In Budget 2013, the Ministry of Health (MOH) has announced that the government will increase its “share of national spending, to provide Singaporeans with greater assurance that care will remain affordable and accessible … We will in fact take on a greater share of national spending, from the current one-third to about 40 percent and possibly even further.”

I had written about this in a previous article, where I had surmised that even though Singapore has one of the highest GDP per capita in the world, our government spends the lowest proportionate expenditure on our healthcare in the economically developed countries. For a government with our GDP per capita, the government should be spending at least 60% on healthcare expenditure, and not the paltry less than 40% that we are on now. Even South Korea with a GDP per capita of about half of Singapore’s, the government spends about 60% on healthcare expenditure, almost twice that of the Singapore government.

On MOH’s website, they share that Singapore’s healthcare financing philosophy is that the “financing system (is) anchored on the twin philosophies of individual responsibility and affordable healthcare for all. Through a mixed financing system, use of market-based mechanisms to promote competition and transparency and the adoption of technology to improve the delivery of healthcare services, we have secured good healthcare outcomes for our population. We have done so with a national healthcare expenditure of below 4% of our GDP, which is low among developed countries (although this is expected to grow with an ageing population).”

Fair? – Market Forces to Determine Healthcare Access?

Essentially, this is what the government is saying – we will allow the capitalistic market forces of demand and supply to determine what the right price of healthcare is, and the government will spend as little as it can, so that the individual has to make the final decision as to whether it’s financially wise and feasible to engage in the health service, or not.

But is this fair?

1. First, healthcare should be a basic and essential need for the livelihood of an individual.
2. Second, healthcare costs have been rising much faster than people’s wages – where healthcare costs have continued to rise in tandem with inflation, real median income has remained stagnant over the past decade or so.
3. Third, the government’s “mixed financing system, with multiple tiers of protection” of Medisave, MediShield and Medifund, has seen continued increases of the individual’s investment before these tiers are accessible by the individual. The Medisave Minimum Required Sum has been increasing by 20% on average annually over the past few years. The premium for MediShield has also risen, while the premium covered has become lesser per dollar premium. Also, not all Medifund applicants are successful in accessing Medifund for their healthcare bills.

Taken these into account, is it still fair for the government to rely on market demand and supply forces to determine whether an individual should access healthcare, or rightfully speaking, would be able to afford healthcare? Even if the government increases their proportionate expenditure to 40%, is this enough?

Social and Psychological Impact to Unmet Basic Healthcare Needs

MOH might say that, “These features of the Singapore system have been recognised in various international assessments.” However, what are the implications to a system which has become so economically viable? What are the social and psychological implications? Imagine for a second, that if you are a low-income individual and if you have a need to see a doctor, no matter how urgent, you would want to postpone seeing the doctor until it is absolutely necessary; because you would hope that you would be able to get better without having to spend the low income that you have to see a doctor, when you can spend on food or even on your children’s education. Imagine then for a couple, one person might want not to see a doctor but the other might insist that he or she should and an argument ensues, simply because they do not want to have to spend their meager income on seeing the doctor, when there are other basic necessities that they need to look out for, even as healthcare should rightfully be a basic necessity as well.

Underpinning the decision by our government to rely on the people to take responsibility over their own health, through using market forces to determine their consumption, is a thinking that healthcare isn’t a basic necessity. If it were seen as so, healthcare costs would have been kept low, with lower price inflation and higher governmental subsidies. But is that the right thinking – to think of healthcare as a non-basic necessity?

According to Paul Swanson, in his book, ‘An Introduction to Capitalism’, he says that, “A person without money – no matter how desperately they may want or need a particular good – has no demand. Lack of money corresponds to lack of influence in the market; the market does not respond to those without money.” Clearly, MOH’s “use of market-based mechanisms to promote competition” thus prices out a certain segment of the population from healthcare who would also require the most support to seek healthcare. Indeed, Swanson effectively sums it up when he says that, “An individual in dire need of medical care, judging by his/her physical condition, will receive it only if they have money. In the parlance of the market, individuals with need and no money have no demand. The motivation to satisfy their need is money – hunger or pain is not sufficient. This means that supply, as the other side of the coin of the market, is directed towards those with money.” What’s this means is that the Singapore’s healthcare system is a failure to our poor and continues to favour the rich and wealthy.

Need to Relook Our Healthcare Philosophy

A relook of our financing, and indeed, healthcare philosophy is required. It is not a matter of just the government increasing the proportion of government expenditure in healthcare. Even then, an increase to 40% is nothing to shout about as it would still be the lowest among all economically developed countries and an embarrassment for a country with one of the highest GDP per capita in the world. 40% is especially insignificant, when compared to ever-increasing healthcare costs and stagnant wages. Does the increase to 40% even compensate for the price and wage changes?

In order for our healthcare to adequately meet the needs of the people, the healthcare philosophy should look not only into the proportionate expenditure by the government on our healthcare, but also on the proportion of GDP allocated to healthcare expenditure, but more importantly, on the increase in healthcare costs and increase in real wages of the people. If healthcare costs continue to increase beyond the increase of real wages, more and more people will feel the strain of healthcare on their incomes. The healthcare system might then be able to adequately curb people’s overuse of the healthcare resources but underlying people’s decision not to access medical help, is it because they do not want to stress the system or is it because they would rather become more sickly than to have to seek medical help?

As a planner, the government might look at market dynamics as having been able to effectively manage demand for healthcare and our statistics continue to show a people who have one of the longest lives in the world. Yet, if we live long lives, but unhealthy ones and if we live long lives but suffer from continued psychological and social stresses, does it bode well for a people who are continually stressed, even as they do not seek support for it?

Looking Beyond A Financing Mechanism to Prices, Wages and Subjective Well-Being

A relook into our healthcare philosophy is required, and one that does not only look into the financing mechanism and statistics. The healthcare philosophy needs to also be holistic where the government intervenes actively into the market, to prevent price increases that are not on parity with the people’s incomes. If the government does not see it fit to intervene in market forces, then the government would need to intervene to ensure that the people’s incomes grow on parity. In a market economy, the people’s incomes will always grow at a much slower pace and prices at a much faster pace. The government’s role is to ensure parity and equitable distribution and thus it needs to first, manage the price and income growth for parity, and second, to ensure a tax model that allows healthcare financing to be equitably distributed.

Simply put, healthcare should be a basic need for all individuals. It requires a government to remodel its thinking to understand this. As long as we live in a capitalistic system, individuals who do not have comparative financial freedom are disadvantaged in a market economy. If the healthcare system is left to market forces, the individual will be unfairly penalised simply because he or she is systematically disadvantaged by the system – continued price increase and low wage growth is beyond his or her control. The government has to overhaul its thinking to look beyond the financing mechanism and statistics to make its decisions, but to also look into the price and wage mechanism, and more importantly, at the people’s subjective well-being in developing a truly fair and equal healthcare system for all.

I had read Mr Leong Sze Hian’s article on the growth of real median wages in Singapore since the 1990s.

Mr Leong had mentioned that, “the estimated real median wage growth per annum was about 0.4 and 6.4 per cent, from 2000 to 2012 and 1990 to 2000, respectively. If the above figures are correct, why is it that the real median wage growth in the 1990s, at about 6.4 per cent per annum, was so much higher than the estimated 0.4 per cent annum in the last 12 years or so?”

I decided to take a further look at the growth of our wages, relative to GDP growth and inflation rate. At the end of this article, I would like to propose one way in which we can look at how much wages we should grow in the next few years to bring our wages back to parity, and to bring the cost of living down.

In Chart 1, you can see that the growths for GDP, inflation rate and the total nominal wage from 1990 to 2011.

Chart 1

In Chart 2, I compared the GDP growth and change in total nominal wage. You can see that on the whole, the total nominal wage change has generally grown at a slower rate than GDP growth. However  you can also see that the growth in nominal wage change is also much closer to GDP growth in the 1990s, as compared to the 2000s. Does this mean that the workers were more likely to share the fruits of GDP growth in the 1990s?

Chart 2

In Chart 3, I compared the inflation rate and change in total nominal wage. You can see that on the whole, the rate of nominal wage change has dropped but inflation rate has kept increasing. In fact, in the 1990s, change in total nominal wages outpaced inflation rate, but it was in the 2000s that the change is total nominal wages slowed down significantly, and inflation rate grew by such an extend, that it overtook the change in total nominal wages in the later part of the 2000s.

Chart 3

For a clearer comparison, you can see in Chart 4 that after accounting for inflation, the total real wage change has been slower than inflation rate, which means that we are now poorer than before 2008. (I was only able to obtain statistics for the real wage change from 2001 onwards.)

Chart 4

In Chart 5, I plotted the trend lines from 1990 to 2011.

Chart 5

And in Chart 6, you can see how the trend will go until 2020, if things are as per usual. You can see that the inflation rate will keep increasing, while the change in total nominal wage will become very minimal, or even become negative, which means total nominal wage actually will decrease.

Chart 6

In Chart 7, I plotted the trend lines just for the period 1990 to 1997, before the recession in 1998-1999. Here, you can see that the inflation rate has actually dropped in the 1990s. You can see that even though the total nominal wage change slowed down over the period, the drop wasn’t as steep as in Chart 5, over the period from 1990 to 2011. Also, because inflation has also dropped, and even as the increase in the nominal total wage was dropping, it was still growing more than twice as fast as inflation rate.

Chart 7

In Chart 8, I plotted the trend lines from 2004 to 2011, after the recovery of the recession in 2001. You can see that even though there is an overall increase in trend for the total nominal wage, inflation rate has also increased, and by a faster rate, which erodes any increase in the total nominal wage.

Chart 8

Chart 9 will give you a better idea of how the the increase in inflation rate actually hurts the wage earners. In the 2000s, the trend in total real wage change has actually dropped on the overall, partly as a result of the staggering increase in the inflation rate.

Chart 9

From the statistics, you can see that over the past decade, inflation rate has risen by a much higher percentage than the decade preceding. And even as the change in total nominal wages have increased on the overall, the change in real nominal wages has actually decreased, because of the inflation rate.

As such, how can we ensure that workers are paid wages commensurate to the cost of living, and how can the cost of living be maintained on an acceptable standard in Singapore?

Just by looking at the inflation rate and change in total nominal wage, one way to do it is to ensure that the growths in inflation rate and total nominal wage continues continues to increase at acceptable levels.

