Singapore Budget 2013 – Financing Singapore’s Future: A Counter-Argument

Devadas Krishnadas, who is the Director of Future-Moves and was previously Deputy Director of Fiscal Policy at the Ministry of Finance had posted an article on IPSCommons. An excerpt was featured on the Today newspaper yesterday.

Devadas said that, “The annual national Budget is something that most Singaporeans take only passing and selective notice of. They should give it more attention.” And he is right. Singaporeans need to give it more attention. However, I do not agree with the some of his arguments.


Devadas wrote that, “Singaporeans should take comfort in three important features of the national Budget.

  1. Firstly, unlike almost every other of the world’s advanced economies, our Budget is not debt financed. Thus, we avoid being at the mercy of fickle credit markets. The net result is that within the boundaries of our fiscal space, we can act with confidence. This makes us fiscally credible and policy predictable.
  2. Secondly, the Government runs lean comparative to other economies in our GDP per capita bracket. Considering the modern city we inhabit, this means we get considerable bang for each buck of public expenditure.
  3. Thirdly, unlike the other advanced economies, we have been reducing the burden of taxation rather than increasing it. Direct taxation has fallen over the past decade though indirect taxation has increased. The Government has practised a tax-and-transfers model to moderate the regressive nature of consumption taxation.

Let’s take a look at his arguments:

  1. There is debt in Singapore. Firstly, It’s true that our Budget is not debt financed. However, it is important to note that even so, Singapore has one of the highest debt per capita in the world – S$61,378. This debt is money that the government borrows from our CPF. Currently, our debt stands at S$330,696 million. Our CPF assets stands at S$209,766 million. Why does the government borrows our money? The money is invested in Temasek Holdings and GIC. Again, I will like to remind you that only a partial, and small proportion of the interests earned are returned to Singaporeans. Temasek and GIC earns 17% and 6.8% respectively but the government bonds, which the CPF is invested in, which is then used to invest in Temasek and GIC earns only 1.55%, a significantly much lower percentage of the interests that Temasek and GIC earns.

  2. Productivity has dropped. What does Devadas mean with the second point? He says that the Singapore government “runs lean” and so “we get considerable bang for each buck of public expenditure.” What does he mean by that? He had not brought out any statistics to illustrate his point. Certainly, our annual budget/expenditure is always much lower than our annual revenue. However, does this mean we are getting “considerable bang”? By this, I take it to mean that we are efficient with our spending. Is this so? Our productivity has dropped since 2008, except in 2010. In 2012, productivity growth is also negative. Is this what he means by getting “considerable bang”?

  3. Tax rates are reduced but increase in government revenue increased from other sources. Indeed, he says that, “we have been reducing the burden of taxation rather than increasing it.” But what he does not say is that even though the percentage of the tax rate might have been reduced slightly, the amount of taxes collected continue to increase. What’s more, we are made to pay more into Medishield and Medisave, we are withdrawing lesser from CPF, and we are also paying more for housing, COE and ERP. We might be paying a slightly lower percentage tax, but we are paying more through high tax revenues collected and all through the other financial modalities mentioned above. Just illustrating the tax situation does not give us the full picture of the financial situation in Singapore and the complete burden that Singaporeans have to face.


Devadas also mentioned that, “in recent years – most loudly during the series of political elections over the past 18 months – there has been growing contention that there should be less emphasis on economic growth and greater expenditure on social safety nets. If we want to increase public spending on social investments, there are three ways to go about it.

  1. The first is to choose different ways to cut up the revenue pie. This calls for a change in priorities in public expenditure and acceptance of ensuing trade-offs.
  2. The second approach is to increase the revenue pie with higher taxation or a greater share of investment returns from our sovereign wealth funds.
  3. The third approach is to persist with trying to grow the economy and thereby expand the revenue base.

However, Devadas’s proposal takes too broad a view. By looking at our ‘fiscal challenges’, Devadas’s proposals are seem wasteful.

We need to take a look at tackling the fiscal challenges in a targeted manner:

  1. Implement a Minimum Wage Law. How can we ensure minimal regulation and government intervention to allow the market to correct itself? Optimally, you do not want to have the government step in to tax the companies more, and then redistribute the tax back to the people. Optimally, you want a free market economy where the market can be induced to pay fair wages so that workers and citizens can earn a fair income and continue to function relatively well. However, in a capitalistic economy, companies will find ways to profit over workers by suppressing wages and increasing prices of goods and services. As said, you do not want the government to over-tax companies so as to redistribute the profits back to the poor because this would be relatively heavily-interventionist. So, how can you ensure that you protect the rights of the workers without reducing the companies’ competitiveness? One way is to regulate companies’ responsibilities by implementing a minimum wage law which accords the workers a minimum salary which allows them to have a basic standard of living. Yet, companies are free to price their goods and services and individuals have the free will to decide if the goods and services are priced at the right prices. Also, by implementing a minimum wage law, this gives incentives to companies which hire these workers to compete and innovate, so that they are able to offer attractive job packages to the workers. This was what happened in Hong Kong after the minimum wage law was introduced in 2011. By implementing a minimum wage law, the government does not over-regulate the economy, yet is able to increase productivity.

