With reference to the Straits Times report – Hongbao Budget.
Straits Times: SINGAPOREANS received a $1.8 billion surplus-sharing hong bao from Finance Minister Tharman Shanmugaratnam yesterday.
TOC: The Straits Times also reported a total surplus of $6.45 billion. Is it true that it is a ‘surplus’? How did this ‘surplus’ come about? Was not the government earlier expecting a deficit?
TOC: In light of this surplus, Singaporeans would wonder why the government needed to raise GST by 2 per cent to 7 per cent only in July last year? Was the government’s earlier projection wrong?
Sze Hian: Actually the surplus may have been higher, if we include the top-ups to the various Endowment Funds, because these are in a sense, not really money spent, but set aside, whereby only the interest element of the Endowment Fund is, I believe, spent every year.
There was no need to increase GST to help the poor, in view of what is probably one of the most inaccurate Budget forecast in history.
Straits Times: Tharman Shanmugaratnam: “It (the good economic numbers) is about how we are attracting new and cutting-edge investments, capitalising on opportunities in new growth industries and markets abroad, upgrading our workers' skills and competing at an advantage.”
TOC: How true is this? Our investments in Life Sciences, for example, have not borne fruits yet. Our investments abroad, especially those of Temasek and GIC, are fraught with uncertainties.
Sze Hian: Whlist I agree that the focus on R & D, and attracting investments is a good strategy, there is a limit to upgrading workers' skills, particularly for the unskilled lower-income. Recent years' data seems to suggest that upgrading for unskilled lower-income may not be helping them much in getting higher wages. Nationally, productivity has continued to fall.
Straits Times: Older Singaporeans aged 51 and above will receive top-ups of up to $450 to their CPF Medisave accounts, to help with medical bills and higher insurance premiums.
TOC: Will this really help older (and poorer) Singaporeans, given that health inflation is the highest among the components in the CPI? Are such ad hoc top-ups, dependent on budget surpluses which we might not have in future, going to really help Singaporeans?
Sze Hian: No, I don't think so, because ad-hoc top-ups may not catch up with rising healthcare costs and rising MediShield premiums.
Straits Times: They will benefit from higher Public Assistance payouts, a $400 million injection into the ElderCare Fund for older folk needing long-term care, and $200 million top-ups each to the MediFund and Comcare Fund, to help the poor with medical bills, jobs and their children's needs.
TOC: As in previous years, these funds seem to be financially healthy but they don’t seem to help Singaporeans in need. Healthcare is still a top worry for Singaporeans. What is wrong with the schemes? Are all these hundreds of millions of dollars going directly to those in need?
Sze Hian: Instead of allocating funding every year from the budget, currently, the system of topping-up Endowment Funds, may be limiting the amount of money that can be spent – which is dependent on the interest of each Endowment Fund, rather than how many citizens and how much is needed.
Straits Times: Mr Tharman identified two key challenges going forward: helping lower-income workers cope with continued pressures on their wages and helping people save more for retirement.
TOC: This is a view – and a promise – by the government over the last few years. However, wages continue to be depressed because of the influx of foreigners. How should the government actually deal with this problem?
Sze Hian: One possible solution is to give Singaporeans the option to invest their CPF and cash with Temasek and GIC. The higher returns (Temasek's 18% per annum for 33 years, GIC's 8.2% for 25 years) may give us more in retirement, and more to spend before retirement.
Straits Times: Lower- and middle-incomers nearing retirement will also receive a special sign-on bonus of up to $4,000 when they join the new CPF Life annuities scheme.
TOC: The newly renamed CPF Life annuities scheme still seems complicated to the average Singaporean. To ask them to sign-on by dangling a bonus as incentive, isn’t the government sort of pressuring Singaporeans to take up a scheme which many still may not understand fully? In any case, how is this new CPF Life scheme different from the original scheme announced last year?
Sze Hian: The main difference between CPF Life and the old CPF system, is that CPF Life defers your Minimum Sum monthly payout withdrawal from 62 to 65, and the amount will be less. The advantage of CPF Life is that payouts are for as long as you live.
For lower-income Singaporeans, the lower and deferred payouts may cause some hardship to them.
Straits Times: He gave the assurance that the Government has in place strategies to ensure that Singapore continues to have lower inflation than the rest of the world over the medium term.
TOC: Is it fair to compare our inflation with those of other countries and be satisfied that ours is somehow “lower”? What criteria does the government use to determine this? The CPI? Is the CPI a universal or international standard?
Sze Hian: As our cost of living may be higher than our neighbouring countries, even in those comparisons whereby our inflation is lower, the impact on the population may be greater, because our costs are already much higher, on a relative basis.
Straits Times: The most fundamental strategy is to keep the economy competitive, because education and training, new investments, job creation and good income growth are 'the best offset to global inflation'.
TOC: What are your views on this statement by the finance minister?
Sze Hian: There are also other measures that can be taken – like raising interest rates, freezing or lowering Government fees, etc. As to income growth, over the last 10 years or so, the bottom 30 per cent of workers hardly saw any real increase in wages.
Straits Times: MP Inderjit Singh, who chairs the Government Parliamentary Committee for Finance and Trade and Industry, said the Budget went a long way to address inflation worries for lower- and lower-middle income Singaporeans.
TOC: Is this true? Does this mean that Singaporeans do not have to worry about inflation – which is at a 25 year high - or cost of living anymore?
Sze Hian: If inflation is still expected to go up, and the bottom 30 per cent of workers' wages may not be coming up fast enough to match inflation, I think the answer is quite obvious.
TOC: Each year’s budget is trumpeted as "generous" and applauded by the local media and PAP MPs. Last year’s budget, for example, was reported by Channel NewsAsia thus:
“There is no doubt the upcoming Budget will help the low income cope with rising cost of living, as they would be hardest hit by the impending increase in the Goods and Services Tax to 7 percent from the 5 percent now.”
Yet, the year proved to be one of record inflation, an increased income gap and continued wage depression for the low-income. The measures in 2007 “to help the low income” didn’t seem to help as many struggled to keep up.
What makes this year’s budget different?
Sze Hian: It's very similar to previous budgets in that everybody seems to be getting some money.
However, I would like to give my concluding comments on the budget from the perspective of how well it is addressing the main problems facing Singaporeans today, and in the future, such as retirement, healthcare and housing, etc.
Retirement – Singaporeans save the most in the world, but end up with so little when they retire. The average CPF balance (all accounts – OA, SA, Medisave) was $66,000 at age 55 – the median for OA and SA I estimate is only $20,000+.
Healthcare – Rising costs and MediShield premiums that may wipe out any ad-hoc Medisave top-ups.
Housing – What's the point of increasing HDB Housing Grants which do not catch up with rising HDB new flat prices? How many people have lost their homes and CPF when they cannot pay for their mortgages? This also contributes to the small sums left for retirement. As to monetising one's HDB flat to retire, where does one live when you sell your house, since HDB has a 30 month waiting period to buy another new flat or rent one? If you downgrade to a resale flat, there may not be much difference to monetise for retirement.
PS: Sze Hian will be writing 3 articles to address the issues of healthcare, housing and retirement in more detail in upcoming articles on TOC. Look out for it.