In Chart 10, you can see that on the overall, total nominal wage change has dropped at a faster rate, as compared to the GDP growth rate. As such, one measure we should put in place is to ensure that the total nominal wage change should be pegged to the growth of GDP, as can be seen in the purple line, and that workers will continue to enjoy the fruits of their production.

Chart 10

This means that over the past decade, wages have been depressed to such an extend that wages need to be brought back to parity. One way to do so is illustrated in Chart 11, where wages would need to grow by 2% to 3% over the next 10 years, to bring wages back to parity.

Chart 11

This reminds me of how the government had indicated last year that they had hoped to increase wages by 2% to 3% for the next 10 years. Is this because they had also looked at how wages would need to be brought back to parity as well, based on this model?

However, the government’s previous proposal was flawed, because they had purported to increase productivity growth by 2% to 3%, so as to also increase wages by a corresponding 2% to 3%. The proposal was flawed because based on their previous approached, productivity wouldn’t increase and thus wages wouldn’t increase as well.

Thus in Budget 2013, the government has finally embarked on a bolder plan to increase productivity and wages at the same time. As to how they would like to increase wages, they have created schemes such as the Workfare Income Supplement and Wage Credit Scheme. Also, companies are required to pay full-time Singaporean workers $1,000 in salary before they are allowed to hired foreigners, which is effectively a minimum wage. Whether these schemes combined can increase the wages of Singaporeans by 2% to 3%, to bring wages back to parity, will need to be seen. Otherwise, the government would need to adopt bolder approaches in 2015 and 2016.

Finally, in Chart 12, you can see that the government needs to bring inflation down. In this illustration, I suggest that inflation rate should at least be maintained at a consistent level. If so, the government needs to bring down the inflation rate over the next few years to below 2%. This is what they had hoped to do by implementing higher taxes for luxury housing and cars. Again, whether these measures would be effective will need to be seen. I do believe that the government might need bolder initiatives in 2014.

Chart 12

All in, it is clear that over the past decade, wages haven’t grown as much as they should have. The government had allowed wages to be depressed, because of a lax manpower policy. Also, the government had allowed the prices of goods and services to increase too quickly, and allowed inflation to erode any wage increases over the past decade, and especially in the last few years.

The government knows what needs to be done since last year, and had thus proposed to increase wages by 2% to 3%. However, their approaches of pegging wage growth to productivity growth, without significant financial investments had caused their past approach to fail.

As such, in Budget 2013, the government has ran out of time, and has thus taken more drastic measures to both improve productivity and wages at the same time, so as to bring wages to parity. At the same time, they have also taken measures to reduce the prices of luxury goods, so as to bring down inflation.

It will take another year to see if their measures to reduce inflation would come to fruit, and another 2 to 3 years to see if their approaches towards enhancing productivity and increasing wages will be successful. Otherwise, in 2014, the government would need to impose a more progressive tax system, and by 2016, introduce bolder initiatives, such as a minimum wage law, to ensure that wages are given the lift required.

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.

On “Building a More Inclusive Society”

At his Budget 2013 speech, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam had shared that, “many in our present day older generation of Singaporeans had very little education – barely half were able to go beyond primary school. Their pay was very low in the first few decades of our development. Younger Singaporeans have benefitted from vastly-improved opportunities in education with the bulk of them going on to tertiary study. As a result, a disproportionate number of middle- and high-paying jobs are taken up by younger Singaporeans while older Singaporeans (those aged 55 years and above) make up more than 40% of workers in the bottom fifth of the income ladder.”

He also said that for retirees, “As they depend on their savings to finance their daily expenses, they are most affected by rising costs. Many worry about being a burden to their children.”

These are two very real issues faced by our older Singaporeans, who are trapped in chronic poverty, because the pace of our economic development has left them behind.

Let’s take a look at the budget initiatives for the people in Singapore, and how it will benefit Singaporeans, or not.

Promoting Social Mobility 

Promoting Social Mobility

Initiatives: Pre-schools ($3 billion) Expanding capacity so that pre-schools will be available closer to homes in all our neighbourhoods, as well as closer to workplaces. Bring more operators onto the Anchor Operator (AOP) scheme, to ensure quality and affordable pre-schools, by providing for 16,000 additional places in AOPs by 2017. Increase salary grants to the AOPs so that all their pre-school teachers will be graduates or diploma holders, up from 80% today. Teachers will also be able to obtain scholarships and training grants to upgrade and can look forward to more structured training and career development. Provide pre-school providers across the sector with greater support in curriculum and teaching guides. MOE will on its own also set up a few kindergartens to develop best practices to be part of this effort to catalyse quality improvements. Establish a new autonomous agency, the Early Childhood Development Agency, to drive improvements across the entire pre-school sector. The new agency will combine the pre-school teams within MOE and MSF, and will be overseen by both Ministries. More Support at School for Disadvantaged Students Extend the learning support programme beyond the early primary school years (currently for Primary 1 and 2), to conduct classes in small groups of less than 10 students. The programmes will require about 600 additional teachers who will be specially trained. Expand the number of school-based student care centres MOE will develop richer instructional materials to enhance teaching and learning in every school. One important initiative is to develop online resources that include the best lessons, especially on difficult concepts, taught by experienced teachers and specialists. All in, these three school-level initiatives will cost an additional $120 million a year. Put another $72 million into the Opportunity Fund. Schools with a larger number of students from less advantaged backgrounds will receive up to $275,000 for a secondary school and $150,000 for primary. This is 40% up from today. Extending the Opportunity Fund to the polytechnics for the first time. In total, this is expected to benefit about 100,000 students across schools, ITE and the polytechnics. Edusave Endowment Fund $300 million top-up to the Edusave Endowment Fund

What will actually happen: The Lien Foundation had conducted a study last year, titled the, ‘Vital Voices for Vital Years’, which “examined the key challenges facing the preschool sector and provides a ground‐up perspective of solutions for improvements.” The study made the following suggestions to improve preschool education: Leveling the gaps in quality, affordability and accessibility for better equity Elevating the early education workforce to revitalize the profession Drawing greater community and parental involvement for a holistic preschool education Advocating the formation of a new distinct lead ministry for greater efficiencies and coherence of policies and implementation It is commendable that the budget has actually catered to all the suggestions. According to MOE, the Learning Support Programme (LSP) was enhanced in 2008 and it found that, “65 percent of students were found to be able to read at their age level and pass their school English Language examinations by the end of Primary 2, (which) is significantly higher than the previous LSP discharge rate of 40 percent.” It is very good news that the government is looking into investing in another 600 teachers for this programme.

What needs to be done to make sure initiative(s) work: According to NMP Yee Jenn Jong, he had penned a very good article which analyses the Anchor Operating Scheme. He surmised to say that, “I believe the Anchor Operator scheme is ill-conceived. Granting another 2-3 operators and asking existing commercial operators to set up non-profit arms to qualify can only make matters worse. It will kill of all remaining low-mid cost operators, given they already face enornmous pressure from rising rental and manpower costs. Those receiving such generous support will easily kill off their competitors. It will reduce diversity. It will freeze our industry at the point when this selection for the next 2-3 operators will take place. After that, this group of 4-5 Anchors will corner the market by their sheer size and advantages, and with new childcare sites deprived for new players.” He also made some suggestions which, he says, will “be focused on affordability and quality, while providing ongoing diversity.” He also says that, “Contestability will keep all operators on their toes, ensuring that no group of operators are annointed with special privileges that can allow them to sit back and relax, knowing that the competition can never beat them because of their special position.” You can read more of his analysis and suggestions here. Thus the $3 billion investment to improve and strengthen our preschool education is welcomed, but the government should also explore creating parity by preventing the Anchor Operating Scheme from increasing costs, which will add to the burden of young families.

Are these good initiatives? What are better initiatives? Some of the concerns that parents had raised were still not addressed in the budget. Granted that the budget is meant to resolve these issues, without addressing these issues, the budget we be able to lessen the problem, but not alleviate it. For example, parents had highlighted how the examination system and competition within schools has increased the stress levels among the children. Learning is supposed to be joyful process, which engages children and encourage them to find the innate joy to learn, and therefore be naturally inquisitive to want to learn more. But an education system that is competitive and stressful can take the joy out of learning, and which can result in students therefore streamlining the focus of their learning towards being examination-ready, rather than being well-equipped with skills and thinking abilities for the world. For parents who are interested, the Ministry of Education has come out with A Curriculum Framework for Kindergartens in Singapore. It is a well-intended move. However, I hope that the schools will not overly-focus on academic achievement, and sideline the individual growths that the children should each be encouraged to take. As I have also discussed before, our education system has churned out workers who are good at performing operational and functional tasks but who are relatively less equipped for tasks which require critical thinking skills and innovative ideas. Our current education system is focused more on rote learning and does not encourage inquisitiveness as much. An education reform needs to take place, to allow for students to engage more in critical thinking and expansive thinking, which engages their thinking in the workings of the government and economy, so that our youths take a keen interest in the development of Singapore, and where their learning will equip them to also help create solutions for Singapore when they grow up. We need to reform our education system to allow more flexibility and room for our youths to question and propose different, and even contrasting perspectives to issues. Such an education will prepare our young Singaporeans better for the knowledge economy. Currently, it’s a common lament among employers about how Singaporeans are sometimes not able to “think outside the box”. This puts Singaporeans at a disadvantage, as compared to foreign workers, and which is one reason for employers’ preferences for foreign workers. We need to reform the education system to broaden the thinking abilities of Singaporeans, so that we can develop a strong Singaporean core, with strong critical thinking abilities, which employers can tap on, in the knowledge economy. It is a good initiative that MOE will “develop online resources that include the best lessons” which can be shared among educators. I hope that MOE will go one step further and develop cross-placement schemes or an exchange programme, which allow educators to be able to go on exchange studies at different schools, to learn directly from those educators on how teaching is done differently. Online resources are useful, but if they are supplemented with exchange programmes, they will help to intensify the learning for educators better. At the same time, it is a common feedback among educators that the administrative work and targets that have been set have resulted in educators also having to focus on managing the administrative work, as well as gear their teaching towards these set targets. I believe that MOE needs to look into streamlining how they measure academic achievements in schools, so that there are fewer targets that teachers need to work towards, which will free them up to develop innovative approaches to spur learning and creative thinking among our students.

