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Improving Singaporeans’ Standard of Living

The following is the third in a three-part summary extract from the soon-to-be-published ““Creating Jobs and Enterprise in a new Singapore economy – Ideas for Change” by Tan Jee Say, former secretary to the late Dr Albert Winsemius, the economic adviser to the Singapore Government.

Jee Say’s analysis and prescription are ‘persuasive’, according to Lord Butler who as Head of the British Civil Service in the 1980s and 1990s, oversaw the “painful transition” of the United Kingdom from a predominantly manufacturing economy to a knowledge-based one:

“As the former Head of University College, Oxford University, where Tan Jee Say was a student, I am happy to commend his essay “Creating Jobs and Enterprise in a New Singapore Economy -Ideas for Change”. I am not an expert on the Singapore economy but I was Private Secretary to Prime Minister Margaret Thatcher and Head of the British Civil Service in the 1980s and 1990s whenthe UK was making the painful transition from a predominantlymanufacturing and mining economy to a knowledge-based one.Against that background, I find Jee Say’s analysis and prescription persuasive. It seems to me a thorough and well-argued piece of work and as such it deserves the attention of policy-makers.”

You can read Part One here.

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Minimum Wage and Workfare

Our workers deserve a decent and dignified living that is made possible with a minimum wage.The alleged negative effects of a minimum wage are alarmist in nature and do not standup to practical experience in countries that have implemented a regime of minimum wage; more than 90% of countries in the world have some form of a minimum wage. It will ensure that Singaporean workers are not short-changed and under-cut by foreign workers.

A minimum wage is more superior than a levy in reducing the flow of foreign workers. A higher levy raises the cost to an employer of hiring a foreign worker but the increase in cost goes to government coffers not to the worker, so the employer ends up coughing out more money for the same quality of worker. On the other hand,a higher wage attracts a higher quality worker as it goes directly to him, so the employer benefits from a higher output, thus contributing to raising theoverall productivity level. The Workfare Income Supplement (WIS) is a poor substitute of a minimum wage as it represents only a meagre amount (about$83 a month) and is paid by Government using taxpayers' money and hence does not hurt the employer who can merrily continue to hire cheap foreign workers. Coming from the taxpayer rather than the employer, the transfer payment protects and enhances the profitability of employers and widens the gap between the rich and the poor.

In the 10-year period from 1998-2008, theaverage incomes of the poorest 20 per cent of households fell by -2.7 per cent,from $1,309 to $1,274 whereas the richest 20 per cent of households saw their average incomes rose by 53 per cent, from $12,091 to $18,472.

Income Inequality- when growth stops trickling down

The problem of income inequality has become much worse in recent years. Singapore's Gini coefficient (a measure of income inequality from 0 to 1.0 with 0 representingcomplete equality) has risen from 0.428 in 2002 to 0.471 in 2007 even after accounting for government benefits and taxes. These numbers put Singapore "in league" with poor developing countries of the Third World such as " the Philippines (0.461) and Guatemala (0.483) and worse than China (0.447). Other wealthy Asian nations such as Japan, Korea and Taiwan have more European-style Gini's of 0.249, 0.316 and 0.326." Hasn't Singapore "graduated" from Third World to First World a long while ago and if so, shouldn't Singapore be "in league" with other rich First World societies rather than with poor developing countries?

The conventional wisdom of development economists is that economic growth will "trickle down" and benefit the poor. This was true in the earlier stages of Singapore's economic development but has not been so in recent years as more and more Singaporeans particularly the older ones lost their jobs while those with jobs experienced falls in their real earnings. Yes the GDP has grown and it has trickled down but it flowed through Singaporean workers and bypassed them to benefit cheaper foreign workers at even lower levels. It is hardly surprising that more than half, perhaps more than two thirds ofthe 112,500 new jobs created in 2010, had gone to and benefitted foreigners. A minimum wage will stem the trickle of jobs downwards to cheaper foreign workers. As for foreigners on "S" and "E" passes which do not require employers to make CPF payment on their behalf (although a small levy is imposed on the "S" passes), an equalisation charge should be imposed on their employers in order to level the field for equivalent Singaporean professionals.

Cost of living and Government budget surpluses

The ultimate objective of all economic activity is to raise one's standard of living. A minimum wage will help. But cost of living has been creeping up and eating into real earnings ; as import prices have been declining, the increase in consumer prices have been caused principally by domestic factors where Government policies on labour, land, housing, transport, public utilities charges for electricity and water, GST (goods and services tax), education and a host of others, have a dominating effect. These policies have boosted Government coffers and the ordinary citizen has been made to contribute to it in a hefty way that offset the beneficial effect of lower import prices that he can rightfully expect from living in an open economy. This need to be put right.

We can begin by examining the Government’s basic philosophy and practice of using the price mechanism to regulate the supply and demand of public services. When the demand for any public service goes up, the instinctive response of Government is to raise its price in order to dampen demand.Using the price mechanism is a no brainer and is often a guise for revenueraising that has contributed to the huge Government budgetary surpluses year after year. The Electronic Road Pricing (ERP) scheme is an example of theuse of pricing mechanism that has gone wild with ERP gantries popping up here, popping up there and popping up everywhere, faster than jack-in-the-box. While we could understand and accept why a profit-oriented private enterprise uses the pricing mechanism, we expect a higher moral purpose from Government which should devise and implement administrative measures to satisfy public demand without opting for the easy way out of raising price inthe first instance. Higher prices should be considered only as a last resort after all possible non-price options have been explored and exhausted.

A comprehensive review of all Government fees and charges should be undertaken immediately to see if the pricing mechanism has been abused often for revenue purposes and if so, corrective action taken without delay.We can start with the GST by waiving it for basic food items and reducing it for all the rest, and eventually doing away with it altogether. This will help arrest the decline in the real earnings of citizens particularly those in the lower income group and eventually raise their living standards. Isn't this what economic development is all about? The huge Government budget surpluses that have accumulated in past years, provide sufficient buffer for Governmentto reduce or remove unnecessary taxes, fees and charges without the fear that it would result in budget deficits. In fact, the persistently huge budget surpluses recorded year after year imply that the Government has over-taxed the people by raising revenue from them far in excess of what it needs to provide and keep public services going.

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The writer was with the Ministry of Trade and Industry from 1979 to 1985 where he headed economic and manpower planning and also served as secretary to the late Dr Albert Winsemius, the economic adviser to the Singapore Government. From 1985-1990, he was the principal private secretary to Mr Goh Chok Tong. In 1990, he went into investment banking and subsequently took up fund management. He is a Chartered Fellow of the Chartered Institute for Securities & Investment. He is a graduate of Oxford University where he read philosophy, politics and economics.

He will be sharing his insights of the Budget 2011 this coming Saturday 19th Feb at TOC’s Budget Forum 2011.