Looking for a uniquely Singaporean way forward on social spending for all

By Yeoh Lam Keong, Adjunct Professor, LKY School of Public Policy and ex-Chief Economist GIC

Comments on DPM Tharmans’s speech: “No way to give something to everyone without raising taxes for middle class

With all due respect (and believe me I have LOTS) for DPM Tharman, there are a few facts and arguments that need to be pointed out to put the important issue of social spending, equity and fiscal sustainability in better balance and perspective:

Adequacy of govt spending on social protection and social security

The ADEQUACY of government spending on social protection and social security, especially for the poor and underprivileged is surely as important as how progressive such social spending is for the middle class.

Concretely, for eg, the Workfare Income Supplement or WIS is a great scheme; it helps low-income workers without disincentivising work, is very progressive, yet at an average payout of $150-200 per month ( largely in CPF) it is still sadly inadequate.

How much is adequate? Most social workers will tell you that given current living costs $500 to 600 per month and largely in cash is needed in monthly WIS payouts to help adequately cover even basic needs like food, housing, medical and transport expenses.

How much more would it cost us? Roughly $1 billion or 0.3% of Gross Domestic Product (GDP) per annum. Similarly,  the Silver Support Scheme (SSS) is another great new scheme directed at the poor struggling with retirement adequacy that needs to be trebled from a measly current $200 average payout per month to really make a difference. The additional cost? About $700-800 million p.a. or 0.2% of GDP.

Between these 2 reforms in the WIS and SSS, we would largely and quickly eliminate much of the absolute poverty and hardship experienced by both the working and elderly poor that we currently still see in spite of a decade of insufficient policy action to ameliorate it in a way that we can well afford.

Is the government taking poverty ” very seriously” or seriously enough? Then what are we waiting for? I leave you to make that judgement yourself.

Broader social protection for middle class

How about needed broader social protection in key areas that also benefit the middle class? We are talking here about govt spending affordable healthcare, high quality, egalitarian education system, affordable and efficient public housing and transport systems, effective unemployment protection and insurance, etc. Healthcare and education reforms are likely to be the most expensive in the long run, going by OECD experience and given our ageing population.

Here again, adequacy counts, but in a different way than for the poor. A safety net for effective risk protection and ensuring social mobility or equality of opportunity, rather than direct subsidies for basic needs become more important.  Such key public goods and services for the middle class are thus difficult to measure in terms of direct subsidies received per tax dollar e.g., $1.20 in Finland vs. $2.00 in Singapore.

Much of the benefits are indirect and only received when sick or unemployed, but no less important for social security and social mobility – for eg the number of teachers per student in a high quality yet stress-free education  system (eg Finland), adequate unemployment protection (most OECD countries),  affordable hospital or long-term care both at home and in nursing centres (even Hong Kong), excellent public transport (both HK and Taiwan) etc.

What is perceived as fair here by the middle classes is more a matter of adequacy and effectiveness, combined with social equity norms rather than just subsidy benefits received per tax dollar paid. Many middle-class members in developed countries don’t mind paying higher taxes to have the security of a higher level of social protection and mobility as well as to look after the less privileged. In the better systems, they regard it as part of their social responsibility and their contribution towards national cohesion and well being.

Here again, Singapore has one of the lowest public spending rates on healthcare, education and social security in the OECD and I would argue still pretty inadequate for a rapidly ageing economy highly exposed to the volatility and wage stagnation that globalisation and technological change tends to generate in developed economies today.

Better level of adequacy in social spending without raising taxes substantially?

Finally, can we afford to upgrade social spending to better levels of adequacy without raising middle-class taxes too substantially? Here I am more optimistic that Singapore is in an exceptionally strong position to be able to have the fiscal headroom do so.

First, because of our extremely conservative budget accounting, the IMF (no less!) have consistently estimated that we have a persistent structural budget surplus of 7% of GDP or well over $20 billion for many years.

Second, taxes on the rich are currently extremely low and can be raised moderately further to globally still competitive levels.

Third environmental and sin taxes can be raised substantially further yielding significant revenue, looking at the experience of other competitive countries.

Finally, our current spending rule on reserve investment income is also very conservative requiring that half of expected real investment income be kept for future generations. This is a very conservative time preference given that future generations are likely to be much richer and less in need of basic social spending infrastructure (eg long term healthcare, education or public transport)  which we so far have yet to provide adequately for current generations.

Looking for a uniquely Singaporean way forward 

I fully agree with DPM Tharman that fiscal sustainability must be part of rational and responsible policy debate on BOTH sides of the house. For this to happen in a sufficiently balanced way, full, accurate and unbiased public knowledge of fiscal resources and projections is first necessary.

In the US for example, the Congressional Budget Office (CBO) regularly reports to Congress long-term budget and fiscal projections in a variety of major scenarios which is subject to scrutiny and debate by think tanks, academia, financial markets and the public.

Financial market analysts have, in fact, come to trust CBO projections more than  US Treasury projections. In Singapore by contrast, there is a sad lack of basic budget knowledge, even within parliament or government about our true fiscal position as much of the data is secret or confidential and hence not sufficiently rigorously discussed.

Finally, I commend DPM Tharman for keeping public finances in Singapore progressive in an exemplary way and for the significant gains in social protection – MediShield Life, the Silver Support Scheme, more affordable BTO flats that the government in its leftward shift has implemented and fought for both within cabinet and in public policy by Ministers who care like him and Gan Kim Yong. I am heartened he recognises there is still much work to do.

Fiscal sustainability is also of paramount importance, no question.

Let’s retain these orientations and directions as much as possible without losing sight that we are still way behind on basic adequacy measures in several key areas – poverty alleviation, unemployment protection, long-term and chronic healthcare, egalitarian education geared towards a creative, knowledge-based economy, truly efficient public transport.

Can we find a uniquely Singaporean way forward that combines adequate social protection, fairness to our middle class and future generations as well as ensure fiscal sustainability?

I believe we can. But we first need to have much clearer, better-informed public debate before we can do so. The key strategic shape of social spending will have a tremendous impact on the well-being of Singapore and on the character of Singapore society in the long term. As with the debate on population, this is too important a matter to be left just to the economists!