Singapore Budget 2008: A Budget for the Rich and Wealthy

Singapore Budget for 2008 contained nothing out of the ordinary. But I felt the need to write about the decision to remove Estate Duty. For those unfamiliar with the concept, it is like a tax that dead people have to pay before their beneficiaries can receive their inheritance.

2 main arguments were being used to support the decision:

1) Wealth is also being managed today on a global basis. Proponents of removing estate duty have therefore argued that removing it would encourage wealthy individuals from all over Asia to bring their assets into Singapore, thus supporting the growth of the wealth management industry. 2) Ordinary Singaporeans have also argued that having worked, paid taxes on their income and property, and built up their savings, they want to be able to pass it on to their families. Some are in fact liable for Estate Duty when their estates receive large life insurance payouts.

Unfortunately, both are not strong arguments for the complete removal of estate duty. I am a proponent of a progressive tax system. I feel that it is only right for the rich and wealthy to return to society what they had benefited from. Our society is already moving from an income tax system towards a consumption tax system. This effectively taxes the poor more heavily in percentage terms (the poor tend to spend more of their income). Estate duty is a tax source that helps to maintain a progressive tax system. Removing it certainly makes it less attractive to the majority of the population who do not pay estate tax because they are not sufficiently rich to be taxed.

Our government claims that we are a meritocracy, but the set of opportunities available to the haves and have-nots are not the same. While that is not entirely their fault, the removal of estate duty will clearly widen this opportunity gap. Singaporeans more likely to be born with a silver spoon in their mouth is not a healthy sign of things to come.

Simple Investment Strategies

Recently, some friends approached me for financial advise. In laymen terms, they are asking me what is the best thing to do with their savings in the current climate. I must add that they are not familiar with investing in general, and have mostly placed their monies in banks for a safe, steady and definitely slow return.

Well, I admit to being no expert, but I shared with them a simple investing philosophy that should reap considerable benefits over the long term.

1) Apart from your immediate commitments, one should allocate the remaining monies across various financial assets. But I do not recommend unit trusts or mutual trust fund. If one must, choose only those with the lowest management and transaction fees.

2) Investments in equities can be quite risky now, with the possibility of a global recession increasingly likely. However, as history showed, attempts to time a market can cause one to miss out on market rebounds. (Recall how the 2002-2003 period was filled with great uncertainty but the market had a quick recovery) 40%-50% in equities can be quite safe. But remember, only place monies that you can afford to lose (even the safest market can sometimes behave crazy).

3) Indices of various stock exchanges can now be bought online. This helps to diversify risks, and will be extremely important, especially to Singaporeans. Our export-driven economy will suffer more in a global recession.

4) Always take note to minimise transaction costs by purchasing in bulk. These can be done by accumulating savings before making any purchase. My rule is approximately $3,000 for every purchase. This can be significant in the long run. As an example, a $1,000 purchase with $25 commission translates into a 5% fee when you eventually make a sale. This means that the stock has to rise at least 5% before one breaks even. A $3,000 purchase translates into a much lower fee of less than 1%. That is why day traders almost never succeeds (they enrich the brokers at their own expense).

I hope that someone out there will also find this useful.