Why did the government plan these initiatives in this way? The initiatives to improve and strengthen the education system falls into two broad categories: To create more consistency among and enhance the quality of preschool education because, according to MOE’s curriculum framework, “quality pre-school education lays a strong foundation for life-long learning and has short and long term benefits for children.” To strength the education for ‘disadvantaged’ students, to increase their social mobility. Together, the government’s aim is to ensure that our children are provided with quality education across the education spectrum. To the government, preschool education is the last frontier of our education system which hasn’t been adequately addressed and the budget hopes to address that. Separately, as the government aims to move Singapore’s economy up the value chain, the government needs to ensure that the social inequality that one faces in life, can be reduced earlier in life, so that in subsequent years, a person would not need to struggle to close up the gap. As such, the government has thus invested in education for ‘disadvantaged’ students to provide targeted and more intensive assistance to our youths, so that at different stages of development, they are adequately supported. So, the budget to improve our education is actually quite good. It reinforces the government’s commitment to the education of Singaporeans. However, as mentioned, our education system can be reformed to ensure that our students can receive more diverse and expansive education, which can boost their ability for critical thinking and innovative thinking skills further. As much as our education system is technically strong, it continues to be beholden by the economic and political needs of Singapore. The government has streamlined the education to produce specific workers for our economy. Also, the government has been disinclined to allow for certain critical thinking abilities because of what it can do to their political security as the government has always been highly concerned that Singaporeans are critical towards their policies. As Mr Yee had also analysed, the Anchor Operating Scheme might have unnecessarily disadvantage other childcare operators and reduce the diversity of education that our children can receive. According to Mr Yee, the criteria that childcare operators need to meet have been set so stringent that only two operators, NTUC First Campus and PCF Sparkletots, both affiliated to NTUC and People’s Association, have been able to meet the criteria. This would remind Singaporeans of the Aim-AHTC saga. If the government wants to make bolder moves towards developing an education system that is truly world class, it would need to create more room for critical and innovative thinking, which would mean that they would need to let go of certain insecurities that impinge their otherwise sound decisions.

In the next part of this article, I will further discuss the other budget initiatives for the people.

In this article, I will outline the key points highlighted in the longer version of this article. You can read the longer version of the article here.

Overall, this budget is a budget for businesses, and it is a very good budget for businesses. The budget looks holistically into the needs and wants of the businesses, and try to provide for them as far as businesses want. It also showed renewed focus and re-prioritisation by the government back into productivity innovation to restructure the Singapore economy, and to move Singapore up the value chain.

This restructuring is long overdue, though. In 2005, the government shifted gears to open up our borders, which allowed businesses to employ cheap labour, which had led Singapore into becoming a labour-intensive economy, where other social ills, such as depressed wages and inequalities have also arisen. The government had also focused on attracting high net worth individuals to invest in Singapore, so as to accumulate wealth through foreign investment into Singapore, which has driven up housing prices and others costs in Singapore. Budget 2013 represents a shift in mindset by the government to seriously move into the restructuring the economy, which the government has postponed for at least the past 8 years.

After the tightening of foreign workers last year and with the threat by businesses leaving, the government had to act to stamp the outflow. One might argue that in 2012, the government had pandered towards populist sentiments and wasn’t able to convince businesses sufficiently on how, even as the government had seemingly pandered towards populist policies, if businesses were to understand deeply, the Singapore government had never changed its course in supporting businesses. Budget 2013 was really to affirm to businesses on the Singapore government’s commitment to them.

However, some businesses might argue that they would have preferred if direct cost reduction measures in rents and transport costs be provided. However, the government had preferred to provide tax breaks, such as the 30% corporate tax rebate and 30% road tax rebate, which enable businesses to have more flexibility towards managing costs. For example, the Land Productivity Grant is also an innovative way which the government is encouraging businesses to continue to locate their businesses in Singapore, whilst moving out lower-end manufacturing needs to neighbouring countries. Instead of lowering rents which might not have the effect on retaining businesses in Singapore if rents are not low enough, the government aims to use this grant to shift Singapore up the value chain by doing away with labour-intensive industries, whilst retaining core business interests in Singapore. This is an ingenious move. In effect, the government has tied business interests to Singapore through rooting businesses here, by way of financial incentives. The other reason for using tax breaks is also because tax breaks are a financial instrument which can be adjusted more flexibly. A specific reduction in land costs or transport costs might make it more difficult to adjust the costs in the longer term.

Budget 2013: Effect on 3 Groups of Businesses

On the whole, you can see that Budget 2013 aims to do the following for businesses:

• Increase businesses’ productivity through investments, training and education, and through increasing labour costs to reduce the reliance on cheap labour
• Provide incentives to root core businesses in Singapore whilst assisting them to expand non-core activities into the region. This is also why Singapore has heavily invested in the Iskandar region in Malaysia and in strengthening transport links to their capital, Kuala Lumpur.
• Reduce overall business costs through tax breaks and other financial assistance

Also, from the way that Budget 2013 is framed, you can see that there are certain industries which the budget is targeted to grow:

• Major businesses
• Businesses with strong capital
• Businesses which are nimble and with expansion plans
• Businesses which are able to boost productivity and restructure
• SMEs of a certain size and with strong capital
• Transportation companies
• New industries

But this doesn’t mean that businesses which are not part of these industries will not benefit from the budget. The government is really sending a signal to encourage businesses in Singapore to find ways to restructure themselves, and as long as they are willing to come on the bandwagon to increase productivity, they will ride on the change together.

You can see that the government is also stricter with some industries, namely the manufacturing, marine, construction and process industries, where the foreign worker levies have been raised significantly. The government has done so, in part because these industries might be the most labour-intensive, and while the government anticipate a slowdown in the growth of these industries, they hope that the productivity measures and the tightening of the foreign worker curbs together, can spur the change among these industries. For example, in the construction industry, the government anticipates the demand and output to reduce, from $32 billion to $20 billion, and $33 billion to $22 billion respectively, so this is a good time for the construction industry to restructure itself. At the same time, the government isn’t saying that the industry isn’t important. By setting aside “land for the integrated construction and precast hubs to promote  to promote prefabrication in construction, and enhanc(ing) grants (of $10 million over 2 years) to encourage adoption”, the government is signalling to the construction industry that the government is committed towards restructuring the industry in the next 2 years, albeit at a tighter pace.

Then, there’s the third group of businesses, where the government continues to value their core investments in Singapore and while the government would encourage them to maintain their core business functions in Singapore, would also want to provide financial support to them to expand into the region, so that if businesses might intend to ship out, or to move a majority of their functions into other region, the government will can use these incentives to motivate them to stay in Singapore. The Land Productivity Grant and the assistance to SMEs to help them expand their overseas footprint is intended to do that.

On the overall, the budget is really intended to spur business innovation and productivity, but the key as to which businesses will move up the value chain will really depend on whether the cost cutting measures are enough to make up for the increases in labour costs. Thus labour-intensive industries will be the most hard-hit. But if they are able to find innovative ways to improve their productivity, they will continue to thrive in the business environment in Singapore.

As to whether the initiatives in the budget will succeed will lie in the details and execution. When the government talks about assisting SMEs to grow, which SMEs is the government talking about? Are there only specific industries or SMEs of specific sizes that will be assisted? Will smaller SMEs be driven out of the competition? As to whether these initiatives will benefit all businesses in Singapore, we would need to know how they will be executed.

Budget 2013: A Budget for Businesses

To summarise for Part 2 of this article, Budget 2013 is a budget that has considered business interests very thoroughly, and has introduced initiatives meant to assist businesses on all fronts, towards reducing costs, investing in productivity, increasing accessibility and reducing barriers towards obtaining financial incentives, so that businesses can efficiently restructure themselves in an environment that is conducive for the change to take place.

Essentially, what the government is saying to businesses is this – we will reduce your costs, but you need to hire fewer people, and we will help you to restructure your business by improving productivity – so we will provide you with funds to increase your investment in equipment, and the training and education of your employees. At the same time, you need to move up the value chain and maximise the land use in Singapore by intensifying your core business interests in Singapore, but at the same time, we will help you to expand into the region by providing money to support your expansion. In doing so, the government hopes to build trust with these businesses. In a way, the cost saving measures are broad, in terms of the tax breaks, yet they are targeted towards achieving certain objectives, such as for productivity innovation and land use maximisation and intensification.

Of course, the Singapore government is known for micro-planning, and thus even as these broad initiatives have been introduced, there would be some qualifications that would need to be met, before businesses would be able to benefit from all the initiatives. Some businesses or SMEs might fall out of the system and a further analysis would need to be done to understand the details of the initiatives and their loopholes.

Also, as much as the government would like to have control, everything might be so controlled that we might be over-doing it. Some room for organic innovation can allow for growth areas which the government might never have thought about to blossom. Also, current budget initiatives to enhance innovation takes a top-down approach. If the government provides more leeway for bottom-up innovation, there might be new ideas as well.

Finally, the coverage of The Straits Times of the budget for businesses is actually quite comprehensive. When it comes to sharing information with businesses, it is interesting how the government is actually quite open. Sadly, that’s not the case with the people.

To also read up more about how the budget can impact a small SME, Mr Leong Sze Hian has written a very good article. You can read it here.

Budget 2013: Not A People’s Budget

Unfortunately, the same cannot be said for Budget 2013’s initiatives for the people. Even as the government aimed to close the loopholes and gaps for businesses and to increase their accessibility to financial assistance, as well as to provide even more financial assistance to them, the government isn’t interested to increase accessibility to financial assistance for the people and remains conservative in the financial assistance it renders to the people.

At the heart of the matter is that the government does not believe that the people, by themselves, are able to be productive. The government believes that productivity growth is only in the realm of businesses, and thus they are only willing to invest heavily in businesses to reap productivity benefits and profits. This can also be seen in the measures that the government has introduced in Budget 2013, where initiatives to boost the productivity of businesses are hinged upon partnerships with larger entreprises and public-sector research institutions and private sector technology providers.

In order for Singapore to dramatically shift away from the current mode of working, it requires that this government acknowledges that every individual in Singapore are able to be innovators and creators for the economy, as well as for the country. What this means is a fundamental shift in thinking by the government towards its outlook on the people, and in investing in a population, which will be trained to think critically and drastically differently from the current way of thinking. For example, if you look at the older people in nursing homes, can they also take on the responsibility of being peer-caregivers for the other older people, so that we can hire fewer caregivers for these homes? Or perhaps, how can we explore generating electricity from an individual’s activities, so that the individual also contributes to the electricity network in Singapore?

