L.A.M. On Budget 2014 and How it Really Affects You

Some highlights from yesterday's Budget 2014.

On our Finance Minister's head:

• The Good: It's as shiny as ever.
• The Bad: It wasn't shiny enough to keep some of our MPs from sleeping.
• The Impact: Makes a good cover photo for this blogpost.

On our Economy:

• The Good: Singapore's economy grew 4.2% in 2013 despite uncertain global outlook.
• The Bad: This year's growth is forecasted to be slower at 2 - 4%.
• The Impact: That 10% raise you are asking for? You should have asked for it last year.

On our Budget:

• The Good: FY2013 is likely to have a budget surplus of $3.9Bn.
• The Bad: FY 2013's budget surplus is higher than the $2.4 billion surplus in 2012.
• The Impact: We were taxed harder in 2013 compared to 2012. Those bastards!
• The Good: FY2014 expected to have an overall budget deficit of $1.2Bn
• The Impact: That extra tax burden we had last year? We might get back some of it in benefits this year. (Later on, we will learn that most of the benefits go to old people)

On Healthcare:

• The Good: Medishield Benefits will be enhanced.
• The Bad: Medishield Premiums will increase.
• The Impact: Less money in our Medisave because you are expected to live longer. Also healthier people will be subsidising less healthy people even more. Those unhealthy bastards!

On CPF:

• The Good: Employer's CPF contribution will increase 1% from 16% to 17%.
• The Bad: The additional 1% will go into Medisave to pay for increased Medishield Premium.
• The Impact: You know that point about having less Medisave above? Less of a problem now. On the other hand, there is a good chance that prices will go up in general so that employers can pay more CPF

On Property-Cooling Measures:

• The Good: Too soon to start relaxing them.
• The Bad: Too soon to start relaxing them.
• The Impact: Good for buyers, bad for sellers, bad for developers and bad for property agents.

On Education:

• The Good: Lifelong Endowment Fund topped up by $500m to bring it to $4.6Bn. Kindergarten Assistance Scheme for lower income (Income below $4,800). Extended bursaries for higher education to 2/3 of Singaporean housholds.
• The Impact: Good for people seeking education. Bad for illiterates. More competition for jobs among degree holders. Also you will now have to queue even earlier for choice kindergartens. That is until more kindergartens are set up.

On National Productivity:

• The Good: Productivity and Innovation Credit Scheme extended for 3 years. Raised expenditure cap for qualifying activity to 600K from 400K. Support 80% of qualifying costs (capped at $1m) for Infocomm Technology solutions. Subsidised fibre broadplan plans for SMEs and for new in-building infrastructure to facilitate access to broadband.
• The Impact: Good for SMEs. Facebook status updates will be posted faster for SME employees. Also your favourite restaurant is now more likely to replace some of their waiters with iPads.

On Foreign Workers:

• The Good: Increased levy from $600 to $700. Lowered Dependency Ratio Ceilings.
• The Bad: Increased levy from $600 to $700. Lowered Dependency Ratio Ceilings.
• The Impact: Less foreigners, more expensive operations and HR for smaller companies. But companies are encouraged to make use of various productivity schemes to reduce dependence on foreign labour and increase productivity. Also Tharman asked you to change your mindset about using self-checkout counters at supermarkets to reduce reliance on foreign labour.

On the Pioneer Generation:

• The Good: Increase Employer's CPF contribution by an additional 1% for workers aged above 50-55 into Medisave Account. More flexible use of Medisave. Annual Medisave top ups of $100-$200. Higher subsidies for Specialist Outpatient Clinic services. $8bn Pioneer Package fund to be set up.
• The Bad: Workers above 50-55 will also contribute an additional 0.5% into their Ordinary account.
• The Impact: Finally someone remembered to help their Ah Kong and Ah Ma. Some Filial Piety at last!

On Tax Relief:

• The Good: Enhance parent and handicapped parent relief by up to $3000. Handicapped dependent reliefs increased by $2000.
• The Impact: Stay with your parents, get more tax benefits. More benefits if you have handicapped dependents. Good karma begets more tax relief.

On Other Benefits:

• The Good: GST Vouchers to benefit 1.4m Singaporeans. U-Save vouchers to benefit 800K households. 
• The Impact: More money and relief, especially if you are poorer or live in cheaper housing.

