In the national conversation, some kinds of talk don’t come cheap

There are three huge hurdles to making anything worthwhile out of the national conversation that the government has launched.

The first is the attitude the government brings to it. Early indications are not encouraging; there is reason to suspect that they dearly want the outcome to more or less confirm what they want to hear, but there is possibly a second motive which I will write about soon. Consequently, the process is being tightly managed. A related issue is the lack of open data and access to information. How can the public meaningfully participate if the government insists on releasing only such information that suits its agenda?

The second hurdle is the unwillingness to discuss fundamental rights issues and paradigmatic straitjackets. When criticism is labelled as “politicisation”, as discussed in my most recent post, what conversation is possible? Questions of fundamental rights — e.g. what do we mean by equality? freedom of expression? right to information? — are foundational to the futures we are supposedly to imagine. Again, early indications are that these are going to be dismissed as irrelevant to the conversation. Moreover, a reexamination of the paradigms would also be essential to a substantive assay of the possible paths. In this regard, an excellent paper by Donald Low (Reframing the national conversation) has been circulating and is a must-read.

The third hurdle is what I wish to discuss in this essay. It’s a hurdle that is found among some of the government’s critics. I’d describe it as an attachment to certain doctrinaire positions and reliance on a few easy answers that may well prove to be more myth than reality. These show up especially when the discussion turns to social investment and the social safety net, and the question of how we would pay for them surfaces.

Unlike issues like rights, attitudes and paradigms, modification of which don’t cost money (at least not directly), social investment and the social safety net do. Of course, there is, and quite rightly, the counter argument that they pay off, and indeed a fair recognition of returns must be integral to any discussion, but to pretend that at least in the initial stages these lovely things can be had without cost is illusory. Money has to come from somewhere. We can’t have a mature conversation if this simple fact is denied.

The opportunity

I saw an excellent opportunity to bring this up at a forum organised by the Singapore Democratic Party (SDP) on 29 September 2012. Knowing that it will be peopled mostly by government critics, I thought to myself: why don’t I needle some of them about their own blindsides?

Sure enough, during the coffee break, two men from the audience — I’m sorry, I never got your names — raised the anticipated objection to what I had said. They argued that if the government would only stop paying million-dollar salaries to ministers and if we took into account the millions raked in through land sales, there’d be enough money around to pay for a wide social safety net. During question time, someone suggested that with billions locked up in sovereign wealth funds, there’s plenty of money there too. I explained the fallacy of those arguments to them, and will do so further down.

I believe the SDP will be releasing videos of the forum.  You will see me struggling to say all this in the very short time I had. But here, in text, I hope I can be a bit more coherent.

Zooming in

The national conversation will naturally cover a huge range of topics. Here, I want to zoom in on the question of social investment and social safety nets. Generally speaking, nobody is arguing for less. I have a sense that most people are arguing for more. Even the government recognises that in the years ahead, there will need to be greater provision, from the simple fact that numbers of elderly will rise. The need for more childcare support, in the interest of raising the birthrate, is another driving force.

Far from being an area of easy agreement between the government and its critics, this can become a highly contentious issue. Huge sums of money are involved. Where will that money come from?

Priority issues

The first speaker at the forum, Teo Soh Lung, highlighted the results from a Yahoo! survey which found that the top issues among Singaporeans are:

1. Housing, cost of, affordability;

2. Inflow of foreigners;

3. Widening income gap and economic stress on families;

4. Education, stress;

5. Healthcare, cost and access to;

6. Political/electoral reform.

I was a little surprised that transportation was not among them. I had it in my own little list of key issues that concern a biggish number of Singaporeans.

Three of the six — housing, education and healthcare — are very much social safety net issues. They, with transportation, also raise issues of social investment. The widening income gap is a related issue in that it impacts the perceived affordability of housing, education and healthcare.

Housing

The recent sale of a public housing flat for a million dollars focussed many people’s attention on the rising prices of homes. Indeed, this is one area where I think the government took a wrong turn 20 – 30 years ago, and by refusing to admit their mistake, continues to make things worse. Public housing should never have been treated as an investment good; doing so brings in conflicting objectives.

Moreover, the system contains a vicious cycle. Maybe two. Very briefly, it goes like this:

The government pegs selling prices of new flats, not to the cost to build them, but to their “market value”. Some buyers get subsidies, but the subsidies are fixed, whereas the “market value” floats with the market.

This market value is determined with reference to the transaction prices of resale flats. The government however forgets that resale prices are not independent of their own actions. Resale prices are sensitive to the stock of flats in the market, and the overall stock is determined by the government’s building program past and present. Secondly, resale prices are sensitive to the waiting time for and availability of new flats. When new flats are harder to get, demand for resale flats go up and prices rise accordingly. It is circular then for the Housing and Development Board to reference those magnified prices as the “market price” for determining the prices of new flats.

