By Chris Kuan
Due to travel schedules, regretfully I had to turn down an invitation to speak at a public forum on 25 Feb regarding what we as a society would like to see in the 2017 Budget. Here’s my bit.
The natural transformation of our growth potential to a lower trajectory of 3% will require a secular transformation of what we must expect from the government in regards to its tax and spend priorities. Again, I like to emphasize that the 6% plus GDP growth until 2013 will not be repeated and that the new growth potential is no more than 3% on the average. The Committee of the Future Economy (CFE)’s strategies will not return us to the fabled past, they will only help us to attain the new lower growth potential.
CFE strategies will leave equally more Singaporeans behind
The government has always emphasize GDP growth over the quality and the equitable sharing of the fruits of GDP growth. Notions of income equality and fair society had been sacrificed. It should be noted that at 42% Singapore has by far the lowest wage shares in the GDP among economically advanced nations.
In the lower growth potential, the CFE strategies may point to areas where Singaporeans can achieve good level of income growth but equally more Singaporeans are left behind, It is very likely that bouts of slow growth and even recessions will be more frequent, causing even greater disparity between the haves and the have-nots.
Consequentially, we should now judge the government not only on its ability to deliver the lower growth potential but on its ability to deliver much more equitable outcomes for citizens than ever before, Predominantly this must focus on more financial assistance to the low income including much greater subsidies to provide better chances for children to reach higher levels of education. Increased healthcare subsidies beyond what has already been projected to further reduce out of pocket expenses including expenses on insurance premiums.
A basic state pension covering basic expenses and means tested to the 3rd quintile of income earners (median salaries) will provide better retirement proposition and reduce inter-generational dependencies within families which will help social mobility. Time limited, means tested out of work benefits will not only help redundant workers to be better prepared to re-enter the workforce without fear of financial hardship but will also boost productivity through better job matches and reduce the cost of failure to would-be entreprenuers.
How to pay for all these?
There is a huge amount of untapped sources of revenues and funding. Under the present tax regime, the top quintiles have enormous advantages – the top bracket income tax rates are very low by any standards, there is barely any taxes on capital income and there is no estate duties. These are contributing factors to Singapore’s high income inequality and higher income taxes, imposition of taxes on estates, dividends and capital gains will deliver more revenues.
Greater use of our returns from investing the reserves will not deplete the reserves given that the major source of reserves accumulation, real estate, is renewal given that public housing and much of industrial land are on non-recourse leases. Spending allocations can be re-prioritise to favour social spending. If need be, the government can amend the constitution to allow limited deficit spending in which the nation’s AAA rating will be put to the benefit of society rather than being a decorative item (deficit spending of no more than 1-2% of GDP is widely considered to be optimum, long term surplus if not from natural endowment, are considered far less than economically optimum).
In other words, Singapore has enormous fiscal resources to build a much stronger social safety net and achieve more equitable outcome for society as a whole than at present. The combination of a downward push from higher taxes on the top quintiles and an upward push in social expenditure on the lower quintiles will demonstrate that government tax and spend priorities help to lower income equality.
Personally, I would like to see the Gini coefficient after tax and social transfer reduced to around 35 from the present 41 – this will require the government to push social spending and a reform of the tax regime as the top priority.
What I have suggested in broad outline may seem radical to Singaporeans unused to the idea of government funded social entitlements. We may also be unprepared for consequences of the lower growth potential of 3% in terms of our individual economic opportunities and well being.
However, the new normal means we must now expect much more from the government in achieving fairer outcomes from the tax and spend priorities in the budget. The government cannot hold on to the past certainties for these certainties have been changed – it cannot continue to sacrifice social equality in favour of economic growth.