Budget 2013: What to Expect Until 2016 and Beyond

The other way to look at Budget 2013 is to look at it as a corrective budget.

Also, Budget 2013 is the start of a series of evolutionary budgets which will be aimed at correcting the missteps by the Singapore government of the economy over the past 10 years or so. Budget 2013 to Budget 2015 will follow similar ideologies, in the systematic and targeted approach that the government is planning to take to correct the economy, in the first instance.

What Are The Broad Aims for Budget 2013?

There are two broad aims for Budget 2013.

The first aim is to restructure the economy:

  • To raise the productivity of businesses through financial incentives, matching of relevant industry expertise, and the training and education of employees
  • To root the core business interests of business in Singapore and to hinge Singapore as a base for expansion
  • To grow SMEs in Singapore to create a self-sustenance local economy

The second aim is to reduce social inequality:

  • To increase incomes for the lower income workers, through co-funding of wage increases and income supplements (though we would need to assess the effectiveness of the Wage Credit Scheme by the end of 2013)
  • To increase social mobility through more targeted and intensive refinement of the education system
  • To tax the wealthy to redistribute wealth (though the redistribution effects is not yet at the optimal – we will need to look at the moderated Gini coefficient at the end of 2013 and 2014 to understand if there are significant improvements, and what modifications need to be made thereafter to make the tax structure more progressive)

The Decade of the 2000s: Singapore’s Lost Decade

But why can we look at Budget 2013 as a corrective budget?

Over the past 8 to 10 years, businesses in Singapore have become too over-reliant on cheap labour. This has resulted in wages being depressed as businesses continue to import cheap labour, where wages are pegged to the cost of living of the home countries of the foreign workers, and where the wages of Singaporean workers are thus also pegged to the wages of the foreign workers, which has resulted in the Singaporean workers, and actually all workers in Singapore, not receiving wage remuneration which is commensurate with the cost of living in Singapore. Thus the purchasing power of Singaporeans, especially those in the lower income groups, have become severely weakened and the cost of living has thus increased.

At the same time, at the other end of the spectrum, the government began a programme to invite wealthy individuals to invest in Singapore in the mid-2000s, which drove up costs, especially for housing and cars. The government gradually became over-reliant in on housing and cars to increase revenue.

Not only that, from the early 2000s, the government had also embarked on a course to increase revenue through all channels possible, through labour (CPF, foreign worker levies), rental from businesses, and as mentioned, from housing and car prices. This has thus resulted in the people and businesses feeling squeezed on all fronts. Ironically, the very people the government was bringing in – the well-heeled foreign workers, were also starting to feel the pinch.

In effect, the government created the situation of inequality that Singapore now faces by their own pursuits of revenue accumulation at both ends – of earning revenue off labour at the lower end and thus depressing wages, as well as allowing prices to balloon at the higher end. Budget 2013 is also a corrective budget, in the sense that for the past decade, the government has also created a huge imbalance between businesses and the people, such that support has pandered towards businesses while the people’s needs have been gradually neglected. Budget 2013 is the first step towards correcting this imbalance, by bringing people back into the focus, though a greater step towards achieving this balance should be addressed in Budget 2015 or 2016.

It was thus not a coincidence that the fertility rate in Singapore continued to drop over the past decade because costs were rising on all fronts that so much so, Singaporeans simply do not have enough money to set aside to set up a family, as the money they earned had to keep being used to pay off their loans for education, housing and cars. They simply had no spare cash to bring up children. This is on top of other issues, such as a lack of work-life balance and a concern for the future of the child.

Facing An the Inescapable Problem

Over the past one to two years, the problem has finally come head on with the government. The problem was that the government has created a drastic system of revenue over-generation from all sources that they can identify, but what was especially problematic was their over-reliance on revenue generation from labour, housing and cars.

  • You cannot make revenue out of the people because by the time you are done making money off them, they won’t have enough energy to grow your economy with you. You need to invest in the people and pace them.
  • You cannot make revenue off housing – not at the current rate, and definitely not in land-scarce Singapore. It is unsustainable and if the housing market hollows out, this will cause a recession which will threaten the very fabric of the stable business environment that we are trying to maintain. Also, there won’t be enough land to keep building new homes for the lower-income groups.
  • You cannot make revenue out of cars because cars cannot be seen just as a luxury good as there are people who do need cars for practical purposes.