Resale prices are also linked to the prices of private condominiums. The market prices of condominiums themselves are linked to land auction prices in some cases and in others, to development charges imposed by the government for changes to zoning and density regulations. Land auction prices are linked to land releases, again a matter entirely at the discretion of the government (with an upward price bias because of minimum reserve prices for auctions). As for the setting of development charges, the process is very opaque, and one suspects that revenue maximisation (not social interest) is the key determinant.

One can see an in-built bias towards a price spiral. Not wanting to have unsold flats, the Housing and Development Board has a tendency to under supply, thus pushing prices up. In the private market, again wanting to maximise revenue, land auctions and development charges have the same effect.

The problem is compounded when, now that prices have gone up so much, the government is terrified of hurting those who have paid handsomely for their flats. They cannot afford a crash in property values. They think they are doing Singaporeans a favour by keeping the market “stable”. They are not, as I will argue below. But also, they are fooling themselves if they think they are keeping it stable, for, as I described in the foregoing, the circular machinery has an inherent upward bias. If they don’t break that cycle, prices will continue to go up.

But if they boldly break it, quite likely, prices will crash.

Yet, crash is not necessarily a bad thing. For the status quo has victims: younger Singaporeans who need to buy their first flat. The “stability” the government thinks it is protecting, has as many losers as it has winners.

On a wider perspective, high property prices effectively suck money out of the economy into the pockets of the rentier class, which includes the government itself. Less money is available for other forms of investment, e.g. education and child-raising, which can bring far better returns, both economic and in social and personal terms.

However, at least in this area, breaking the vicious cycle(s) should not need to involve much by way of government expenditure. It primarily involves a breaking of mindset. But any significant reduction in prices, or dashing hopes of asset value increase will mean a biggish number of citizens crying in pain — and this is the point I think people need to bear in mind when they raise housing affordability in the national conversation.

Key features of the government budget

Before we delve into the question of social safety net, it is important to take a quick look at the government budget. This helps us see the problem in perspective.

The total expenditure projected for Fiscal Year 2012 is S$50.3 billion, as seen from the Ministry of Finance website (source). Here is the breakdown by ministry:

But the really interesting thing is this:  As a proportion of Singapore’s Gross Domestic Product, which in 2011 was S$326.8 billion at current prices, government expenditure is only 15.4 percent. This is much lower than the levels in developed countries, as you can see from this chart from the OECD:

Click image for a larger version. (source)

At the higher end are countries like France and Sweden with government spending (all levels of government together) at about 50 percent of GDP.  Most developed countries are in the 30 – 45 percent range. Even Japan and South Korea, not often considered welfare states, are at 35 and 30 percent respectively.

This suggests that there is some validity to concerns that Singapore is underproviding in terms of the social safety net. Underprovision by the state stresses private household budgets, and causes a an undercurrent of worry among average citizens over future costs. It should be no surprise if many issues raised in the national conversation relate to expanding the social safety net.

Another failing suggested by the low share of government spending is underinvestment in infrastructure. This may sound odd to many Singaporeans exposed for years to state media bragging about how, with great foresight, government planners have given us top-notch infrastructure. But if we look beyond the propaganda, they may well be real concerns. Public transport overcrowding and poor coverage of some areas is one. The slow speeds of our broadband compared to, say, Korea, is another. Hospitals so full that they turn away emergency patients is yet another again.

Judging the ‘right’ level of social safety net is difficult

Determining the ‘right’ level of social safety net is an art, not a science, and one highly dependent on contexts from the cultural to the developmental. There is no essential reason why the state should provide. Arguably, people could pay fully for whatever services they consume and the services could be supplied on a commercial terms, from healthcare to housing to schooling.

However, most people can see that universal provision by the state (to a certain minimum standard) has a moral dimension. It serves as an upward leveller and a creator of opportunity for those born into poor circumstances. It also provides some peace of mind in the event of catastrophic illnesses or accidents.

There are also certain things that if the state did not provide, the private sector would be most unlikely to step in either. One example would be the building of mass urban railways. The upfront costs are huge, and the complexities of acquiring land, tunnelling under other people’s property, and connectivity with other transport systems are daunting.

The problem is that asking for a wider social safety net (e.g. medical and eldercare subsidies, lower university fees, childcare support) and more social investment (e.g. more universities, metro lines, buses) is easy, paying for it is much harder. Logic suggests that if we wish for something approaching the European level, government spending needs to climb to perhaps 30 percent of GDP or more. That’s a doubling of where we are now.

Sources of government revenue

Where’s the money to come from? Here’s a pie chart from the Ministry of Finance website showing the expected sources of about S$53 billion in government revenue 2012:

How are we going to double (if need be) the revenue base from 15 percent to 30 percent of GDP? Would we double all tax rates across the board? If so, can we stomach the top rate of Personal Income Tax at 40% instead of the current 20%?  Corporate Income Tax at 34% instead of the current 17%?

What about the Goods and Services Tax? Should it go up to 14% from the present 7%?

But if we start exempting some taxes from increase, then other taxes will have to bear a higher increase.

A meaningful conversation requires us to take stock of certain realities — that was the point I wished to make at the forum.

