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10 Feb 2019
Ministry of Finance
Suggestion View - 320
The positive aspects of tariff

Most people look at tariffs as something bad. It impedes free trade which helps to bring down the cost of production and the prices of goods.

The advocates of free trade ignore the important aspects of tariffs. 

a) It is a way to bring tax revenue to the government to fund its operations. The alternative of relying on income and corporate tax is not reliable due to the ability of the wealthy to hide their profits in tax havens.

b) It helps to retain jobs in a country by reducing the impact of differences in wages and working conditions in various countries. 

It is true that tariffs will increase the cost of products in a country. But the revenue collected from tariffs are needed to fund the government. The alternative is to have governments in chronic deficits, as had happened in America and other advanced countries. 

During this time, there is the perception that these countries are more wealthy due to increase in the value of stocks and properties. This artificial sources of wealth help to cushion the impact of a bad economic system for a few decades, but it cannot continue much longer.

During the three and a half decades from 1950 to 1985, the world was largely protectionist, to a modest extent. America was prosperous as they had a large market which is protected to some extent with tariffs. 

It is the dismantling of tariffs for the past three and a half decides that produced the large inequality in America and other countries, and governments that do not have sufficient tax revenue to function properly.

I now come to Singapore. 

Many people do not realize that we are a highly taxed country, in spite of advocating free trade. The govt collects large revenue from land sale and taxes on vehicles. These revenue sources tantamount to taxing the citizens upfront for many decades in advance. 

They also do not realize that Singapore already imposed a tariff on foreign labor. It is called the foreign worker's levy and applies to work permit and S-pass holders. 

However, this levy does not apply to E-pass holders, which command a higher salary and causes local PMETs to be replaced. This is an anomaly that should be corrected.

I am not talking about introducing tariffs on goods imported into Singapore. The govt does not need the additional revenue. They have much more than enough.

I am talking about other governments, especially America. They do not have the kind of revenue that the Singapore govt has. They need other revenue sources to fund the social and economic services for the people. Due to the unreliability of tax revenue, tariffs is an attractive option.

We need to introduce balance in the world. We need the govt in many countries to have sufficient revenue to fund their public services. 

I expect that many countries will look at tariffs as a way to bring back the fiscal and social balance that can improve lives for the people.

Tan Kin Lian 


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