Mr Kenny Ching Hwee Seong (“Wrong to equate public spending with debt”; last Thursday) has misunderstood my letter (“Going left-of-centre not right”; last Tuesday).
I did not say that government spending is harmful, nor did I equate it with government debt. Indeed, government spending on some things, such as infrastructure and education, is essential.
The trouble with Western democracies, and some Asian ones like Japan, is that they spend more than the tax revenues they collect. This is despite the high tax rates in these countries. As a result, they have to borrow to make up for the shortfall. Now, the bankers are refusing to lend and we have this financial crisis.
Why did these countries not raise tax rates instead of borrowing money? Because higher income tax rates may not necessarily lead to higher tax revenues. A higher tax rate is a disincentive for people to work and take entrepreneurial risks. Economic growth slows and lower revenues may result.
The fact that so many Western democracies are near bankruptcy is evidence that there is a systemic flaw in the one-man, one-vote system.
What is electorally popular often does not make economic sense. Promising voters freebies is popular but results in bankruptcy in the long run.
As a result, many Western democracies end up with unaffordable welfare states paid for by high taxes and government borrowings. The welfare states were started mostly by centre-left parties. In general, the main welfare benefits are cash for the unemployed and retirees as well as free health care, funded by high taxes and borrowed money.
Mr Ching mentioned Nordic countries that are extensive welfare states and appear to be doing well. But he failed to note that these states went through their equivalent of the “Greek crisis” in the 1990s. Since then, they have made reforms and cut back on welfare spending.
Singapore should not adopt centre-left policies. I do not want my country to become like the Western nations that are facing high unemployment, slow growth, devalued currencies and nearly bankrupt governments.
Singapore has, over the past three decades or so, outperformed most Western countries. All this was achieved with low taxes, and instead of government debt, we have huge reserves.
Tan Keng Soon