s view on an issue”.
Third, they must be accountable and responsible, he said, adding: “That means making good on our promises. And when there are problems, we work hard to put things right immediately.”” (“Leaders must be upfront with people, says Minister Chan Chun Sing“, The New Paper, Jan 12).