In the Singapore Population White Paper 2013 that the government had released earlier this year, the government had seemed to want to continue on the focus to increase the number of foreign workers into Singapore. Even though the government had projected for a slower population growth in the decade preceding 2030, it did not seem that the government was sincerely committed in traversing Singapore’s economy towards the knowledge economy, and in restructuring the economy.Whether or not the uproar among Singaporeans against the government’s economic direction in the population white paper had any cause to do with the announcements in Budget 2013, Budget 2013 shows the first serious and holistic push by the government to restructure the economy, in recent years.

As for the people, there are 3 more years before the next general election. The government is in no hurry to introduce any drastic policies which will favour Singaporeans, as it is too early at this point to do so, since the impact of Budget 2013 will be lost by the next general election. If anything, the government would save any massive change in policy direction for the people in Budget 2015 or Budget 2016, which is unfortunate, because the people’s well-being is then held ransom by the government’s peg of any initiatives of their well-being to votes. And not only that, budget initiatives which will favour the people will therefore come only once every five or six years. Which also means that the government has also tied businesses to increasing their productivity and restructuring their businesses within 3 years, because this is how long they have before they need to act in accordance to the people’s wishes.

Finally, if Singapore was to want to position itself firmly as a knowledge economy in the next decade, the government would need to start making a very serious push towards reforming the education system, so that we will be able to produce workers who will be able to think innovatively and expansively for the knowledge economy. As it is, some employers have shared on how they would not hire a Singaporean graduate, but would hire a graduate who had studied overseas, because of how the overseas graduate would be able to think more expansively, and in diverse ways. The flaw of Singapore’s education system, which has very much focused on rote learning and conservative teaching methods, has created a worker population which some might label as “waiting to be spoon-fed”. A knowledge economy requires workers which think in multiple ways and who can bring about innovative thinking. The Singapore economy needs to move up the value chain to become a knowledge economy and the government knows that. However, the government would need to move away from creating an education system that will protect their political security and move towards an education system that will support vibrant discussions and critical thinking abilities among the people. This also means that the government has to shift its thinking to recognize that an empowered and critically-thinking people can be an asset towards enduring its power, rather than to afflict it.

This is part of a series of articles to understand Budget 2013 and its significance for businesses and the people in Singapore. You can read Part 1 of the article here and the summary of Part 1 here.

For Part 2 of this article, we will focus on the budget for businesses. For the first part, in the table below, I will summarise the budget for businesses, and discuss broadly about the thinking behind the budget and the broad impact at the later part. Where possible, I have also included links to the initiatives, for easy reference.

Budget 2013 for Businesses: “Restructuring for Quality Growth”

Budget 2013 for Businesses: “Restructuring for Quality Growth”

Broad 3-Year Transition Package Initiatives: Productivity and Innovation Credit (PIC) Bonus: Businesses that invest a minimum of $5,000 per Year of Assessment (YA) in PIC qualifying expenditure will receive a dollar-for-dollar matching cash bonus. The bonus will be up to $15,000 over three Years of Assessment, YA2013 to YA2015. The PIC Bonus is expected to cost $450 million over three years. According to the Annex A-4 in the Budget 2013 Documents, “This is in addition to existing PIC benefits of: (i) 400% PIC tax deductions up to $400,000 in expenditure for each PIC qualifying activity; or (ii) Cash payout at 60% on up to $100,000 of the qualifying expenditure.” 30% of corporate tax rebate, payable up to $30,000 per Year of Assessment. This is expected to cost $1.3 billion over three years. Allow owners of commercial vehicles who choose to renew their ten-year COEs for another five years in the first instance to extend their COEs further for another subsequent five years. One-year 30% road tax rebate for goods, vehicles, buses and taxis. The rebate will take effect on 1 July 2013 and save businesses $46 million.

What will actually happen: Seen in totality, there are other cost-saving measures which the government had introduced in Budget 2013, which businesses can look at on the whole to base their business decisions: Wage Credit Scheme: Government will co-fund 40% of wage increases for Singaporean employees over the next 3 years, for Singaporean employees earning up to a gross monthly wage of $4,000 ($3.6 billion over 3 years) Productivity and Innovation Credit (PIC) Bonus ($450 million over 3 years) 30% of corporate tax rebate ($1.3 billion over 3 years) 30% road tax rebate for goods, vehicles, buses and taxis ($46 million over 1 year) Land Productivity Grant: support companies which intensify their use of land in Singapore. Help will also be given to those who choose to relocate some operations offshore, including to the immediate region, while retaining core functions in Singapore and saving land ($60 million) Though this has to be balanced in light of the additional costs that businesses will have to fork out: Higher Foreign Worker Levies across the board in July 2014 and July 2015: revised levies range from $315 to $1,050 (see link for breakdown) Minimum S Pass qualifying monthly salary raised from $2,000 to $2,200 from 1 July 2013 (which might represent higher costs) MOM will put in place a framework to ensure that firms give fair consideration to Singaporeans in their hiring practices (which might represent higher costs) Employer contribution rates for low-wage workers will be restored from below 11% to 16% from 1 January 2014 (cost employers $83 million in 2014) All in, businesses have been asking for lower operational costs and more assistance to boost productivity, and Budget 2013 seems to have catered to that. Though, this has to be seen in light of the additional labour costs that will be incurred.

What needs to be done to make sure initiative(s) work: Budget 2013 has catered for this as well. To ensure that the initiatives to boost productivity will be successful, previous feedback and requests from businesses has been to reduce the barriers to receiving such assistance and to provide further assistance on the adoption of new equipment. The government has announced the following initiatives, in light of this: Improve the accessibility of government support schemes for our SMEs. Amongst other things, SPRING will enhance the Enterprise Development Centres into one-stop, integrated SME Centres ($32 million) Make it easier and faster for businesses to make Productivity and Innovation Credit (PIC) claims. For example, restaurants will be able to claim for dishwashing machines and contractors can claim for scissor lifts ($130 million over 3 years) Collaborative Industry Projects: consortia of firms will develop solutions to industry-specific productivity challenges  (Estimated $100 million over 3 years) PACT scheme (Partnerships for Capability Transformation): foster SME collaborations with large enterprises so as to enable co-innovation, capability upgrading and sharing of best practices within the supply chain (Estimated  $60 million over 3 years) Link up SMEs with public-sector research institutions and private sector technology providers to identify and develop productivity solutions that give them a competitive advantage ($51 million) Help SMEs who are expanding their overseas footprint by mitigating the risks inherent in such ventures. In addition to the Political Risk Insurance Scheme introduced last year, IE Singapore is working with Asian Development Bank (ADB) and private insurers to expand the Asian Development Bank’s Trade Finance Programme for Singapore exporters. This will provide credit guarantees to facilitate exports by our companies. Set aside land for Integrated Construction and Precast Hubs to promote prefabrication in construction, and enhance grants to encourage adoption ($10 million over 2 years) On top of this, businesses had also requested that the government provide support to invest in manpower, education and training for their employees to enhance their work productivity and efficiency. Again, this has been catered for in Budget 2013: Enhance the Workfare Training Support (WTS) scheme for lower-wage Singaporeans as well as programmes to help PMEs to develop further expertise or to make mid-career switches. Launch an SME Talent Programme, developed by SPRING Singapore, together with the industry chambers and trade associations. The programme will provide awards to encourage polytechnic and Institute of Technical Education (ITE) students to join our SMEs upon graduation. Top up the Lifelong Learning Endowment Fund (LLEF) by $500 million. (In 2012, $121 million was spent and in 2011, $136 million was spent, so $500 million should be able to provide for another 3 years or so.) Not only has the government identified a need to work with businesses to boost productivity among the current businesses in Singapore, on the whole, there is a need to identify new areas for innovation, to boost Singapore’s productivity in new areas: EDB will set aside $500 million over the next five years to support a Future of Manufacturing plan, by working with key industry partners, universities, polytechnics and Research Institutes to test-bed new technologies and develop applications that can be commercialised and tapped on by firms, including SMEs. The Future of Manufacturing is “a report by the World Economic Forum (and) written in collaboration with Deloitte Touche Tohmatsu Limited,” which describes how, “Talent, the ability to innovate and the strategic use of public policy will play a significant role in defining manufacturing sector competitiveness in developed and emerging economies going forward.” The report can be found here. Set up Satellite Industry Development Fund ($90 million) to support the emerging satellite industry Develop a pool of 2,500 analytics professionals over the next five years to support this new area of professional services industries through programmes such as NTU’s recently launched Business Analytics degree.

Are these good initiatives? What are better initiatives? As I have mentioned at the start of this article, this budget is a budget for businesses, and it is a very good budget for businesses. The budget looks holistically into the needs and wants of the businesses, and try to provide for them as far as businesses want. However, some businesses might argue that they would have preferred if direct cost reduction measures in rents and transport costs be provided. However, the government had preferred to provide tax breaks, such as the 30% corporate tax rebate and 30% road tax rebate, which enable businesses to have more flexibility towards managing costs. For example, the Land Productivity Grant is also an innovative way which the government is encouraging businesses to continue to locate their businesses in Singapore, whilst moving out lower-end manufacturing needs to neighbouring countries. Instead of lowering rents which might not have the effect on retaining businesses in Singapore if rents are not low enough, the government aims to use this grant to shift Singapore up the value chain by doing away with labour-intensive industries, whilst retaining core business interests in Singapore. This is an ingenious move. In effect, the government has tied business interests to Singapore through rooting businesses here, by way of financial incentives. The other reason for using tax breaks is also because tax breaks are a financial instrument which can be adjusted more flexibly. A specific reduction in land costs or transport costs might make it more difficult to adjust the costs in the longer term. As to whether the initiatives in the budget will succeed will lie in the details and execution. When the government talks about assisting SMEs to grow, which SMEs is the government talking about? Are there only specific industries or SMEs of specific sizes that will be assisted? Will smaller SMEs be driven out of the competition? As to whether these initiatives will benefit all businesses in Singapore, we would need to know how they will be executed.