At the same time, we need to avoid certain kneejerk reactions. One is that higher taxes are a bad thing. Is it? If we didn’t have an adequate social safety net or adequate investment in social infrastucture, we’d be paying for the same services out of our own pockets. They don’t come free. Some, like metro transport or emergency healthcare, may not materialise at all. We could see higher taxes for a wider and deeper social safety net as a form of insurance, with the benefit of removing anxiety from our lives. Universally pooled insurance may also be a more efficient provider than buying private insurance.

The objections

As mentioned earlier, three participants at the forum felt I had overlooked other ways of funding a wider, deeper social safety net that would avoid having to look at taxes. I must deal with them here, because if I don’t, some among my readers will raise them all the same.

But first, bear in mind the quantum that we may be referring to when we say that government spending, currently at 15 percent of GDP may need to get to about 30 percent of GDP. It means going from the current annual expenditure of $50 billion to $100 billion. That is, we’ll need to find $50 billion more.

Cut ministers’ salaries

We can save money by cutting ministers’ salaries — goes the argument. Yes, we can, but the amount involved is small change compared to the need. My rough estimate is that salaries for ministers and the senior echelons of the military and civil service add up to no more than $50 – $70 million. This is 0.1% of the government’s budget of $50 billion. It won’t buy you many hospital beds, operating theatres, doctors or nurses.

This is not to say that those salaries, even after the recent reductions, aren’t vulgar. I still think they are, but that is a separate issue from funding social spending.

Plough back proceeds from land sales

Here, we’re talking bigger money. The first problem is that I don’t know how much money is involved. I can’t find information on this. But there is a more fundamental problem with this argument, and it is that it would be foolish to fund recurrent expenditure from asset sales. There’s only so much land to sell, and we can’t be re-selling the same piece of land year after year to fund annual healthcare or education expenditure.

What about all the money in the sovereign wealth funds?

The above question is often asked with a hint of anger. This especially as Christopher Balding and, more recently, Kenneth Jeyaretnam, have raised questions about the accounting. A more dispassionate discussion however, requires us to distinguish between asset values and annual returns on investment. Glittering though the hundreds of millions in asset value may be, spending away the principal is far from wise. We should spend no more than what we earn from investing the principal sums.

Temasek Holdings claims a portfolio of S$198 billion in its latest annual report, and an annual return on investment in the order of 17 percent over a longish period.

The 2011/2012 annual report of the Government of Singapore Investment Corporation (GIC) doesn’t seem to say what its portfolio value is. The closest is a statement on page 24 that murmurs that it has “well over US$100 billion internationally in a wide range of asset classes and instruments.” GIC reports an annual rate of return of 3.9 percent.

Given the veil pulled over the numbers, it is hard to know how much annual earnings from the portfolios are available to the government’s budget. However, the 2012 government budget indicates an expectation that there should be $7.3 billion in “net investment returns contribution”. This amount is not part of the pie chart above. However, it is more than matched by the amount dedicated to “special transfers” as you can see from this bird’s-eye view of the budget balance:

But the point we should take note of is that stretching the investment returns contribution from $7 – $8 billion a year to something like $50 billion (which is what it will take to double government spending from 15 to 30 percent of GDP) is probably not realistic.

In short, it is hard to avoid a discussion of tax rates if we want to discuss the social safety net and greater social investment. That was the reality check I hoped to share with the audience last Saturday.

31 Responses to “In the national conversation, some kinds of talk don’t come cheap”


  1. 1 asperifoliate 30 September 2012 at 18:36

    The general justifications, in principle, of increasing socialisation of the cost of public goods, I seem to recall you’ve gone over before (though I’m not a regular reader). I agree with what you said in that regard. But this latest essay into this topic raised a question I hadn’t really considered previously, particularly this line:

    “Universally pooled insurance may also be a more efficient provider than buying private insurance.”

    It seems clear, from the US at least, that even only in terms of efficiency (fiscal input vs value in terms of how far it actually serves peoples’ needs), highly private health insurance systems are a basket case. I’m no economist, and I don’t know enough of single-payer systems to examine whether they are always very much better, but my impression is yes based on comparing the US and Canada.

    The question is, to what extent would that be true in Singapore’s case. My initial intuition is that the superiority of single-payer systems would be even more pronounced here than in large federal countries like Canada. I realise this is extremely simplistic, but it seems to me that the smaller population minimises the potential inefficiencies or wastage of universal healthcare. Then again, it seems like no one has anything nice to say about the UK’s NHS). Would be very interested if you explored this issue (and I apologise if you already have).

  2. 2 ricardo 30 September 2012 at 18:56

    Mr. Au, these issues must be addressed but the manner in which they are addressed will be determined by the attitude of the people addressing them..

    I would never accuse PM Lee of being mentally challenged. But his latest outcry ?

    PM Lee has strange ideas of people’s expectations of their leaders.

    He seems wholly ignorant of the fact that the unwashed masses (ie us) may expect him and his Ministers to have more regard for the welfare of ALL Singaporeans … than of their multi-million Ministerial Dignity.

