Associate Professor Jamus Lim, Workers’ Party Member of Parliament for Seng Kang GRC, delivered a speech during the Budget 2023 debate on February 23, Thursday, in which he acknowledged the Budget’s forward-looking approach in stimulating medium-term growth and improving progressivity.
However, he also noted that it falls short in a number of areas, including its fiscal policy stance, and offered suggestions on how to inspire growth via three key drivers: labour, capital, and productivity.
Assoc Prof Lim began his speech by noting that the fiscal policy stance remains contractionary despite the headline deficit. He pointed out that by conventional international standards, the Budget is in surplus, just two years after the worst recession in Singapore’s history.
While acknowledging the justification for building up a fiscal buffer and running a balanced budget during the government’s full term, he highlighted that the fiscal impulse has already turned negative. He said, “I will not quibble over whether this methodology is justified—it has been litigated and relitigated already in this House—but simply point out the fact, evident to all economists, that the Budget is, by conventional international standards, in surplus.”
Despite this observation, Assoc Prof Lim welcomed some responses to calls for action, such as the Budget’s announcement of the permanent voucher scheme’s increase and the additional $3 billion boost to the Assurance package, which offers much-needed support for coping with the high costs of living.
He noted, “The Budget’s announcement that the permanent voucher scheme would be increased restores the government’s original promise of offset years, and the additional $3 billion boost to the Assurance package also offers much-needed support for coping with high costs of living.”
Furthermore, Assoc Prof Lim welcomed the introduction of additional taxes on high-end property, luxury cars, and tobacco, which adds a cumulative $600 million to revenue.
He said, “While these don’t go as far as we’d like, they do add a cumulative $600 million to revenue. To paraphrase Groucho Marx: a few hundred million here, a few hundred million there, and soon you’re talking about real money.”
He also discussed the CPF ceiling increase, which raises the CPF ceiling from $6,000 to $8,000. While he acknowledged that the pay increase is a good thing, he highlighted that it could stretch already tight budgets for the typical middle-class family in Sengkang.
He suggested an alternative approach, wondering why the government did not choose to return the employer contribution to the full 20 percent instead. He said, “While restoring the employer contribution alone will not fully make up for the additional CPF savings that would result from an increased ceiling, one is still left to wonder why this approach wasn’t part of the consideration for addressing the effects of inflation on CPF.”
In terms of productivity, he discussed the need to address the lag in national R&D expenditure compared to leading economies.
Assoc Prof Lim noted that the national R&D expenditures are falling behind not only the global average of 2.3% of GDP but also those of leading knowledge-oriented nations such as the United States, Japan, Korea, and Israel.
He suggested a combination of increased spending in public R&D, coupled with strong tax incentives to foster private R&D, to elevate the lagging national productivity. The Budget introduces an Enterprise Innovation Scheme to enhance tax deductions for innovation-related activities in Singapore.
Assoc Prof Lim said, “This will take advantage of exemptions for R&D credit in the OECD’s Base Erosion and Profit Shifting (BEPS) framework.”
The strategy is to create incentives for firms to locate their R&D activities in a subsidiary in Singapore, which in turn books R&D fees off revenue from the firm’s entities in other jurisdictions.
Singapore is a signatory to the agreement, and so adhering to the stipulations is BEPS is already a given. R&D credits offer an opportunity to stimulate Singapore’s domestic research activity in a legitimate fashion.
However, the absolute number of firms assisted remains small, to the tune of 520 companies.
He asked, “What has been the main inhibitor to more enthusiastic takeup? Could these constraints be relaxed, especially if we were to ease up on the need for recipients to demonstrate short-term results?”
Assoc Prof Lim also discussed the need for more public-private partnerships (PPPs) in R&D to spur private-sector innovation. He suggested setting up specific funding buckets that allow the funding of moonshots with more flexible targets and filling the gap between seed and Series A funding.
He said, “Such an approach can be especially fruitful in areas such as biotech and pharmaceuticals, where we have world-class upstream research produced by Singapore universities, along with excellent specialized downstream production capacity, but insufficient midstream capabilities.”
Assoc Prof Lim spoke about the importance of sustaining long-term growth and suggested three ways to achieve it. One of the ways he suggested was to address the lag in national R&D expenditure compared to leading economies.
“During 2021’s COS debate, I sketched out the case for heightened total R&D expenditures, noting that its share—of a little shy of 2 percent of GDP—fell behind not only the global average of 2.3 percent, but also those of leading knowledge-oriented nations, such as the United States, Japan, Korea, and Israel,” said Assoc Prof Lim.
He highlighted the fact that spending by other nations had all increased, while Singapore’s national R&D spending remained stagnant. To address this, he suggested increasing spending in public R&D, coupled with strong tax incentives to foster private R&D.
“This Budget introduces an Enterprise Innovation Scheme, meant to enhance tax deductions for innovation-related activities in Singapore. This will take advantage of exemptions for R&D credit in the OECD’s Base Erosion and Profit Shifting (BEPS) framework,” he added.
Assoc Prof Lim also suggested public-private partnerships in R&D to spur private-sector innovation.
Moving on to the topic of labor, he proposed expanding workers’ safety nets with redundancy insurance, citing the need for a backup support system for redundant workers to access their first-best welfare system, which is a job.
“In the spirit of encouraging risk-taking and entrepreneurship, we can also consider including the self-employed into the scheme—perhaps with different contribution shares—as we did during COVID-19,” he said.
He addressed concerns about the potential negative effects of redundancy insurance on workers’ incentives to search for a job, but noted that studies of advanced economies that have rolled out such insurance schemes tend to find little adverse consequences for employment outcomes.
The cost of the redundancy insurance scheme proposed by the Workers’ Party is much lower than in other jurisdictions, as it only covers redundancy and unemployment rates in Singapore tend to be much lower.
Assoc Prof Lim suggested that contributions toward redundancy insurance should be passed on to workers, but the government should also contribute regularly to the pool in the form of a special-purpose development fund.