Why did the government plan these initiatives in this way? The Singapore government has always prioritized the growth of businesses and creating a supportive environment for businesses as the key to Singapore’s economic growth and longevity. Budget 2013 is definitely a budget aimed at regenerating growth among businesses in Singapore. It also showed renewed focus and re-prioritisation by the government back into productivity innovation to restructure the Singapore economy, and to move Singapore up the value chain. This restructuring is long overdue, though. In 2005, the government shifted gears to open up our borders, which allowed businesses to employ cheap labour, which had led Singapore into becoming a labour-intensive economy, where other social ills, such as depressed wages and inequalities have also arisen. The government had also focused on attracting high net worth individuals to invest in Singapore, so as to accumulate wealth through foreign investment into Singapore, which has driven up housing prices and others costs in Singapore. Budget 2013 represents a shift in mindset by the government to seriously move into the restructuring the economy, which the government has postponed for at least the past 8 years. After the tightening of foreign workers last year and with the threat by businesses leaving, the government had to act to stamp the outflow. One might argue that in 2012, the government had pandered towards populist sentiments and wasn’t able to convince businesses sufficiently on how, even as the government had seemingly pandered towards populist policies, if businesses were to understand deeply, the Singapore government had never changed its course in supporting businesses. Budget 2013 was really to affirm to businesses on the Singapore government’s commitment to them. In the Singapore Population White Paper 2013 that the government had released earlier this year, the government had seemed to want to continue on the focus to increase the number of foreign workers into Singapore. Even though the government had projected for a slower population growth in the decade preceding 2030, it did not seem that the government was sincerely committed in traversing Singapore’s economy towards the knowledge economy, and in restructuring the economy. Whether or not the uproar among Singaporeans against the government’s economic direction in the population white paper had any cause to do with the announcements in Budget 2013, Budget 2013 shows the first serious and holistic push by the government to restructure the economy, in recent years. As for the people, there are 3 more years before the next general election. The government is in no hurry to introduce any drastic policies which will favour Singaporeans, as it is too early at this point to do so, since the impact of Budget 2013 will be lost by the next general election. If anything, the government would save any massive change in policy direction for the people in Budget 2015 or Budget 2016, which is unfortunate, because the people’s well-being is then held ransom by the government’s peg of any initiatives of their well-being to votes. And not only that, budget initiatives which will favour the people will therefore come only once every five or six years. Which also means that the government has also tied businesses to increasing their productivity and restructuring their businesses within 3 years, because this is how long they have before they need to act in accordance to the people’s wishes.  Finally, if Singapore was to want to position itself firmly as a knowledge economy in the next decade, the government would need to start making a very serious push towards reforming the education system, so that we will be able to produce workers who will be able to think innovatively and expansively for the knowledge economy. As it is, some employers have shared on how they would not hire a Singaporean graduate, but would hire a graduate who had studied overseas, because of how the overseas graduate would be able to think more expansively, and in diverse ways. The flaw of Singapore’s education system, which has very much focused on rote learning and conservative teaching methods, has created a worker population which some might label as “waiting to be spoon-fed”. A knowledge economy requires workers which think in multiple ways and who can bring about innovative thinking. The Singapore economy needs to move up the value chain to become a knowledge economy and the government knows that. However, the government would need to move away from creating an education system that will protect their political security and move towards an education system that will support vibrant discussions and critical thinking abilities among the people. This also means that the government has to shift its thinking to recognize that an empowered and critically-thinking people can be an asset towards enduring its power, rather than to afflict it.

On the whole, you can see that Budget 2013 aims to do the following:

• Increase businesses’ productivity through investments, training and education, and through increasing labour costs to reduce the reliance on cheap labour
• Provide incentives to root core businesses in Singapore whilst assisting them to expand non-core activities into the region. This is also why Singapore has heavily invested in the Iskandar region in Malaysia and in strengthening transport links to their capital, Kuala Lumpur.
• Reduce overall business costs through tax breaks and other financial assistance

Also, from the way that Budget 2013 is framed, you can see that there are certain industries which the budget is targeted to grow:

• Major businesses
• Businesses with strong capital
• Businesses which are nimble and with expansion plans
• Businesses which are able to boost productivity and restructure
• SMEs of a certain size and with strong capital
• Transportation companies
• New industries

But this doesn’t mean that businesses which are not part of these industries will not benefit from the budget. The government is really sending a signal to encourage businesses in Singapore to find ways to restructure themselves, and as long as they are willing to come on the bandwagon to increase productivity, they will ride on the change together.

You can see that the government is also stricter with some industries, namely the manufacturing, marine, construction and process industries, where the foreign worker levies have been raised significantly. The government has done so, in part because these industries might be the most labour-intensive, and while the government anticipate a slowdown in the growth of these industries, they hope that the productivity measures and the tightening of the foreign worker curbs together, can spur the change among these industries. For example, in the construction industry, the government anticipates the demand and output to reduce, from $32 billion to $20 billion, and $33 billion to $22 billion respectively, so this is a good time for the construction industry to restructure itself. At the same time, the government isn’t saying that the industry isn’t important. By setting aside “land for the integrated construction and precast hubs to promote  to promote prefabrication in construction, and enhanc(ing) grants (of $10 million over 2 years) to encourage adoption”, the government is signalling to the construction industry that the government is committed towards restructuring the industry in the next 2 years, albeit at a tighter pace.

Then, there’s the third group of businesses, where the government continues to value their core investments in Singapore and while the government would encourage them to maintain their core business functions in Singapore, would also want to provide financial support to them to expand into the region, so that if businesses might intend to ship out, or to move a majority of their functions into other region, the government will can use these incentives to motivate them to stay in Singapore. The Land Productivity Grant and the assistance to SMEs to help them expand their overseas footprint is intended to do that.

On the overall, the budget is really intended to spur business innovation and productivity, but the key as to which businesses will move up the value chain will really depend on whether the cost cutting measures are enough to make up for the increases in labour costs. Thus labour-intensive industries will be the most hard-hit. But if they are able to find innovative ways to improve their productivity, they will continue to thrive in the business environment in Singapore.

Budget 2013: A Budget for Businesses

To summarise for Part 2 of this article, Budget 2013 is a budget that has considered business interests very thoroughly, and has introduced initiatives meant to assist businesses on all fronts, towards reducing costs, investing in productivity, increasing accessibility and reducing barriers towards obtaining financial incentives, so that businesses can efficiently restructure themselves in an environment that is conducive for the change to take place.

Essentially, what the government is saying to businesses is this – we will reduce your costs, but you need to hire fewer people, and we will help you to restructure your business by improving productivity – so we will provide you with funds to increase your investment in equipment, and the training and education of your employees. At the same time, you need to move up the value chain and maximise the land use in Singapore by intensifying your core business interests in Singapore, but at the same time, we will help you to expand into the region by providing money to support your expansion. In doing so, the government hopes to build trust with these businesses. In a way, the cost saving measures are broad, in terms of the tax breaks, yet they are targeted towards achieving certain objectives, such as for productivity innovation and land use maximisation and intensification.

Of course, the Singapore government is known for micro-planning, and thus even as these broad initiatives have been introduced, there would be some qualifications that would need to be met, before businesses would be able to benefit from all the initiatives. Some businesses or SMEs might fall out of the system and a further analysis would need to be done to understand the details of the initiatives and their loopholes.

Also, as much as the government would like to have control, everything might be so controlled that we might be over-doing it. Some room for organic innovation can allow for growth areas which the government might never have thought about to blossom. Also, current budget initiatives to enhance innovation takes a top-down approach. If the government provides more leeway for bottom-up innovation, there might be new ideas as well.

Finally, the coverage of The Straits Times of the budget for businesses is actually quite comprehensive. When it comes to sharing information with businesses, it is interesting how the government is actually quite open. Sadly, that’s not the case with the people.

To also read up more about how the budget can impact a small SME, Mr Leong Sze Hian has written a very good article. You can read it here.

Budget 2013: Not A People’s Budget

Unfortunately, the same cannot be said for Budget 2013’s initiatives for the people. Even as the government aimed to close the loopholes and gaps for businesses and to increase their accessibility to financial assistance, as well as to provide even more financial assistance to them, the government isn’t interested to increase accessibility to financial assistance for the people and remains conservative in the financial assistance it renders to the people.

At the heart of the matter is that the government does not believe that the people, by themselves, are able to be productive. The government believes that productivity growth is only in the realm of businesses, and thus they are only willing to invest heavily in businesses to reap productivity benefits and profits. This can also be seen in the measures that the government has introduced in Budget 2013, where initiatives to boost the productivity of businesses are hinged upon partnerships with larger entreprises and public-sector research institutions and private sector technology providers.

In order for Singapore to dramatically shift away from the current mode of working, it requires that this government acknowledges that every individual in Singapore are able to be innovators and creators for the economy, as well as for the country. What this means is a fundamental shift in thinking by the government towards its outlook on the people, and in investing in a population, which will be trained to think critically and drastically differently from the current way of thinking. For example, if you look at the older people in nursing homes, can they also take on the responsibility of being peer-caregivers for the other older people, so that we can hire fewer caregivers for these homes? Or perhaps, how can we explore generating electricity from an individual’s activities, so that the individual also contributes to the electricity network in Singapore?

In the next part of the article, I will discuss Budget 2013’s initiatives for the people.

In this article, I will outline the key points highlighted in the longer version of this article. You can read the longer version of the article here.

Increase in Foreign Worker Levies

Even though the levies for foreign workers are raised, for Singaporeans, the government has implemented the Wage Credit Scheme (which is supposed to theoretically raise the wages of Singaporeans) and increased the employer’s CPF contribution for the Singaporean low-wage worker. However, after taking into account the supposed wage increase and increase in CPF contribution of the Singaporean worker, will it still be cheaper to hire a foreigner?

After July 2015, if you look at the levy for the S Pass holder, the lowest levy is $350. If we compare this to the Singaporean worker, where if the employer has to make a CPF contribution of $350, or 16% of the employee’s salary, this means that the employee will earn $2,062.50, which is lower than the $2,200 that the employer should pay for the foreign worker. This means that the foreign worker will be $137.50 more expensive than the Singaporean worker. Will $137.50 be enough a deterrent to hiring a foreign worker? Not only that, if you hire a worker at higher wages, the Singaporean worker will increasingly become more expensive. If the employer were to hire a worker at $2,500, the employer would have to pay only $350 for the foreign worker levy but $400 for the Singaporean worker’s employer CPF contribution. This means that the Singaporean worker will be more expensive than hiring a foreign worker. According to the Ministry of Manpower, “The Foreign Worker Levy, commonly known as ‘levy’ is a pricing mechanism to regulate the number of foreign manpower in Singapore.” Clearly, this is not the case. It is still cheaper to hire foreign workers, at high salary ranges.