  2. Higher Investment Returns into Medishield and Medisave to Subsidise Healthcare Costs. When we talk about social investments, what are we talking about? First, when we talk about social investments, it’s not about giving money unthinkingly to the jobless or ‘needy’. We need to identify specific areas where we need in increase social protection – what are the specific basic needs of people? For example, one of them is healthcare. The proportionate spending by the government for our healthcare bills has dropped constantly, since Singapore’s ‘independence’ in 1965. The government spends only 31.4% in 2009, which is lower than all of the Asian tigers and most developed countries. If so, we need to look at how we can be targeted in increasing social investments by increasing the proportionate spending by the government on our healthcare bills. One way to do it is to increase the budget. As said, the national budget/expenditure has always been much lower than the revenue. The other way is, like Devadas has also suggested, to transfer a “greater share of investment returns from our sovereign wealth funds” from Temasek and GIC back to our Medisave and Medishield, so that instead of asking the people to increase their contributions to Medisave and Medishield, the government should increase the interests returned, so that people would have more spare cash and savings.

  3. Targeted Intervention to Increase Social Investments. When we talk about increasing public expenditure on social investments, how can we be targeted? We need to identify the pertinent areas where populations are being marginalised by unequal wealth distribution or areas where services are considered essential and a basic right to the people. I will bring out 3 specific areas where we can increase public expenditure on social investments in a targeted way:

a)      Implement a minimum wage law, as described above. The government can intervene upstream, by ensuring that companies look out for the right of the workers, so that the government doesn’t have to intervene downstream by increasing taxes on companies to redistribute taxes to the lower income groups. At the same time, this does reduce the competitiveness of the companies.

b)      As also shared, divert more of the interests earned from Temasek and GIC back into the Medishield and Medisave, so that the people won’t need to fork out the increase from their own pockets – this is especially important since their real wages have dropped, on average, since 2008. Paying for the increases out of their own pockets will further erode their purchasing power.

c)       Increase the interests earned from Temasek and GIC to increase our CPF monies, so that instead of putting in regulations to prolong the time period that Singaporeans can withdraw their CPF monies, and reduce the amount at the same time for each withdrawal, Singaporeans can continue to withdraw an amount, that matches up to inflation, and yet provides a more acceptable subsistence living.

As I had mentioned, the government can easily do this because with the existing financial situation of Singapore, we are able to afford it. But what doesn’t the government want to do this?

  1. If you implement a minimum wage law, in the short term, this will eat into a company’s profits, as they find ways to improve productivity, before profits rise again. There is short term loss. The Singapore government owns the largest Singapore companies through Temasek and GIC. Would they want to eat into their own profits?
  2. If you divert interests earned from Temasek and GIC back to the people’s Medishield, Medisave and CPF, Temasek and GIC will have lesser profits, and they will have lesser to give back to their shareholders. Temasek and GIC are owned by the government. Will they want to eat into their own profits?

Which is why when Devadas talked about increasing taxes on such broad terms, it is unhelpful. It makes it sounds like its too much for Singaporeans to swallow, and hopefully, by describing any increase needed for social investments, it sounds like too much money for Singaporeans to agree with, and the people will oppose any idea to increase taxes or social investments and nothing will need to be done. Well, we do have enough money – question is, is the Singapore government willing to have lower profits, so that rightfully, Singaporeans can be protected?


Finally, Devadas talked about how ,”The future political contests will be on two axes. The first, and more difficult, is the contest of political ends. The ruling party has a well-oiled political narrative. The Opposition could try to present an alternative political narrative to win the support of the people. The second axis is where the Opposition could embrace the prevailing political narrative and limit its case to arguments about policy means. The second approach need not necessarily weaken any eventual claim by the Opposition to form a government but neither does it help it. If the Opposition is unable to present a countervailing political narrative, it should avoid confusing the electorate with disputes about what are essentially shared political ends. Their focus should be on the debatable policy means to secure those ends.

I am not comfortable with the statements that Devadas had said here. The by-elections for the Punggol East constituency is next week, and the statements seemed more well-timed to sway Singaporeans away from the opposition parties, than anything. Devadas had stated that PAP has a “well-oiled political narrative” while he felt that the other parties could only “try” to present “an alternative political narrative“. This is his opinion. I recommend that Devadas go take a look at the policies that parties, such as SDP, have proposed.

At the same time, I urge Devadas not to confuse Singaporeans with his opinions. He should stand by what he says and ensure we debate the policies instead of suggest right out, without a debate, that the other parties are “unable to present a countervailing political narrative“.

As Devadas had said, Future debates must be characterised by political actors investing energy and intellect to study, compose and present compelling policy ideas to move us forward.” And this is why I’ve decided to share my thoughts as well, to have an intellectual understanding on this issue.

I am unable to find the website for the company that Devadas is the director of – Future-Moves. Nonetheless, you can read more of Devadas’ articles here.

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