    His eloquent & heartfelt defense of Ministerial Dignity, as passionate as those of Lim Wee Kiak, Denise & Cynthia Phua and Grace Fu earlier this year tell us in no uncertain terms where their (and PAP) priorities lie .. even though the actual amounts are ‘peanuts’ in the scheme of things.

    This may be the saddest thing that has emerged from the ‘National Conversation’ .. especially as I don’t see any possibility of progress until 2016.

  3. 3 Jeremy Chen 30 September 2012 at 19:23

    Alex, $70k-$150k to build each dwelling unit. (Based on limited GeBIZ data; they remove it really fast.) So the “land cost” is between 2 to 3 times the cost of building a flat plus admin. Less the 4 rm/5 rm/EC’s subsidizing the 2 rm/3 rm flats…

    So 4000 flats per launch, about 3-4 launches per year. So let’s say we are conservative and go with $350k per flat for 2000 flats in each launch. (Let’s say the rest cover each other.) At $150k (high) building + admin, that is $200k x 2000 x 3 = $1.2B. Not much, but it is a start.

    This is a lower bound, but there it probably goes up to as much as $2B only

  4. 4 joel 30 September 2012 at 20:11

    Of course you are right. But it is up to the government to defend their position by being transparent. It is easy to criticise and by doing so, we force the government to bring out the facts. If they hide, we criticize. That’s the point.

  5. 5 Tan Wa Lau 30 September 2012 at 20:49

    Alex, well written and researched. I only wish the minister can think as deeply as you have done.

    • 6 henry 1 October 2012 at 10:56

      Oh yes they do think deeply!!
      They know all these facts long ago. With all the resources available, the data has been cut and diced a zillion times.

      The issue here is that they CHOOSE not to tell you that there are other factors. They also CHOOSE to paint a view that they want you to see.

      I am certainly thankful for Mr Au to have compiled and sorted out and presented information that I understand. Not some hogwash slush that is being spewed out by deceitful media.

  6. 7 Bluex Spore 30 September 2012 at 21:09

    Aside from using revenue from land leases and from investment of reserves, an increase in spending on healthcare, education and transport can also come from 1) a reduction in inefficiencies e.g. current administration of multitudes of government schemes having overlapping objectives etc, 2) a reduction in spending on areas with dubious benefit to Singapore e.g. MDA censorship, People’s Association, scholarships for foreign students etc, and 3) a reduction in overspending e.g. defence, Youth Olympic Games etc. The suggestion that government spending needs to increase to 30% of GDP is a gross exaggeration and a red herring.

  7. 8 Anon 8Reu 30 September 2012 at 21:21

    Income gap is not an obstacle to Singapore’s economic growth. The image of being investment-friendly is. By focusing on the popular sentiments about foreigners, population and immigration issues, I think the gahmen is skirting the problems of income inequality.

  8. 9 Patrick Lee 30 September 2012 at 23:24

    A good read Alex.

  9. 10 D 30 September 2012 at 23:42

    Singapore has much higher GDP per capita than other OECD countries so raising government spending to some GDP normalised spending level compared with other countries is a mistake, it would imply a much higher number of gov dollars spent per person. Further, Singapore is a small place compared to other OECD members, so less public spending is required. Eg on transport, US has thousands of miles of interstate highways to maintain every year. France has many many miles of high speed rail to maintain, Singapore has none of this.

    If I were an opposition politician, I would suggest bringing defence spending down to the OECD average over the course of the next parliament, right now for Singapore this is crazy high. Second, plough back the millions in profit ( http://wp.sg/2012/05/24-may-2012-hougang-by-election-rally-speech-by-gerald-giam/ ) that the 3Ms make for the health department every year. Thirdly, 1% extra on income tax for every tax band above the current median level. 4th I think there are lots of loopholes in corporation tax that could be closed, not too clear on the details though.

  10. 11 liewkk 1 October 2012 at 00:30

    A very well thought arguement. Had you packeaged yourself as a “world class” foreign consultant, the government would pay you millions just for this posting. I am not sure whether you have deliberately left out the massive disporptionate expenditure on Defence and the kind of cost and burdens it has on ordinary Singaporeans. This is one sacred fat cow that the state has even refused to even discuss. The over-investment in defense contrasts heavily with the gross under-investment in healthcare and other social spending. China has thousands of missles aimed at Taiwan, yet the KMT government is going to abolish national service. The defense budgets for South Korea and other small European countries are proportionately lower than Singapore, yet they have experienced more wars and invasions. Only Israel’s spending may exceed that of singapore, and the ethnocentricism of the Jewish state is consuming itself. I am no expert, but i think that the whole area of defence should be thoroughly discussed.

    • 12 yuen 1 October 2012 at 05:19

      >Had you packeaged yourself as a “world class” foreign consultant, the government would pay you millions

      this disparity also applies to criticism; foreign critics with some personal statue, such as William Safire and Long Yingtai, could make quite nasty comments but continue to receive respectful attention (this may be just a PR tactic – if later they tone down their criticism, it will be a notable success)

  11. 13 Tan Ah Kow 1 October 2012 at 00:37

    Using a mobile device to comment so difficult to give my full views about the points you eluded in your article.

