Budget 2012 debate: Day 3 - Round-Up Speech

Grow economy to forge inclusive society: DPM
Strategies to tackle inequality are in place, Tharman assures MPs

By Lydia Lim, The Straits Times, 2 Mar 2012

IN THE face of the clamour from MPs for more to be done to help the less well-off in Singapore, Deputy Prime Minister Tharman Shanmugaratnam yesterday disclosed the extent to which this group now benefits from government help.

For every dollar that low-income Singaporeans paid in taxes in their lifetimes, they now get back $4 in the form of government aid.

Middle-income earners have also gained, the Finance Minister said, as he wrapped up Parliament's three-day debate on the Budget. They receive about $1.50 in benefits for every tax dollar they pay. If they own a car, that falls to around $0.80.

Addressing MPs who felt that this group was feeling keenly the impact of rising costs, he pointed out that middle-income families have seen their real incomes rise by 3.2 per cent a year in the last five years, on a per member basis. Their tax burden is also low.

They have fared better than their counterparts in other developed countries, whose incomes have either grown more slowly or shrunk. There are 'very few systems that provide this' level of fairness to those at the middle, Mr Tharman assured a packed House.

The plight of low- and middle-income Singaporeans was a key concern of 65 MPs who joined the debate on the Government's financial policy. Some expressed concerns that Singapore's income gap remains among the highest in the world.

Yesterday, Mr Tharman acknowledged their fears, but made clear there are strategies in place to tackle inequality. The approach cannot be one of pitching economic policy against social policy as both are 'closely bound up', he said.

The first and most fundamental way to tackle inequality is through economic growth and higher productivity that raise incomes 'up and down the ladder'.

'How we create an inclusive society also depends on how we grow our economy,' he said.

Mr Tharman also defended the policy to tighten foreign worker inflows, a move which several MPs lamented has hit small and medium-sized enterprises hard. These changes were made in a gradual, calibrated way, he said, adding that he was not applying 'cold turkey treatment'.

The move will push firms to raise productivity. That would pave the way for a sustainable rise in wages, he said. While firms would have to adapt, the Government would do all it could to help SMEs, 'holding them by the hand', he said.

On inequality, Mr Tharman said the Government will also do all it can to preserve social mobility, redistribute through fair taxes and benefits, and work with volunteer organisations to help the vulnerable.

The answer to inequality is also not a straightforward one of government spending more and more on social support.

The Workers' Party was thus wrong to want healthcare spending to rise from the current 1.6 per cent of GDP to the global average of 6.1 per cent of GDP, he said.

That level of spending would mean a spike in tax rates. If the increase were funded through the Goods and Services Tax, GST would have to go up from the current 7 per cent to 20 per cent. If it is through corporate income taxes, it would mean a rate hike at the top end from 17 per cent to 40 per cent, and if through personal income taxes, rates would go up from 20 per cent to 60 per cent.

Mr Tharman warned of the real limits to raising taxes at the top end, given competition from other cities. As it is, half of personal income taxes here are paid by foreigners, and the rest by well-educated, highly mobile Singaporeans.

So while WP chief Low Thia Khiang had lauded the Government for moving towards a 'First World safety net', Mr Tharman said he was 'intimidated' by the suggestion, as 'First World safety nets also meant First World taxes and debts'.

These realities must inform social policy making, he made clear, as schemes are good only 'if we can sustain them, not if we do them for a few years and then have to start withdrawing them or start raising taxes to pay for them'.

Instead, fighting inequality means spending judiciously, 'not for show but for effect'. What this means: Be 'prudent and targeted' in subsidies, and be focused on outcomes, not outlays.

On the Government's fiscal position, the Finance Minister had this piece of good news: Taxes will not go up in the next five years.

'I should have stated that quite definitively. For these five years, we are OK. That's why we are setting aside monies in trust funds, in endowment funds, to fund future spending whilst we still have the resources,' he said.

That happy state may change after 2016. The squeeze on revenue will show, due in no small part to the expanding healthcare spending as society ages.

'In the 10 to 15 years after 2016, we do have a real challenge. We'll have to think beyond growing the economy and sustaining revenues based on GDP growth. We'll have to think of new ways of raising revenues,' he said.

Foreign worker curbs key to building strong local core
But Govt will study proposals to give firms more flexibility
By Aaron Low & Rachel Chang, The Straits Times, 2 Mar 2012

DEPUTY Prime Minister Tharman Shanmugaratnam fielded a robust defence of the Government's foreign worker policy yesterday, responding to criticism from MPs worried about the impact of the policy on small firms.

He said the curbs are necessary for Singapore to build up a strong local core of workers and noted that the changes were also being phased in to allow firms time to adjust.

But he also promised that the Government would study proposals that would give some firms more flexibility to maximise the use of foreign workers.

The issue of foreign workers was a major theme among MPs during the three-day debate on the Budget speech, with some worried over the impact and others questioning the suddenness of the move.

Responding to this, Mr Tharman emphasised: 'We are not turning off the tap. There's no cold turkey treatment.'

He said the changes had been flagged as early as two years ago and were being implemented in a graduated and calibrated manner.

Referring to the lowering of the foreign worker dependency ceilings in the Budget, he said: 'It will not be our last move. We'll have to watch how rapidly the foreign workforce grows this year and, if we need to, and as I expect to be likely, we'll have to make further moves particularly on levies in the years to come.'