Budget 2013: Re-Focusing Singapore Into a Regional Centre

By 2013, we were facing a very acute problem where our economy has degenerated back into a labour-intensive economy. But, we were moving away from being a manufacturing-based economy which we would have at least been able to rely on for economic output, and yet moving into a service economy which had grown too over-reliant on lowly-paid workers to drive an unsustainable mode of working. The Singapore economy was in dire need of restructuring into a new mode of working. When the Singapore Population White Paper 2013 was released, it exposed all the fundamental flaws that our economy had been operating on. A new way of working was in order.

The government finally came face to face with the seriousness and necessity of restructuring the Singapore economy, to bring Singapore back to speed, and to move us up the value chain. We have lost much time, chasing after easy money that our economic strategy from the 1990s was allowed to languish over the past decade.

In Budget 2013, there was thus a clear focus to restructure the economy. The main aim is to work with businesses to do away with the over-reliance of cheap labour, where unnecessary – thus the financial assistance and institutional guidance to boost productivity. The introduction of the Wage Credit Scheme was meant as an impetus for businesses, to subsidise for larger wage increases, to allow wages to correct themselves, or at least that was the intent. The increase in the foreign worker levies, especially in the lower-income segment, was also meant to force businesses to reduce their reliance on cheap labour, and to gradually hire fewer workers at higher wages, alongside the expectant higher productivity that these workers will be able to produce. However, even so, wages won’t correct themselves to the level of growth that would have been if we had continued on the course of pre-2000’s economic developmental path, not at least for the next 3 years.

At the same time, Budget 2013 was aware that the higher costs and economic restructuring that the Singapore economy would undergo will mean that some businesses might find it more difficult to sustain themselves in Singapore. Thus Budget 2013 has also catered for incentives to allow businesses to retain their core business interests in Singapore through intensifying land use in Singapore, while assisting with their expansion into the region. The idea is to build Singapore into a regional centre, with which businesses could branch out into the region from.

Budget 2013: Collecting Wealth with the Intention of Redistribution

For the people, the widening income inequality has become so glaring that the government could no longer turn their head away from the problem. In Budget 2013, the push to narrow the income gap came from two fronts – from the lower end and the higher end. For the lower-income groups, as mentioned, the government had aimed to increase wages, at least superficially for now, through the Wage Credit Scheme and the Workfare Income Supplement.

Specifically, the main causes of inflation in Singapore is due to housing and car prices, and so the government also zoned in on those fronts.

You can broadly describe how the government might have grouped housing and cars into the following categories, to understand the strategies that they are using for each category:

  • Basic level: of new HDB flats and public transport – where the aim is to keep prices low, and where the government has aimed to peg housing prices to median wages
  • Intermediate level: of Build-to-Order housing and cheaper cars – where this is left untouched for now
  • Luxury level: of private housing and luxury cars, where the government has imposed a wealth tax on

Yet, even as the government has imposed a tax on the higher incomes, the government has taken pains to make it clear that the tax isn’t on income, but on wealth. The reason for doing so is to maintain the outlook that Singapore continues to be a tax haven where taxes are low, so as to continue to attract investors into Singapore, at least for the next few years, while the government continues to accumulate revenue from them, while looking for new sources for revenue diversification.

You can see that in Budget 2013, there seems to be a neglect of the middle income groups. The government has very specific focal areas for now. The immediate areas to address are to restructure businesses, so that wages can rise and to put a lid on prices so as to stabilise price increases. Once these two are acted on, the hope is that there will be some trickle down effect to the middle classes. As of now, for the middle income group, the government will continue to maintain prices for housing and car prices at the basic and intermediate levels. At the same time, the government needs to stabilise things on both ends first, before embarking on further initiatives for the middle class. In Budget 2015 or Budget 2016, the government might then introduce initiatives to correct the COE mechanism and perhaps expand GST rebates and introduce price subsidies for the lower middle income groups.

Why I say that for Budget 2013, the government is aiming to collect wealth with the ‘intention’ to redistribute, only later on, is because as much as there is a welcomed increase for the lower-income groups, to redistribute wealth to increase their incomes through the Workfare Income Supplement, the other aspects of cost subsidies, in education healthcare and social assistance, isn’t as apparent yet, though noting that the Ministry of Health will be introducing new initiatives to provide further subsidies for Singaporeans on our healthcare bills. The redistributive effect of wealth won’t be significant in the initial years.

If we could surmise, the government had meant to attract enough foreigners to invest their wealth in Singapore for at least the 5 years preceding, so that they could then start on the next phase of their revenue generation strategy, by taxing on their wealth. Also, Budget 2013 is meant to test-bed some redistributive wealth effects for the government to gauge how far they can go with redistributing wealth. Budget 2013 is really meant to prep the ground for a future tax structure which will increasingly become more progressive.