What if we were to look at the highest foreign worker levy in the construction industry? In June 2012, there were 104,500 Singaporeans working in the construction industry, of which, 38.8%, or 40,546 were in the category of production and transport operators, cleaners and labourers. In comparison, there were 293,400 work permit holders in the construction industry. There are 7 times more foreign workers than Singaporeans in the “lower-skilled” areas of the construction industry. Is the foreign worker levy here used to “regulate the number of foreign manpower in Singapore”? In 2012, based on the number of work permit holders in the construction industry, the government would have collected a revenue of a maximum of $147 million from the foreign worker levies, just from the construction industry itself. Instead of collecting this $147 million as foreign worker levies, what if some of it could be channelled back into investment in productivity growth? And this $147 million is not yet accounting for the 1,268,300 foreigners in Singapore, at the end of 2012.

Theoretically, the raising of the minimum S Pass qualifying monthly salary is a good move because essentially, the government is saying that if businesses want to employ a worker who will be paid the same wage, businesses should be more likely to employ a Singaporean over a foreigner, with the same wage. However, as can be seen, in reality, this will not occur. A better initiative would be to tier the foreign worker levies according to the salary ranges, so that at each salary range, the foreign worker will continue to be more expensive than the Singaporean worker, and so that Singaporeans will continue to be employed if they are equally qualified. Also, the foreign worker levies implemented to industries with a high reliance on foreign workers shouldn’t be so high that it heavily increases the costs of operation for the businesses.

A better policy would be to also implement a minimum wage law, so that businesses will not undercut the wages of the workers, and will be required to pay them a fair wage that is commensurate to the cost of living in Singapore.

Wage Credit Scheme

The government had introduced the new Wage Credit Scheme, where the government will co-fund 40% of wage increases for Singaporean employees over the next 3 years, for Singaporean employees earning up to a gross monthly wage of $4,000.

According to Annex A-3 the Budget 2013 Documents, “At the end of 3 years, the employee (who receives an annual increase of $200 every year) will receive a total of $14,400 more in wages, of which the Government would have co-funded $5,760.” “The Wage Credit Scheme is estimated to cost the government about $3.6 billion over 3 years,” which means that if every worker has an increase of $200, 625,000 Singaporean workers would be able to benefit. There are about 380,000 to 400,000 Singaporeans earning less than $4,000, which means that some Singaporeans would be able to obtain an increment of more than $200 every year. The question is, would businesses bite?

Theoretically, businesses might take advantage of the government’s co-funding of the wage increases to further increase the wages for Singaporean employees. However, in reality, because of the high operational costs, businesses might, in effect, continue to pay employees the same wage increase that would be originally planned for, and absorb the 40% government co-funding as savings. Otherwise, they might only make incremental increases, and still be able to earn from the co-funding. For example, the government might have presupposed that if an employer were to plan to increase the wage of an employee by $100, given the co-funding, the employer might then increase the employee’s wage by $166, so that the employer continues to pay $100 of the increment, which would represent the 60%, and the government forks out another 40% to pay an additional $66. In reality, the employer might continue to increase the wage by $100, but claim the 40%, or $40, of this wage increase as cost savings. Otherwise, the employer might increase by a bit more, say by $120, which means the employer still saves.

The problem with the Wage Credit Scheme is first, there isn’t a minimum amount that businesses are expected to increase the employee’s wage up until, and second, that there isn’t a minimum amount or proportion that businesses are expected to increase the wages by. There is simply no incentive for businesses to increase the wages of employees by more than they had planned for, because businesses would want to make as much profits as possible. The government has also not explained to businesses why they are expected to increase wages, so there might be no buy-in from businesses as to why they need to do so.

Also, to ensure that there are higher wage increases for the lower-wage workers, the government should implement this scheme in a tiered manner, such that there will be a higher proportion of co-funding for businesses which intend to increase the wages of the low-wage earners. By doing so, this will be more likely to benefit low-wage workers, which this scheme is supposedly to rightfully help. However, the government has not included this as part of the scheme. Has the government not thought about this, or does this say something about the government’s perceptions of “low-skilled” workers?

Finally, and most importantly, what has not been taken into account is how the 40% co-funding will work. Of this 40% co-funding, 20% will go back to CPF. Also, of the increased salary, the employer would have to pay another 16% of the employer’s contribution to CPF. If this 40% co-funding doesn’t account for the employer’s contribution to CPF, what this means is that out of the 40% of the co-funding, if 20% goes into the employee CPF contribution and 16% goes into the employer’s CPF contribution, the government only needs to fork out 4% of the co-funding, which means that out of the $3.6 billion set aside for this scheme, the government will only need to spend $360 million.

Conclusion

In summary, you can see that the government’s said aims to increase foreign worker levies to protect Singaporeans, and to implement the Wage Credit Scheme to increase the wages of Singaporeans, will come to almost nought for Singaporeans, because first, the Wage Credit Scheme lies in the hands of the businesses and there is no regulation that the businesses are held against, which means that they will look at how the scheme will affect overall business costs and adopt the scheme in that light, rather than to observe the rights of the Singaporean worker. The wages of Singaporeans might therefore not increase by more than what was originally planned for increase by businesses.

Also, for the initiatives discussed here, the government ultimately benefits because the foreign worker levies are used in tandem with CPF contributions, which the government has carefully calibrated to allow them to earn maximally. By creating a deception that the foreign worker levies are created to protect Singaporeans, the government has increased the levies, which even with slightly fewer foreigners coming in, will still allow them to continue to earn. Together with CPF, where most to the wage increases for the Wage Credit Scheme will be channelled into, the government will continue to earn revenue from all sides, even as they claim to be on Singaporeans’ side.

You can read the full article here.

Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam unveiled Budget 2013 on Monday, 25 February 2013.

In this article, we will take a broad look at the initiatives unveiled and whether they had adequately met the needs of businesses and the people in Singapore.

Before I proceed, you can see in the chart below a broad summary of what I believe and have been championing that the government needs to do for Singapore, in the previous articles. Later on, we will do a comparison between Budget 2013 and what the government would need to do.

Chart 1: What the Singapore Government Needs to Do

In this article, I will move beyond any rhetoric and focus on whether the government has “got it right”. Along the way, I will also look into what the real intentions of the government were in unveiling the initiatives, and what their overall planning objectives were.

You would notice that in his speech, Mr Shanmugaratnam had actually mentioned the word, “quality growth”, at least 7 times and the word, “inclusive”, at least 8 times. Let’s take a look at how “inclusive” this budget is, and how it aims to achieve “quality growth”.

The government has also broadly framed the announcements of the initiatives of Budget 2013 under two broad categories: for businesses (Restructuring for Quality Growth) and for the people (Building a More Inclusive Society).

I will frame the discussion of Budget 2013 in the following manner. I will list out the sections outlined in Budget 2013 and use the outline below for discussion.

Section

Initiatives: I will provide a summary of the initiatives unveiled under this section.

What will actually happen: I will discuss the actual impact of these initiatives.

What needs to be done to make sure initiative(s) work: I will discuss how the initiatives can be made to work better for their intended purpose.

Are these good initiatives? What are better initiatives? I will discuss if these initiatives are good, and whether they can be improved, if so.

Why did the government plan these initiatives in this way? I will discuss discuss what the government’s real intention for these initiatives is.

(A) Economic Performance

Before I proceed, I will discuss briefly about Singapore’s economic outlook and performance as outlined by Mr Shanmugaratnam.

Mr Shanmugaratnam had shared that the government had underestimated the budget for FY2012, and that the actual budget surplus was actually 3 times more, at $3.9 billion. As Mr Leong Sze Hian had mentioned, “This seems to be the same repeat story that budget surpluses invariably always end up to be much higher than estimates, such that we have huge surpluses in about nine out of every 10 years.”

What we need to know is this – of the revenue that the government collects every year, not all this money is spent. Last year, $50.11 billion was spent, out of the $55.18 that was collected. On top of this, the government also collects CPF monies from us. Some people have commented that the CPF belongs to the people, and thus shouldn’t be counted as revenue. Rightfully, yes, but the government borrows our CPF money, which is eventually invested in Temasek Holdings and GIC, where they earn 17% and 6.8% interest rate. However, as I have mentioned, not only is the majority of the interest earned not returned to us, we have been withdrawing lesser and lesser of our CPF monies out, from 2001, even as there should be more people who would need to withdraw their CPF. So, to be clear, the CPF is also used by the government as a form of “revenue”, but where the earning of this “revenue” is not channeled fully back to the people.

In 2011, CPF had assets of $210 billion, which would have increased in 2012. In 2012, government revenue was $55 billion, which means that the CPF assets are almost 4 times larger than the government revenue. Basically, what this means is the government has more than enough money to provide for the social welfare spending needs of the people, even without increasing taxes, which had thus led Mr Leong to ask, “why is there a need to raise taxes, like property and vehicle taxes?” Of course, the government might take a long term approach towards accumulating the reserves of Singapore, but let’s take a further look into Budget 2013 to see how this actually works out.

(A.1) Economic Outlook and Performance

Mr Shanmugaratnam had mentioned that, “Rising costs remain a concern for both businesses and households.” However, what he did not mention was that, for many businesses, the top costs that businesses would like the government to reduce are rents and transport costs, both of which are within the government’s domain of control.

It was interesting that Mr Shanmugaratnam had said that, “Household incomes have risen, in 2012 and over the last five years. Adjusted for inflation, the median Singaporean household saw income per member grow by 14% over the last five years, cumulatively,” because if you look at the annual change in real total wages from 2008 to 2011, real wages actually fell by 0.6%. So, I am not quite sure where Mr Shanmugaratnam had obtained this data from.

Mr Shanmugaratnam is right to say that, “many Singaporeans who work in jobs at the lower rungs of the income ladder, especially cleaners, waiters, and security guards, have not fared as well.” Indeed, there are 300,000 Singaporeans who earn less than $1,000 every month and 450,000 Singaporeans who earn less than $1,500 every month. Not only that, according to the Ministry of Manpower, “wages of plant & machine operators and cleaners, labourers & related workers were largely flat for younger workers before declining for those in their mid forties onwards,” which means that for low wage workers, not only do they see their real wages decline over the years due to inflation, their real wages are also declining due to age. Importantly, our older workers are also over-represented in the low wage occupations. For example, among cleaners, labourers and related workers, 66% of them are aged 50 and above. Among plant and machine operators and assemblers, 56% of them are older workers. The problem that the low wage workers face are also faced by our older workers, who have been paid low wages on a chronic basis, such that they do not have enough to use in their old age.