    Anyway, I thought I share with you and your readers how Sweden overcome their economic woe in the 90s to now it is becoming a highly competitive economy but still retaining their high welfare state. Best if you can download this commentary from BBC as it sumarises the success very well.

    [audio src="http://downloads.bbc.co.uk/podcasts/radio/worldbiz/worldbiz_20120906-2030a.mp3" /]

  12. 14 jbhavan 1 October 2012 at 01:27

    Hi Alex – I believe the land sales numbers you are looking for can be found here: Item M10.

    http://www.singaporebudget.gov.sg/budget_2012/revenue_expenditure/attachment/04%20Government%20Revenue%202012.pdf

    • 15 yawningbread 1 October 2012 at 01:35

      Thanks. I see it’s S$12.85 billion expected in FY2012. Not surprisingly, it swings quite a bit from year to year.
      2010 actual: $14.5 billion
      2011 originally estimated: $7.1 billion
      2011 revised: $18.4 billion

  13. 16 teo soh lung 1 October 2012 at 01:49

    When I looked at the Yahoo survey, I was quite taken aback. What did the government do to create such a mess with our cost of housing. When the PAP took power in 1959, they acquired private properties at rock bottom prices leaving many landowners crying foul. They promised to use the acquired land for public good but left many such properties lying fallow for decades. Then they sell the land to private developers and reaped handsome profits. For 50 years and especially within the last decade, they sent prices of HDB flats to the sky.

    The PAP failed to solve our housing problem despite using unjust laws like the Land Acquisition Act for more than 30 years. Surely a country with such a huge housing problem cannot belong to the first world.

    Looking at your chart on revenue breakdown, I feel most unhappy. As a retiree, I am contributing a lot to revenue – asset tax, motor tax and GST! In Australia and England, retirees are entitled to free public transport. In Singapore, retirees pay taxes but get nothing in return. First world indeed!

  14. 17 octopi 1 October 2012 at 02:53

    I don’t think that transportation is a problem that really needs to be discussed. It is not that the problem is not there, or even that it’s not being solved. It’s that solving it (ie building more MRT stations) takes time. The other MRT related issues (emergency readiness, ) are internal affairs of SMRT / SBS.

    COE should be reformed to allow people to switch to bikes. Singapore should be made more bike friendly. The government will find it very hard to do this because they’re addicted to the very high revenues that come from COEs. You can see that what people pay for their vehicles is more than half of all personal income tax.

    High land prices is a very significant and hidden form of tax. It is not a one time expense because most land in Singapore is 99 year land. In towns with very old populations, old flats are acquired and knocked down, new flats built over it and the government can charge for the land again. this is not accounted for under “revenue”. Considering how much people have to pay for land, it will be a pretty explosive figure.

    Now is not the right time to talk about cutting down on defence expenditure, with the diplomatic crisis between China and Japan going on. I agree that it has to go down, but let things settle down first.

    The other big issue is foreign direct investment in Singapore vs local home grown industries. It could well be the case that Singapore wants to project an investment friendly image to the rest of the world. Having more local enterprises to support our economy would reduce the need for that.

  15. 18 Tan Ah Kow 1 October 2012 at 03:37

    YB,

    Finally have access to a “proper” computer now.

    Fully agree with you about the general theme of your Article. That is any solution to deal with the issue will not be an easy one as there will be painful trade off to be made. If I were the opposition I would think twice about taking power at this stage.

    Firstly, anyone taking power now would be inheriting a system that is set to explode. And when it does, whoever take over from the PAP will be blamed even if it was PAP that was the cause of the problem.

    Secondly, whoever take over and then clean up the system, which as you eluded to will be a painful one, could be thrown up by the electorate because of the pain involved. And if the opposition kind of seed a system to success but before success bare fruit, and if the PAP comes to power again, they get the glory.

    Anyway, better stop “politicising” your article.

    On the specific point about comparison with other countries “welfare” expenditure, it is worth noting that it might not be a like-with-like comparison with the Singapore case. In the UK case, “welfare”, I believe include Pension and is funded through taxation.

    In the Singapore case, we don’t have pension as such but the way CPF is extracted and dispensed it would effectively be a form of tax. But because CPF is not considered funded from government expenditure, it is not showing up in the government balanced sheet. If you take CPF into account as personal taxation, you will find that our “Personal Income Tax” would be more than the 20%, possibly closer to 40%?

    In the case of corporate income tax, it is worth noting that high welfare spending countries like the UK is about 20% (SME)-24% (headline figures), which is not far off that in the case of Singapore. However, corporation taxation is somewhat difficult to compare. In the Singapore case, I believe the government gives lots of rebates and tax exemptions. Likewise, in the UK and even the Scandinavian, where you can get lots of rebates. I suspect in the Singapore case, MNCs probably get lots of exemptions. So I am guess much of the corporation tax probably is derived from GLC (just guessing at this stage).