What Can We Expect for Subsequent Budgets?

What the government will introduce for subsequent budgets will really depend on the following:

  • How fast productivity can grow
  • How fast companies are leaving and the success rate of the retention of their core businesses in Singapore
  • How far inequality has been reduced and whether the Wage Credit Scheme was successful in convincing business to raise the incomes of the lower income earners
  • Whether measures to reduce inflationary pressures were able to take effect

In Budget 2014, we can expect the following:

  • Productivity growth wouldn’t have immensely improved by the end of 2013, as businesses would still be in the initial stages of restructuring themselves. Budget 2014 will continue to provide further incentives and initiatives to assist businesses to improve productivity.
  • There will be a further tightening of foreign worker curbs, in tune with the government’s aim to further reduce reliance on cheap labour, with expectant productivity increases.
  • The government will further refine the education system, to increase social mobility, so that down the road, we can improve the quality of the workforce and so that they can receive higher incomes.
  • There likely won’t be strong measures to directly affect income increases as the government would want to let the increased productivity and tighter foreign worker curbs to allow for demand-supply economics to interact, to increase incomes.

In Budget 2015, the efforts to increase productivity should start to show:

  • There will be further fine-tuning and refinements to the initiatives to increase productivity and reduce social mobility.
  • A stronger focus to adjust wages upwards to bring wages to an optimal level within the next 2 years should be put in place. With the effects of productivity starting to show at the end of 2014, the government would be better able to gauge how the cost savings with productivity growth and how the Wage Credit Scheme was starting to take effect, and accordingly, whether further refinements to this scheme and the Workfare Income Supplement would be needed to boost incomes for the lower-income groups.
  • A further effort might be taken to manage price increases, which would be part of a constant series of initiatives along the course of 2014 and 2015, to reduce income inequality.

Budget 2013, 2014 and 2015 will most probably have a strong focus on businesses. The thinking behind this is that there is a strong need to urgently restructure the Singapore economy, and a strong focus will be on helping businesses be able to do that. Even as incomes are raised, the idea is to not put the pressure on businesses to conform to regulated increases. The Wage Credit Supplement puts the decision of how much to increase in the businesses’ hands while the Workfare Income Supplement is a redistributive top-up by the government.

These budgets will be the primers for Budget 2016, where the government would then shift its focus onto the people, to more directly raise and regulate their incomes. Budget 2016 is also likely to be the people’s budget because this would be the election year. Effectively, the government has given themselves 3 years to catch up on lost time and to compact their restructuring efforts. Without the general election, the government might space out measures to increase productivity over 5 years or more, but they had to be disciplined because of the political impetus.

In the people’s budget in 2016:

  • The efforts and schemes to prod people’s incomes upwards should start to see the effects of incomes which should move closer to the cost of living in Singapore. This would be a good time for the government to implement a minimum wage, as enforced wage increases at this point should not drastically upset the revenue and profits of businesses, as it would have a few years preceding, if the budgets of the last 3 years were successful in their aims.
  • We could start to expect that more Singaporeans would be willing to take on jobs which used to be seen as ‘low-skilled’ as these jobs would have been up-scaled with productivity measures, and would have also increased wages, to attract more Singaporeans into these jobs.
  • In this budget, we should also see the next major expansion in the progressive tax structure, where the government would have identified further sources of wealth for tax imposition, or might even increase income tax for the higher income earners.

Budget 2017 Onwards

However, from 2016, with the increase in incomes and a slowdown in the government’s financial support for productivity measures, businesses might start passing on costs to consumers and prices of goods and services might start to increase. The government might subsequently introduce new initiatives for temporary cost reductions so that any planned price increases could be temporarily halted. At the same time, the government might provide GST rebates for more Singaporeans, so that incomes can rise in tandem with price increases. The expectation would be that if price increases are slowed down and incomes continue to rise, and with workers becoming more productive and efficient in their work, businesses can start returning to shape, and regain their profits. If this could be done within another two to three years thereafter, businesses won’t need to pass back costs to consumers, in a big way.

After 2016, the best case scenario would be that wages would continue to rise while prices would rise slower. However, as the government would still need to look for new revenue sources to grow their revenue, they will continue to earn revenue from traditional sources in the interim, such as from housing and cars. At the same time, the government should be slowly weaning off earning revenue off labour. It will take the government another 3 to 5 years henceforth to identify new revenue sources or to grow new revenue sources, identified in the mid-2010s. So, in the interim, there will be an interplay of income increases, followed by price increases, where one will follow the other for a few years.

