GST Increase

The PM had announced the GST increase in FY2007 from the current 5% to 7%.

The primary reason behind the increase was to assist the lower income group to close the income gap between the bottom and top quartile.

As a consumer, I do not look forward to this increase, as it would impact everything that we do on a daily basis. However, it has been eluded that the corporate and individual (not sure about this) tax would be lowered to maintain the competitiveness of the country. If it means lower taxes, then it is good.

But how does it stack up? I guess the rationale is that the rich folks would not mind spending more to purchase that $ 10,000 plasma or LCD TV or home theater system, but the not-so-rich would only spend, perhaps $200 to buy a normal TV. Therefore, the state coffers would increase without taxing the no-so-rich too much.

While I have not taken the time or effort to analyze all the possible scenarios, I do worry about how the government would spend the extra money to assist those who need the financial help. Many commentators have openly questioned if this was the start of a welfare state?

More intriguingly, I see some commentators pushing for early childhood education as a way to get the needy get out of their povertry trap, and I think this is a fantastic idea. While I am a proponent of the meritocracy system here in Singapore, I do see certain downsides to this system, especially when it comes to awarding scholarships to students.

Most scholarships are based on grades (even if not, a big chunk of the consideration is based on grades), but if 2 persons of the same age, but not of the same social status were to compete for the scholarship, the odds are that the student whose parents are from the upper-middle class to upper class strata would have better grades than the one who is not on this strata.

Why? Primarily because this kid would have had the benefit of the best pre-school, tuition, enrichment and whatever classes that you can think of, that money can buy. Whereas the other kid (from the not well to do family) may not such opportunties, but nonetheless strives to suceed the best they can.

So who deserves to get the scholarship? If it were me as the parent, I'd let the poorer kids have a chance, especially if I could already pay for my kids' education by myself. If the poor kid who got the scholarship goes on to become a manager, a VP, a minister, then the system would have done its job for this kid.

What do you think?