    The question is if policy change to say increasing corporation tax (headline figures), how much impact will it have in Singapore? My feeling is that this is the most thorny issue to handle. My guess is the impact will be significant as we are probably more dependent on MNCs than say the UK. Reason MNC wants to be based in Singapore is that it can keep lots of its profit. The weight of taxation, if my guess is right, will probably fall on GLCs but given that most of GLCs are significantly reliant on the local market for profits, that burden will probably fall on poor Singaporean through higher fees or charges.

    On your point about “spending away the principal” of our sovereign wealth funds (swf), in principle, that is difficult to argue against if you are talking about an individual or household savings/investment. However, in the case of our swf, the question that needs asking is what is the fund for?

    If for example, say Temasek, function as an Angel Investor to seed fund start-up in Singapore, then is really productive for swf to hold such high level of capital? In which case, would you that is squandering of our assets?

    However, if Temasek, was intended to say act as a buffer (much like Norways fund specifically to smooth out the budget of its pension funds over a ten year cycle) to fund health care services, then clearly it would not make sense to squander the principal sum. But as it is the mission of Temasek is not clear.

    Likewise with GLCs, which is supposed to maintain funds to defend the Singapore currency but yet it seemed strange to see that it is investing in less than liquid assets. So what is it for?

    Clear if there is any “National Conversation” to be had, hard questions especially fundamental ones needs to be raised. Frankly, I can’t see the PAP is prepared to address that. As for the opposition, I believe some hard issues will have to be thought through before selling it to the electorates.

    But more importantly, I believe the onus is really on the electorate as it is has to power to make the necessary change — vote for the status quo or be prepared to change. Either choice is not going to be easy one. No use saying the PAP or Opposition should do this or that.

    • 19 Robox 3 October 2012 at 02:59

      Lots to comment on in this blog but I will stick to this one for now. On the issue of revenue sources, would you, Alex or anyone else for that matter, be able to say if the levies imposed on say, employing domestic help, would be subsumed under “other fees and charges”?

      The reason I ask is that if it is, then the proportion as well as a quick mental calculation of the absolute amounts raised is a smaller proportion of total revenue than what I had expected. (Singaporeans who employ domestic help would also do well to always remember that the “maid levies” that they pay are a form of tax, and as such is a huge amount of taxes to be paying.)

      Then on to the issue of the government’s opposition critics who suggest slashing ministerial salaries as a way to fund the coffers.

      While I appreciate your point that people do have to understand fiscal issues better to make alternative proposals – and also that slashing ministerial salaries to trim spending would represent only a miniscule amount in the Budget because it comes from what would have gone into the pockets of only twenty-odd individuals – I think that the singular example of ministerial is really only one example of a larger phenomenon.

      It is well known that both the right wing as well as the left wing have their respective pet projects that they prioritize for funding. I see that a couple of readers have already raised high defence spending – that’s one such example of a right wing pet project. There are others, and in Singapore the high ministerial salaries would be another one. (Still recall the outcry about ten or more years ago on the opulence of buildings housing ministries?)

      And the list could go on. But my point is that the right wing everywhere consistently portrays itself as being fiscally prudent while they point accusingly at the left as fiscally irresponsible.

      This is so untrue; they just have different pet projects and scornful of those of the left.

      Perhaps the opposition parties so inclined should just get better at articulating this fact.

      • 20 yawningbread 3 October 2012 at 13:42

        You wrote: would you, Alex or anyone else for that matter, be able to say if the levies imposed on say, employing domestic help, would be subsumed under “other fees and charges”?

        I can’t see where else they may be parked, and I agree that the slice of the pie looks smaller than one might expect. In 2011, “Other fees and charges” contributed $2.56 billion to the government’s revenue. In Budget 2012, the estimate is $2.59 billion. But if we have 1 million workers for which levy has to be paid, and we use a rough guide of $300 per worker per month (or $3,600/worker/year) then this gives us $3.6 billion.

        Times like these, we see why a Freedom of Information Act is so important. Citizens should have the right to obtain the information we need. As Sudhir Thomas has remarked, the information asymmetry is going to make the National Conversation stillborn.

  16. 21 Fox 1 October 2012 at 04:55

    A great deal of the national expenditure in developed countries has to do with funding pensions/social insurance. If you include the payout from CPF, then our national expenditure would rise significantly. Of course, in doing so, I am equating CPF with social insurance (in terms of national expenditure).

    If you convert CPF contributions to a kind of social insurance tax, then you would very easily have tens of billions of dollars.

    You can’t have CPF and a safety net system in full co-existence. There is too much redundancy. Instead, we can convert part of CPF into a national social insurance scheme, with the remaining CPF part into some personal retirement saving scheme.

  17. 22 OpenMind 1 October 2012 at 07:34

    What bugs me every year during the budget debate is that Defence is our biggest budget expenditure. If you halve that, it can still go a long way to the infrastructure expenditure to build better drainage systems to prevent flooding, build more hospitals etc.
    My question is how relevant is it to spend so much for defence in such a small country in today’s high wired society? I can think of ways to minimize costs: eg, why not have an integrated defence force combining both police, fire & military into one? In my view, nothing wrong with doing that, its called multitasking. The police claims that its labor force is reduced so its using its NS recruits to police the streets. There is a wider labor force in the military which they can tap too if its integrated. Its such a waste of labor resources in our defence force.