(B) On “Restructuring for Quality Growth”

In this article, we will look at how the initiatives to tighten foreign worker curbs, such as implementing higher foreign worker levies and the intended higher wages for Singaporean workers, through the Wage Credit Scheme, will interact, to achieve a restructured labour market, or not.

(B.1) Foreign Worker Strategy

Foreign Worker Strategy

Initiatives: Tighten foreign worker curbs in the Construction, Process and Marine sectors, as well as the Services sector Raise Foreign Worker Levies across the board in July 2014 and July 2015. Increases will be most significant in sectors where productivity growth is weak and the growth of the foreign workforce is significant. All additional levies collected back to help businesses upgrade and share productivity gains with their workers. Revised levies range from $315 to $1,050 (see link for breakdown) From 1 July 2013, minimum S Pass qualifying monthly salary raised from $2,000 to $2,200. MOM will put in place a framework to ensure that firms give fair consideration to Singaporeans in their hiring practices.

What will actually happen: These initiatives cannot be seen on their standalone. These initiatives to tighten foreign worker curbs need to be seen in complementary light with initiatives to increase the wages of Singaporean workers through the Wage Credit Scheme, the boosting of productivity, through investments in innovation and reduction in costs, and through tax rebates. Even though the levies for foreign workers are raised, for Singaporeans, the government has implemented the Wage Credit Scheme (which is supposed to theoretically raise the wages of Singaporeans) and increased the employer’s CPF contribution for the Singaporean low-wage worker. After taking into account the supposed wage increase and increase in CPF contribution of the Singaporean worker, will it still be cheaper to hire a foreigner? After July 2015, if you look at the levy for the S Pass holder, the lowest levy is $350. If we compare this to the Singaporean worker, where the employer has to make a CPF contribution of $350, or 16% of the employee’s salary, this means that the employee earns $2,062.50, which is lower than the $2,200 that the employer should pay for the foreign worker. This means that the foreign worker will be $137.50 more expensive than the Singaporean worker. Will $137.50 be a deterrent to hiring a foreign worker? On top of that, if you hire a worker at higher wages, the Singaporean worker will increasingly become more expensive. If the employer were to hire a worker at $2,500, the employer would have to pay only $350 for the foreign worker but $400 for the Singaporean worker’s employer CPF contribution. This means that the Singaporean worker is more expensive than hiring a foreign worker. According to the Ministry of Manpower, “The Foreign Worker Levy, commonly known as ‘levy’ is a pricing mechanism to regulate the number of foreign manpower in Singapore.” Clearly, this is not the case. It is still cheaper to hire foreign workers, at certain levy tiers. On top of that, employers have been known to work around the policy by declaring the wages of the S Pass holder as the minimum amount ($2,200) but paying the foreign worker a lower wage. This means that due to the lack of tight regulation, the foreign worker levies’ most useful effect is to increase the revenue of the government, but will not achieve the said effect of reducing Singapore’s reliance on foreign workers. What if we were to look at the highest foreign worker levy in the construction industry? In June 2012, there were 104,500 Singaporeans working in the construction industry, of which, 38.8%, or 40,546 were in the category of production and transport operators, cleaners and labourers. In comparison, there were 293,400 work permit holders in the construction industry. There are 7 times more foreign workers than Singaporeans in the “lower-skilled” areas of the construction industry. Is the foreign worker levy here used to “regulate the number of foreign manpower in Singapore”? In 2012, based on the number of work permit holders in the construction industry, the government would have collected a revenue of a maximum of $147 million, just from the construction industry itself. Instead of collecting this $147 million as foreign worker levy, what if some of it is channelled back into investment in productivity growth? And this is not yet accounting for the 1,268,300 foreigners in Singapore, at the end of 2012. Realistically, at this point, it is difficult to attract Singaporeans to work in the “low-skilled areas” of the construction industry, and which is why the government raised the levies significantly, knowing that since it would be difficult to hire Singaporeans and businesses would still need to hire foreign workers anyway, the government can continue to earn even more from these businesses. But how will businesses feel, as this will add to their increasing costs, which they have no control over. On the surface, the foreign worker curbs might be aimed at reducing Singapore’s reliance on foreign workers but based on how the curbs are also implemented in industries where there is already a shortage of Singaporean workers and a necessary huge reliance on foreign workers, this will further add onto the cost pressures of businesses in these industries. The aim of the initiatives, in totality, is to reduce their reliance on foreign workers but will the initiatives be over-taxing? Seen in its totality, the foreign worker levies do not achieve their said objective of regulation the number of foreign manpower into Singapore. The levies are simply intended to generate revenue.

What needs to be done to make sure initiative(s) work: The government will need to communicate its timeline clearly to businesses as to how the government foresees that the tightening of foreign worker curbs, investments in innovation to boost productivity and tax rebates will work hand-in-hand to assist businesses to restructure their working model. Businesses will need support in this area, for their planning. The government has plans to pair SMEs with research institutions to assist them in restructuring, but a clear timeline as to how these different initiatives interact will be beneficial and reassuring for businesses. MOM “will put in place a framework to ensure that firms give fair consideration to Singaporeans in their hiring practices.” Before this framework is finalized, MOM will need to consult Singaporeans for our review of the framework, so that we can ensure that the framework would adequately protect Singaporeans. Also, this framework needs to be passed as a law for it to have teeth. Otherwise, if it is only a guideline, it will still be bypassed by employers. MOM has been known to be lax on employers and have allowed employers to, on many occasions, to bypass the policies. MOM and NTUC need to take their roles seriously. They will need to set up a dedicated arm to work with employers to inculcate best practices, as well as to strenuously police employers and ensure that they are taken to task, if they do not abide by the law. They key issues here are two-fold: (1) What will be done to ensure that businesses will continue to employ Singaporeans and pay them a fair wage, and not allow them to make use of the loopholes to hire a foreigner, if the Singaporean is equally qualified? (2) How will MOM and NTUC strengthen and tighten their policing framework to ensure that errant businesses are taken to task for poor employment practices? Finally, how will MOM and NTUC hold themselves accountable to ensure that they will work in the interests of Singaporeans, as well as the workers?

Are these good initiatives? What are better initiatives? Theoretically, the raising of the minimum S Pass qualifying monthly salary is a good move because essentially, the government is saying that if businesses want to employ a worker who will be paid the same wage, businesses should be more likely to employ a Singaporean over a foreigner, with the same wage. However, as can be seen, in reality, this will not occur. A better initiative would be to tier the foreign worker levies according to the salary range or to increase the foreign worker levies proportionately by each higher salary range, so that at each salary range, the foreign worker will continue to be more expensive than the Singaporean worker, so that Singaporeans will continue to be employed if they are equally qualified. Also, the foreign worker levies implemented to industries with a high reliance on foreign workers shouldn’t be so high that it heavily increases the costs of operation for the businesses. Also, what have not been taken into account are the educational qualification and other requirements for the job. In real life, for a job where a Singaporean might request to be paid $2,500, the employer might be able to employ a foreign worker for the same job at $2,200, which would still disadvantage the Singaporean. Thus in the new framework that MOM is developing, it would need to take into account the qualifications and requirements of the job, as well as the expected wage range for this job, to protect Singaporeans from discriminatory practices. Even as the government increases foreign worker levies, foreign worker levies do not protect Singaporeans from unfair employment practices. The levies only benefit the government. Levies thus have the effect of increasing government revenue but will not encourage businesses to hire responsibly, as it is still cheaper to hire a foreigner at higher wage ranges. Businesses would still be able to work around the system by under-paying the worker. With increased levies, this is even more likely to happen. A better policy would be to also implement a minimum wage law, so that businesses will not undercut the wages of the workers, and will be required to pay a fair wage that is commensurate to the cost of living in Singapore.

Why did the government plan these initiatives in this way? The government has implemented foreign worker curbs because it needs to, on the surface, appease Singaporeans. If the government has its way, it would want to take another 5 to 8 years to slow down the inflow of foreigners, or until 2030. However, the government only has 3 years before the next general election, and thus it had needed to compress the timescale to for the tightening of foreign worker inflow to within 3 years. However, the government has known that they would have needed to restructure the economy a few years back. These initiatives are long overdue and the government should take responsibility for their inaction a few years ago to address the current problem. Yet, while doing so, the increase in foreign worker levies would not have the said effect of regulating the number of foreign workers, and yet, businesses are expected to pay even higher costs in industries where they have no choice but to rely on foreign workers. Will the government’s intended aim to increase the revenue through the foreign worker levy be unwise? However, because the government did not act on this a few years ago and had compressed the timeline into 3 years for economic restructuring (or 5 years, if you include the past 2 years since the initial curbs were implemented), this means that businesses are also forced to react on a tighter timeline, because of the government’s delayed planning. Yet, because the government had initially opened the floodgates to foreign workers in 2005 until 2011 and so businesses have allowed themselves to operate in a labour-intensive manner, to expect businesses to scale down on manpower suddenly within 2 to 3 years can be taxing to businesses. And thus the government had rolled out several other initiatives in this budget to ramp up innovation and productivity growth. We have 3 years to see if these initiatives will be effective. Finally, as mentioned, the real beneficiary of levies is the government. The levies boost the government’s coffers. They are not an effective measure to reduce reliance on foreign workers, and were not intended to be, in practice. Levies have been in place over the past few years, but there has been no slow down in the number of foreign workers, until curbs in the actual numbers were enforced. The real initiatives that will reduce foreign worker inflow are the enforced curbs, and the new MOM framework on fair hiring practices, if implemented properly. On top of that, the levies can impede on the hiring of Singaporean workers because at higher wage ranges, the levies are not high enough to dissuade businesses from hiring foreign workers. Yet, if the levies are too high and businesses hire Singaporean workers, the government wouldn’t be able to earn from the levies. The government has thus planned to continue to keep the foreign worker levies at an amount that is not too high (though higher for industries which need to have a high reliance on foreign workers), so that businesses will still employ foreign workers, and pay levies, but this is contrary to their said support to hire Singaporean workers. As such, the levies are counterproductive towards protecting Singaporeans.

(B.2) Wage Credit Scheme

3-Year Transition Support Package (1)

Initiatives: Wage Credit Scheme: Government will co-fund 40% of wage increases for Singaporean employees over the next 3 years, for Singaporean employees earning up to a gross monthly wage of $4,000. The Wage Credits will be automatically paid out to employers annually. The WCS will cost the Government about $3.6 billion over 3 years.