Once the government is able to expand on the new revenue sources, prices should start to become more steady and wages would be able to rise in a less impeded way. With employment correcting itself, an optimally-sized labour force should be able to be achieved by then, and the government could reduce their reliance on the foreign worker levies and Workfare Income Subsidy to correct wages. The expectation would be that wages would have also started correcting themselves.

However, there is one sore eye in Singapore’s economic development. From 2013 onwards, the next 5 years would need careful monitoring of housing prices. Housing prices had ballooned too quickly from 2008, that there is a possibility that the housing industry might hollow out. When that happens, some construction businesses will fail and they will take the fall of the industry. Meanwhile, the government will remain protected as these businesses will have already leased over the land and will owe the government land costs, so the government will not take the fall. However, between 2013 to 2015, the government is already slowing down on construction, to ameliorate the effects, aimed at preventing a collapse in the housing industry.

Singapore: The Next 10 to 15 Years

So, for the next 5 to 8 years, the government will be correcting the economy back to what the economy should have been, if the government hadn’t veer off its path in 2001. Also, our growth will be incremental, evolutionary and most importantly, targeted, as the government aims to adjust its strategy according to how productivity growth, business retention and measures to reduce income inequality interact with one another.

It will be hard but the government has already lost more than 10 years, having veered off its intended course, with a wayward move towards easy money. After 2020, incomes should be higher across the board, minimum wage would have been imposed by then and the ‘low-skilled jobs’ of the early 2010s would have become ‘higher-skilled’, due to productivity improvements, which means that these jobs will be able to offer higher wages, and more Singaporeans will be attracted to these jobs. This will reduce Singapore’s over-reliance on cheap labour, and there would be a more corrected flow of people into Singapore. By then, infrastructural capacity would also have been able to catch up with the corrected flow of the people, which also means trains would be less crowded as more train lines are opened.

If all goes as plan, we should see the first signs of productivity growth in the next 3 to 5 years, the economy should somewhat be on track to restructuring itself, wages should start becoming equitable between 2017 to 2019, and become a lot more equitable after 2020. The economy should reach a new equilibrium in 10 to 15 years.

The question, though, is, can you wait?

There is currently, however, one major flaw in the planning ideology of those in the government. The government does not currently believe that people, by themselves, can be assets, which can be productive. The government has always relied heavily on businesses to be the productive agents and to accumulate profits. There needs to be a fundamental shift in mindset to recognise that the people can be productive agents as well. There is an inherent fear that if the people have more autonomy and power, it can upset the power of PAP to rule and their longer term plans for Singapore. This also underlie PAP’s refusal to provide for stronger social assistance and support to Singaporeans, because of how the assistance can be seen as going to waste, if the people are not seen as productive agents, and that the people shouldn’t be given too much support, which can lead to them having too much power. However, if PAP can learn to recognise that if they can improve their communication and engagement plan, to engage all Singaporeans and to involve all Singaporeans in their plans, there can be renewed trust and support between the government and the people. If our government can go back to the basics and become a government for all, it will continue to have the support of all Singaporeans.

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2 comments

  1. Kaffirlime

    how will the ”infrastructional capacity catch up” with the ”corrected flow of people” if, as you say, the govt is cutting back on construction? and how can it afford to do so wen it needs all those homes, hospitals, schools, old-age homes, hotels AND mrt lines, which it should have built in the last 15 years but didn’t, because it doesn’t have 20/20 foresight? then there’s all that extra land needed to be reclaimed in case of an eerrrrr worst-case scenario…

    khaw boon wan, for one, is saying we need to desperately speed up construction. he Begged WP in parliament to plse accept the idea that spore needs thousands more foreign workers so he can build his much-needed little pigeon-holes…

    and what will we do about the lack of hospitals? what if there’s an epidemic?! and how about mrt lines? much-needed too isn’t it? especially when so MANY more people will have to ride the train since they won’t be able to afford cars under the new rules…

    and we aint talking of 6.9 million or the larger no of tourists coming here yet. we’re talking of catering to just 5.3 million, the no of people here now, and the few hundred thousand more who will inevitably trickle in over the next few years…

  2. Pingback: 싱가폴 예산안 발표, 과연 “포괄적인 사회” 형성이 가능할까? · Global Voices 한국어

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