    • 23 Anon n3N3 2 October 2012 at 16:09

      In almost every debate on budgets in whichever country, there will invariably almost always be a few comments about reducing the defense budget because we don’t “need such a big defense force”, “why should we get involved in other countries armed conflicts”, “we will be able to do so much good with all the money we are spending on weapons” etc. etc.

      On a personal level, I’m quite ambivalent towards the argument on defense budgets. I can see benefits and drawbacks on nearly equal measure, and have came to the conclusion that it’s a far more nuanced topic than most people give it credit for.

      One aspect of the debate that I definitely do not see often is the acknowledgement of the influence defense spending has on the economy.
      We see on the budget that the armed forces has spent such and such amounts of money a year. Where’s all that money going to? I think this is an important question to ask.

      The US has a gigantic defense budget. A lot of that money goes to contractors. Everything required to make the modern army run, from the military uniforms, to the nuts and bolts required to fix and maintain the equipment, fruits and vegetables and meat to feed the army to paperclips, erasers and toilet paper.

      Every year, the US army pours billions of dollars back into the economy. Giving work to millions of people, stimulating a part of the economy. It’s just too bad that violence is the tradeoff. Nevertheless cutting down on the defense budget does not look like it will be a painless process to me.

      I’m not at all clear where all the money the SAF is spending ultimately ends up, but it might be a good idea to take a closer look, so in the haste to be progressive and liberal, we don’t cut off the nose to spite the face, because if the money is going back into the country then more care should be used when approaching the subject of cuts.

  18. 24 What is the solution? 1 October 2012 at 08:28

    “This suggests that there is some validity to concerns that Singapore is underproviding in terms of the social safety net.”
    Yawning bread

    So how? Win over the 60% majority votes from the PAP to have a govt that adequately provides for social safety net? And again how?

  19. 25 mjuse 1 October 2012 at 18:02

    3 thoughts:

    1) In your post, the $50b that you state would need to be found is predicated on government spending taking up 30% of the GDP. But, as you rightly pointed out, there is no “right” level of social spending. Instead of using the constraint of $50b more of spending that would need to be funded, why not take the approach of look, we get about $8b of investment income each year, why not decide to spend all of that and ask what we should spend on and what that can buy us?

    My view is that it is not the additional level of spending that is important per se, but rather, what we choose to spend on that is the more contentious issue. In Singapore, if something is deemed important enough to warrant additional spending, I have no doubt that money will be found for it, some way somehow. In contrast, when there is a big pot of money available for spending, such as if the budget were to double in a short period of time, colossal waste is likely to result.

    2) There is a silver lining to higher taxes that no one has commented on which I believe is germane to the discussion. One enlightened view of taxes is that they are not something to be abhorred, but instead, they are a distribution out of profits or income that go to paying for public services rendered by the government.

    The upshot of this is that when the people of a country pay taxes, they demand accountability from their government. The higher the taxes, the more scrutiny the government bears, and the more accountability the people demand.

    Taxes are one reason why dictatorial regimes tend to flourish in resource-rich regions where governments can finance their spending purely through resource extraction, without reference to the people they govern.

    It could be argued that taxes are the best way to fund a country’s economic and human development because the accountability that is demanded helps to ensure that the money is spent in the most appropriate ways. It may not be an accident that developed countries tend also to be countries with the highest taxes.

    If the price of greater political awareness, maturity and participation is higher taxes, then it may not be a bad idea for our citizens to start paying them.

    3) Although I am at heart a believer in the idea that the government should allocate more funds to social spending, truth be told, I am ambivalent about it.

    Perhaps it is just as well that the government is so miserly, as it has proven equally intransigent on social issues.

    Speaking as a single gay man, I am starting to view with disquietude the increasingly large financial inducements the government is handing out to boost childbirth rates.

    The outcome that I would find the least desirable is for our government to lavish social spending in ways that deliberately exclude me and other minorities, financed in part by the higher taxes I would have to pay. For example, subsidized childcare, subsidized in vitro fertilization, large grants for first-time HDB buyers that mollify newly weds but in no way address the high market value of flats, reduction or elimination in maid levies, improved healthcare services but that continue to exclude HIV+ patients.

    It does not help that increased social spending does not guarantee changes in Singaporeans’ rather parochial mindsets and narrowly self-interested attitudes.

    Given these realities, unless social reform coincides with fiscal reform, I remain conflicted over increased social spending.

    • 26 yawningbread 1 October 2012 at 23:35

      You wrote: “we get about $8b of investment income each year, why not decide to spend all of that”

      But we do. Look at the last table in the article.

      You wrote: “if something is deemed important enough to warrant additional spending, I have no doubt that money will be found for it, some way somehow.”

      And one of the more likely ways is tom increase taxes. That’s my point.

    • 28 Fox 2 October 2012 at 18:36

      “The outcome that I would find the least desirable is for our government to lavish social spending in ways that deliberately exclude me and other minorities, financed in part by the higher taxes I would have to pay.”