What will actually happen: According to Annex A-3 the Budget 2013 Documents, “At the end of 3 years, the employee (who receives an annual increase of $200 every year) will receive a total of $14,400 more in wages, of which the Government would have co-funded $5,760.” “The Wage Credit Scheme is estimated to cost the government about $3.6 billion over 3 years,” which means that if every worker has an increase of $200, 625,000 Singaporean workers would have benefited. There are about 380,000 to 400,000 Singaporeans earning less than $4,000, which means that some Singaporeans would be able to obtain an increment of more than $200 every year. The question is, would businesses bite? Businesses will not be looking at the Wage Credit Scheme just in terms of the wages of their employees. They will look at this scheme as part of a cost-reduction measure in Budget 2013. Businesses will now be doing their calculations to see if the other cost reduction measures will have a significant impact on their costs, and whether there would be cost savings from these measures, even if they were to increase the wages of employees, beyond the intended increase. Otherwise, there will be little impact on wage increases, even with this scheme. Also, the wage increases are dependent on the company’s discretion. What this means is that for businesses, what is there for them to increase the wages of low-wage workers significantly? Businesses might continue to increase the wages of low wage workers by a few dollars and those nearer to the $4,000 wage ceiling with several hundred dollars. The side-effect to this scheme is that income disparity will still be maintained, and income inequality might even rise. Theoretically, businesses might take advantage of the government’s co-funding of the wage increases to further increase the wages for Singaporean employees. However, in reality, because of the high operational costs, businesses might, in effect, continue to pay employees the same wage increase that was planned for, and absorb the 40% government co-funding as savings. Otherwise, they might only make incremental increases, and still be able to earn from the co-funding. For example, the government might have presupposed that if an employer were to plan to increase the wage of an employee by $100, given the co-funding, the employer might then increase the employee’s wage by $166, so that the employer continues to pay its 60% of $100, and the government forks out another 40% to pay the additional $66. In reality, the employer might continue to increase the wage by $100, but claim the 40%, of $40, of this wage increase. Otherwise, the employer might increase by a bit more, say by $120, which means the employer still saves. Also, as compared to the foreign worker, by increasing the wage by more than planned (in the best case scenario), this would make the Singaporean worker more expensive than the foreign worker. As long as there is unequal wage differentiation between the Singaporean and foreign worker, there is little incentive for the employer to pay a significantly higher wage to the Singaporean worker when the employer can pay a lower wage to the foreigner. Also, how would the employer explain the wide wage disparity to the foreign worker if the employer were to pay the Singaporean worker a significantly higher wage?

What needs to be done to make sure initiative(s) work: The problem with this is initiative is first, there isn’t a minimum amount that businesses are expected to increase the employee’s wage up until, and second, that there isn’t a minimum amount or proportion that businesses are expected to increase the wages by. There is simply no incentive for businesses to increase the wages of employees by more than they had planned for, because businesses would want to make as much profits as possible. The government has also not explained to businesses why they are expected to increase wages, so there might be no buy-in from businesses as to why they need to do so. The only way to ensure that businesses pay fair wages is for the government to set a minimum wage that is commensurate to the cost of living in Singapore, and for the government to then subsidise a proportion of this wage increase. However, the government might be unwilling to set a minimum wage for various reasons. First, due to the uncertain global economic outlook, the government might not want to institute a permanent law that will be difficult to undo, if the need arises, say, if the economy sinks into a recession in the next few years. Second, the government might continue to believe that wage adjustments should be left to demand-supply market economics, such that they would provide the wage credit as monetary incentive, for which businesses will then take into account their budgetary planning, and might cater to the increase of wages accordingly. However, as explained, this is quite unlikely. The only way that the Wage Credit Scheme can truly work, therefore, without the implementation of a minimum wage law, is if the government sets the tone by adjusting the wages of the civil service and companies owned by them, directly or indirectly, upwards, by the ‘recommended’ wage increases, so that this will affect the market demand-supply economics externally and due to the trickle-down effects, result in businesses also adjusting wage increases upwards by a similar proportion or to match the wage increase more fairly. But will the government want to do so? Also, to ensure that there are higher wage increases for the lower-wage workers, the government should implement this scheme in a tiered manner, such that there will be a higher proportion of co-funding for businesses which intend to increase the wages of the low-wage earners. However, the government has not included this as part of the scheme. Has the government not thought about this, or does this say something about their perceptions of “low-skilled” workers?

Are these good initiatives? What are better initiatives? The minimum wage credit scheme, on theory, sounds interesting. But it wouldn’t work – not with current business sentiments where costs are high and businesses feel that profit margins are incredibly low, or falling. Businesses will be looking at this scheme, in light of the other initiatives in this budget, such as the increase in foreign worker levies and tax breaks. Even so, businesses will not make any knee-jerk reaction until they understand how the budget will affect them, and this may take another one or two years, for them to calculate and observe the effects. As such, because wages are something that a company has control over, it is unlikely that they would take it as lightly as to increase wages by more than what they had planned for. As mentioned, this scheme will not achieve the objective to increase wages. To really be able to increase wages, an enforced wage growth and minimum wage law needs to be put in place.

Why did the government plan these initiatives in this way? The government has previously proposed that any wage increases should be pegged to productivity gains. However, over the past few years, productivity has either not grown or fallen. Thus the government’s proposal to peg wages to productivity is an ineffective proposal, one which the government knows. Productivity growth has dropped over the past few decades and based on current conditions, productivity growth is unlikely to grow beyond 1% or 1.5%. The government’s proposal of growing our wages by 3% every year, on the wave of 3% productivity gain every year is therefore not possible. Also, the government has been reluctant to set a minimum wage because as mentioned, the global economic outlook might be uncertain and they might not think that it is ‘safe’ to implement a policy which would be difficult to undone. Even so, Hong Kong had implemented minimum wage in 2011 and all the other Asian Tigers, South Korea and Taiwan, and Japan, also have minimum wage laws, and this hasn’t hurt their economies. As also mentioned in previous articles, if the government implements a minimum wage, what would this do to its own profits? Will the government be keen to institute a minimum wage, if it might reduce its revenue? However, it needs to be known that any wage increment is long overdue. Since 2005, when the government opened the floodgates to foreign worker inflow, this has resulted in a depression of the wages of Singaporeans. Over the past few years, real wage growth has remained stagnant or dropped in some years, inflation has shot up and so has housing, car and COE prices. In 2005 itself, the proportion of low-wage workers earning less than $1,000 increased from 15% to 17% and has maintained at that level, and not dropped back to pre-2005 levels. And as mentioned, there are 300,000 Singaporeans earning less than $1,000 and 450,000 earning less than $1,500. The government needs to act to increase wages, which are long overdue, from way back from 2005.  And if the current initiative of the wage credit scheme doesn’t work, this means that wage increases would be long overdue for possibly 10 years or more. Also, the current scheme, if it works, will not uplift wages to be commensurate to the cost of living by today’s standards. It will simply increase the wages to the cost of living of the standards of a few years back, because at this point, we are only recovering part of the wages lost due to the depression of the wages and they won’t even match up to the level that should be concordant at this point. However, the wage credit scheme could be a delay tactic, for political purposes. As mentioned, the wage credit scheme is meant to benefit businesses, and Budget 2013 is really a budget meant for businesses. The general election is still 3 years to come, so there is no urgency for the government to meet all of Singaporeans’ needs at one go. All the Asian Tigers and Japan have minimum wages. It wouldn’t make sense for Singapore not to do so. If indeed the government realizes that a minimum wage law is a necessity, the wage credit scheme is meant only as a stop-gap measure to provide the initial impetus to encourage businesses to kick-start the process of wage increases, before a minimum wage law is proposed, just before the general election. But this is only a hypothesis. The current government is very fixated on wealth protection and revenue diversification, to maximise its revenue gain from all the sources that it can tap on. A minimum wage law will compromise on this strategy, so even as it would be a populist measure to garner votes at the next general election, this government might still not do it. Though, to say that this government wouldn’t bow down to populist pressures would also be incorrect, because the recent curbs of foreign worker inflow and the pace at which the curbs are implemented is a populist measure, aimed at subduing Singaporeans’ unhappiness, but had put undue strain on businesses instead. Though, as explained above, even if the government rolls out populist measures, they are intended to look so on the surface but do not actually benefit Singaporeans. Finally, and most importantly, what has not been taken into account is how the 40% co-funding will work. Of this 40% co-funding, 20% will go back to CPF. Also, of the increased salary, the employer would have to pay another 16% of the employer’s contribution to CPF. If this 40% co-funding doesn’t account for the employer’s contribution to CPF, what this means is that of the 40% of the co-funding, if 20% goes into the employee CPF contribution and 16% goes into the employer’s CPF contribution, the government only needs to fork out 4% of the co-funding, which means that out of the $3.6 billion set aside for this scheme, the government will only need to spend $360 million. All in, the impact of this scheme to increase the wages of Singaporeans is minimal because there isn’t a specific wage increment that businesses need to abide by. They are not held accountable to any fixed increment required, so they might only make use of this scheme, for any cost-savings on their businesses. Thus wages of Singaporeans, and especially for the low-wage workers, shouldn’t be expected to increase significantly, and income inequality might also rise, if higher rises are given to the higher-wage earners. Also, even though the government has set aside $3.6 billion of the budget for this scheme, most of the budget will flow back to the government’s CPF. Since 2001, CPF withdrawals have decreased year after year, so the actual impact of this scheme on the Singaporean worker is very minimal.

In summary, you can see that the government’s said aims to increase foreign worker levies to protect Singaporeans, and to implement the Wage Credit Scheme to increase the wages of Singaporeans, will come to nought for Singaporeans, because first, the Wage Credit Scheme lies in the hands of the businesses and there is no regulation that the businesses are held against, which means that they will look at how the scheme will affect overall business costs and adopt the scheme in that light, rather than to observe the rights of the Singaporean worker. The wages of Singaporeans might therefore not increase by more than the planned increase.

Also, for the initiatives discussed here, the government ultimately benefits because the foreign worker levies are used in tandem with CPF contributions, which the government has carefully calibrated to allow them to earn maximally. By creating a deception that the foreign worker levies are created to protect Singaporeans, the government has increased the levies, which even with slightly fewer foreigners coming in, will still allow them to earn significantly. Together with CPF, where most to the wage increases for the Wage Credit Scheme will be channeled into, the government will continue to earn revenue from all sides, even as they claim to be on Singaporeans’ side.

I will continue the discussion of Budget 2013 in subsequent parts.