Yes! You can have welfare in Singapore!
Posted by intellisg on June 23, 2007
Mohd Arif, 32, works as a technician and takes home $2200. He hardly saves and needs to support his three children at home. His wife, a production operator helps out but brings home only $900 a month. Below the median family income of about $5400, life is harsh. Things could easily get more depressing if you find out that after July 2007, your consumption will be taxed 2% higher.
The year 2007 will be remembered by the blogosphere as the one in which Singapore ministers declared a 32.5% salary increase for themselves from about $1.2 million to about $1.6 million. It is also a year where the good and services tax will be raised from 5% to 7%. Clearly, declaring a tax increase and granting senior government servants a large pay increase in the same year has ruffled the feathers of many citizens, the most vocal being the bloggers in the Internet. The political capital expended in these initiatives is clearly a heavy one and only time will tell if this decision will impact the people’s support for the government in the years to come.
Within the maelstrom of blog postings regarding ministerial salary increases and GST increases are questions which are directed at Singapore’s most sacred philosophy of pragmatism. In many cases, pragmatism represented paying top dollar for top talent and it’s antithesis being that of a welfare state – where Singaporeans can receive a sum of money to tide them through hard times during periods of unemployment.
Critics of the welfare state are legion. They are mostly concerned with people losing the incentive to work hard and build a productive life for themselves. Supporters believe that it is very insensitive for the government to withhold several hundred dollars to sustain families every month and yet spend so much effort justifying their hundreds of thousands of dollars in salary increases.
As such, history will unfold in a typical Hegelian dialectical manner – the thesis being a pragmatic, uncompromising Singapore which can sustain the reality of a ministerial salary increase with more consumption tax, and an antithesis, being for a softer and kinder Singapore that is willing to lend a hand to citizens who have fallen on hard times.
Capitalists and investors in Singapore are well aware on how to resolve these two differences and perspectives and it is , in fact, largely possible for middle income Singaporeans to create welfare for their families by reducing their expenses and investing their money intelligently in the local stock market.
How to establish your own welfare state
The first step in becoming a welfare state would be to think about how a welfare state should function. Perhaps in your conscience, you feel that if you’re unemployed, the welfare state should provide $600 a month to allow you to survive difficult periods of unemployment. This adds up to about $7200 a year. While $600 is not a great number, it can pay the electrical bills and the instant noodles you will need to feed on when you are in dire straits.
The next step to becoming your own welfare state would be to set aside a sum of money to establish your income needs in 10 years. Based on very reasonable assumptions, you should be able to do so with a mere $500 over 10 years. This is easily achievable by the median income family who makes $5400 a month. It gets progressively harder as household incomes drop but safe to say $500 of savings is possible for at least 70% of Singaporeans. The establishment of a welfare state will definitely require some personal sacrifices, you would have to end the visit to posh restaurants and cut down on expensive coffee joints to be able to save $500 a month.
Now let us take a look at the state of the Singapore stock market. Let’s look at my three welfare state stocks:
Macarthurcook Properties ( A0P ) yield above 8%, pays money quarterly and is projected to pay on the months of January, April, July and October.
Omega Navigation (O57) yield above 8%, sends a check to your mailbox every March, June, September and December.
Pacific Shipping Trust (P48U) yields a above 9% and pays every February, May, August and November.
Notice that by picking these three stocks, you get paid every month at least 8% a year.
Let’s examine the effects of an investor who buys these three counters for an extended period of time of 10 years. At $500 a month, compounded at about 8% will result in about $91,473.00. At 8% dividend yields, you can expect about $609 in dividend cash flow every month,
Voila, $600 a month into your pocket in times of employment or unemployment.
Risks of adopting this approach
This is not an article to recommend a buy on stocks I mentioned but to inform Singaporeans that stocks that pay 4 times a year and over 8% in dividends do exist. As an investor and a capitalist, you will need to carefully study the market and seeks out many of these investments to diversify their holdings.
Investments of this nature also can appreciate very fast. While this can give you capital gains, you will need to cycle your investments to other stocks which have the old 8% quarterly payout character.
Naturally, if stocks can yield such large numbers, many risks exist that could torpedo the best plans towards financial independence. For example, you need to assess what happens to the payouts of shipping trusts if charter rates fall.
Build your welfare state now
Generally investors and capitalists are more hesitant to criticize government policies. These days, dividends are taxed at only one level – the corporate level at about 18%. The money that reaches your pockets does not incur any personal taxation.
It is also possible that in the years to come Singapore would need to become more competitive than Hong Kong which means that it would have to generate a more vibrant business atmosphere by lowering corporate taxes even further.
In conclusion, this is the true key towards establish a welfare state. The Singapore government does levy low taxes and is very helpful in helping you help yourselves.
Why not use this privilege to become even more self reliant so that the government can put in more effort to help those to really need help instead?
Christopher Ng Wai Chung, 32, is an IT Project manager who dabbles in personal finance and wealth management. His books, Growing your tree of Prosperity and Harvesting the Fruits of Prosperity meld his philosophical ideals with the realities of seeking financial independence in Singapore. Harvesting the Fruits of Prosperity can now be found in Orchard Kinokuniya. Be sure to ask counter staff for its location.
Christopher’s blog can be found in treeofprosperity.blogspot.com. He can be reached at firstname.lastname@example.org.
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