      I think it is quite possible that the increased birth rate will result in more working and tax-paying Singaporean adults in the future.If you’re going to pay higher taxes now, they too will pay higher taxes in the future.

      Besides, I presume that you grew up in the 80s and the 90s when income taxes were significantly higher. Surely, it would be fair for everyone to pay a bit more taxes.

  20. 29 We could borrow 1 October 2012 at 20:24

    Some discussion on government debt is warranted to give a fuller picture, like what is our present level of government debt and how much scope do we have to issue more bonds. Singapore is one of a dwindling number of triple A rated countries and so I think the funding cost could be attractive, but needs to be measured against the cost of using funds from GIC and Temasek. If we keep penny pinching and cannot take some investment risk for our own future, we will be doomed to suffer the same slow demise we are repeatedly being warned about if we act frivolously.

  21. 30 Real Madrid 4 October 2012 at 05:12

    One concept of taxation is to assist in equalising the gap between the haves (minority of people controlling 90% of the wealth) and have-nots. Thus, in a country like Canada, you can see some people with a 5% tax rate and the richer ones with a 45% tax rates. Those in the 45% tax bracket will assist in funding for example, health expenditures of the 5% tax brackets. This is why seeing a doctor in Canada is a lot cheaper than other places. Singapore does not need to tax the very rich 45% but somewhere north of 30% may be a good idea to fund health and university education expenditure of the common majority. Then, perhaps the local birth rates may start to go up as people can budget lower amounts of money for their future health expenditure and their children education.

  22. 31 Sue 11 October 2012 at 14:46

    My comments may not factor much here, compared to eloquent writings of many who have posted replies before me.

    I do not even have half the economics understanding or knowledge, nor am I able to debate or argue intelligently about the budget, spending, taxes etc.

    But I sincerely hope someone will read this post.
    I may be a nobody in Singapore. An ordinary 33 year old woman with an ordinary husband n a 1 year old child makes up my family. With ordinary jobs.

    Please Read the 2 excerpts (pasted below) taken from Alex’s article.

    The writer of this blog brought up a valid point. “..But any significant reduction in prices, or dashing hopes of asset value increase will mean a biggish number of citizens crying in pain — and this is the point I think people need to bear in mind when they raise housing affordability in the national conversation.” And “..asking for a wider social safety net (e.g. medical and eldercare subsidies, lower university fees, childcare support) and more social investment (e.g. more universities, metro lines, buses) is easy, paying for it is much harder. ”

    It is so true!
    But I am willing to suffer the pain of reduction in property prices!! Lest you say that I must be 1 of those who hasn’t gotten a flat or are unable to afford a resale flat etc etc.
    Listen. I stay at the 50 storey pinnacle@duxton, a HDB development that had ranked among one of the more expensive at the time I balloted in sept 2009.

    I got my flat a small cosy flat of 90-92 sqm at $514,000. I am stil staying there. Why am I willing to say let properly price drop!! Why? When it does not benefit me. After all, which homeowner who has paid Half a mil for a flat wants prices to drop? They should want it to rise further! Yes ur right.

    If prices drop, yes it many be painful for us. If taxes increase a few percent, it’ll hit our pockets n cause more pain.
    BUT if we don’t put a stop to this escalating property price, in our time in our generation, do you think the generations after us will be able to survive? Increasing taxes? Ok I’ll take that too. Cos somewhere somehow someone has to pay for this. Ppl may say govt need to foot the bill. I agree! But I also believe that no enough amount of money (regardless how vast n huge the amount) can last forever. We have always heard of rich families with big businesses and bigger $ but the $ never seem to last past 3 generations. Somewhere somehow we will also need to chip in.

    As for taxes. Look, I am already paying so much so much each month for utilizes, hor my Hse, for groceries, for my own healthcare for my family. If increasing taxes, n i pay more in taxes, ii dont mind. Cos there will be An increase in terms of welfare or some sort of social net, more vacancies for uniVersity admission and so much more.
    And with that, I believe certain prices of some household items, or cars or anything in Singapore may be more manageable or justifiable etc. when they happens, I suppose perhaps my household expenditure overall, may just remain the same or with a slight increase.

    Mayb I am naive.

    For the sake of my daughter and many others who are a generation behind me, for the sake of your children and your children’s children, yes I would rather suffer now than hv my kids n the next generation pay later.

    I know there will be those who say Singapore is not worth it. We can always leave this country since it sucks. Etc etc. n that this lady most probably is unable to migrate at all hence her views.

    To be honest I would love to go overseas. But yet, I am also fearing and dreading it. My husband was once offered such a opportunity to work overseas and in the end he rejected. Simply bcos I luv the idea..but I fear it at the same time. Every change comes with a different set of problems.

    But most importantly, this country is Whr I was born. Whr all my families and friends are. Where I can easily navigate the highways and streets without feeling lost, panicky etc.
    N bcos of that, I really really hope


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For an update of the case against me, please see AGC versus me, the 2013 round.

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