On the "Sin" Taxes:

• The Good/Bad: Liquor Tax increased by 25%. Up by $1.20 per litre for Beer, Stout Cider and Perry. And up by $1.75 per litre for other types of liquor
• Tobacco Tax by 10%. Up by 3.52 cents per stick of cigarette.
• Betting Duties increase from 25% to 30%.
• The Impact: Beer, Stout Cider and Perry will cost $1.20 more per liter. Other alcohols will cost $1.75 more per liter. Cigarettes will cost 3.52 cents more per stick. And Gambling will be more expensive/returns will be lower.

L.A.M.

Pictures taken from: http://www.singaporebudget.gov.sg/data/budget_2014/download/FY2014_Budget_in_Brief.pdf

L.A.M. on What Is The Best Investment

We are in an age where people are obsessed with money. Walk into any banking hall and you will find RMs trying to sell you the latest investment products while scaring you with inflation numbers and how your savings account only earns 0.125% annually.

Turn on the computer and you will have ads about how to improve your returns with FX derivatives or how you can make lots of money while working from home. The country landscape is littered with showrooms, where housing agents are eager to pounce on you to explain how property is the best investment because it can go no other way but up. 

Inundated by such stimuli, it is little wonder why people are obsessed with making their money work for them.

One of the most common questions I get as a banker/economist/investor is, "What is the best investment I can have right now?". Depending on the flavor of the season, the person's risk profile and return requirements, my answer would range from REITs to bonds to commodities or to property linked stocks.

However, identifying the correct segment is only a third of the story. Apart from that, you also need to identify the correct entry and exit strategy/points. 

The truth is that it takes a lot of training, discipline and luck that get all 3 points right and if you get any of the trinity wrong, you will find yourself sitting on a two legged stool, begging for a not so graceful crash.

The world of financial investments, is a cut throat one and though there is money to be made in the market, it carries a lot of risk as well. When you are making money, more often than not someone else is losing money. When you have made a good investment, someone on the other end must have made a bad one. In this zero sum game with a plethora of players, what is the probability that an average individual can consistently out smart, out wit and out buy/sell institutions with access to data before everyone else, or governments with more resources than anyone else or professional traders who have spent more time and effort than anyone else honing their skills at making money?

This brings me to the topic of comparative advantage. Comparative advantage is an economics terms which refers to the ability of a party to produce a particular good or service at a lower marginal and opportunity cost over another. In very layman terms, it is a fancy way of saying that some people are better at some things than other people.

There are some people, who either by talent, access to information and resources or training will possess a comparative advantage over others in making money from money. While for someone else, their comparative advantage could be in photography, or auditing or whatever skill sets or passion that they possess.

Many times, we are so caught up with the financial capital side of things that we forget about improving yields on human capital. There are many financial instrument out there and the ones you are more likely to have access to, also tend to have low barriers to entry. By No Arbitrage Principle, any possibility of low risk, positive returns are quickly snapped up, leaving behind an equilibrium where no supernormal profits can be made. However, when it comes to human capital, there is only one of you. You are unique, your skill set, your experiences, your talents, your resources and abilities are unique. In terms of barriers to entry, it is extremely high. In terms of supply curve, it is perfectly inelastic. What's left is to increase the market demand for that unique product which is yourself.

                                                            (Picture from Logarchism)

As seen from the curve above, When the supply curve is perfectly inelastic, the only way to increase it's value is to increase the demand for the product. When the demand curve shifts upwards from D1 to D2, the value of the product is increased. Furthermore, as there is a very high barrier to entry (no one can replicate you unless they clone you), the supply curve is likely to remain perfectly inelastic in the long run.

So how do you invest in yourself? Well for starters, identify what is your comparative advantage. What are your strengths, your talents, your passions and your abilities?  How would you go about improving them? Do you need to invest money to attend courses, get a certification, etc? Do you need to invest time to network with the right people or to get more motivated? Finally, are you investing enough in marketing yourself, your talents and your abilities?

The best salesmen, aren't the ones who can market their products well. They are the ones who can market themselves well. When we think of Apple, we think of Steve Jobs but have we really thought about how much time, money and effort, it took for Steve Jobs to improve his presentation skills, to motivate himself and to market himself?

End of the day, everyone of us have a certain comparative advantage and we are not all made out to be traders or investors. If you are good at swimming, why compete with someone else at running? Leave the marathon, join a swimming competition and compete on your own terms. The best investment you can make is on yourself.

L.A.M.


If you liked this, you might also like to read:

L.A.M. on Money
L.A.M. on Popularity and Success