During the debate, MPs such as the Workers' Party's Mr Low Thia Khiang and Mr Chen Show Mao suggested that the Government should refine its policy to give certain sectors more leeway in hiring foreign manpower.

Now, levies and quota ceilings for employing foreign workers fall into just three categories: manufacturing, services and construction.

Mr Tharman said that while this proposal is 'well-intentioned', it would not be practical to tailor policies to specific industries for several reasons.

One is that the most rapid growth of foreign workers has been in the same sectors that many people want the Government to make exceptions for.

He revealed that the construction and service sectors, which include restaurants and hotels, accounted for 90 per cent of the total increase in foreign workers in the last five years.

But these sectors also lagged far behind in productivity compared with Hong Kong and New York, he added. If the Government made exceptions for these sectors, it would mean a drastic reduction in other sectors or a more rapid foreign worker growth overall.

He also rebutted Mr Chen's suggestion of having lower quotas for sectors that are high value or have high productivity, like the aerospace industry.

Such a move would give support to less productive firms and place more productive firms at a disadvantage, hampering overall productivity growth, Mr Tharman said.

He added that having different policies for specific industries would also be inequitable because this could favour some firms more than others.

Instead, the Government will be studying two other useful proposals, he said.

The first will allow companies to keep on their payroll for a longer time experienced Work Permit holders whom they have already trained - even if they cannot pass a skills test.

The Ministry of Manpower (MOM) began phasing out unskilled Work Permit holders last July. But now, exceptions may be granted because it would be a 'plus for productivity' if firms are allowed to retain trained and experienced workers, said Mr Tharman.

The second proposal is to allow companies to deploy their foreign workers across different job roles so long as they stay within the same firm.

MOM has, to date, been 'very strict' about workers staying within the occupations which their permits were approved for, noted Mr Tharman.

But there has been feedback from firms and business associations that some flexibility would boost efficiency in, for instance, hotels and restaurants. So for a start, MOM will relax occupational restrictions in the hotel sector.

The Government will work closely with unions and employers to set the criteria for these exceptions. This will ensure that the productivity gains translate into benefits for local workers, Mr Tharman added.

He also pledged that the Government will do its utmost to help small and medium-sized enterprises (SMEs) struggling in the high-cost environment.

To stay competitive, SMEs will have to raise productivity, improve their branding and invest in technology and finding new niche markets abroad, he said.

'And in each of these areas, the Government pledges its support for our SMEs,' said Mr Tharman.

WP criticised for changing stance on foreign workers
By Rachel Chang, The Straits Times, 2 Mar 2012

DEPUTY Prime Minister Tharman Shanmugaratnam yesterday took aim at the Workers' Party (WP) for shifting its position on foreign workers in Singapore.

He pointed to speeches made by WP MPs Low Thia Khiang and Chen Show Mao over the past two days of debate in Parliament.

Both Aljunied GRC MPs had raised concerns that the Government's tightening of the inflow of foreign workers will have adverse consequences on small and medium-sized enterprises (SMEs), and lead to inflation for services like public health care.

They had also criticised its twin levers controlling the numbers - the dependency ratio ceilings (DRCs) and levies - as being 'too blunt', and asked for more calibration based on the needs of each sector.

In his speech summing up the debate, Mr Tharman accused the WP of taking a different tack from its earlier position, as stated in its manifesto for last May's general election and in speeches by its MPs in previous years. Then, it had criticised the Government for allowing in too many foreign workers, he said.

'I think your position now accords with ours and recognises that this is a very careful balance,' he said, referring to the trade-off between curbing foreign worker numbers and economic growth as well as the concerns of SMEs.

This was swiftly countered by WP chief Mr Low, who rose at the end of Mr Tharman's speech to deny any shift.

'Nowhere, inside or outside of this House, have we said that Singapore does not need foreign workers,' he said.

The WP's main complaint has been that foreign workers are taking away Singaporeans' jobs and depressing their wages, he said. Its GE manifesto had stated that foreign worker inflow must be fine-tuned to the specific industry, he added.

Mr Tharman replied that there is a difference between the WP's earlier view that there had been too many foreign workers let in for low-end sectors, and its current expression of concern at how fast quotas are being tightened in these same areas.

'Your recent comments... did recognise that even at the lower end, this has to be a very careful balance and that, I think, shares our perspective.'

He added: 'I hope this sting that you've taken out of your earlier criticism is not just a political strategy because you know that there's sensitivity on the ground among SMEs (about the curbs).

'(I hope it) also recognises the more basic reality, which is that the growth of foreign workers in Singapore has not only benefited SMEs but it has also benefited Singaporeans' incomes.'

Regarding foreigners taking jobs from locals, the minister said 'there will always be competition in individual jobs', but overall, the strategy of letting in foreign workers has raised Singaporeans' real incomes over the last decade.

'So it has been a successful strategy,' he said. 'You were wrong in criticising the Government for a strategy of allowing companies to stay competitive and grow using foreign workers.'

Mr Tharman also delved into why the Government will not differentiate DRCs by sector, as suggested by the WP MPs.

He said that being liberal with some sectors would hobble the goal of boosting productivity. It is precisely in those industries crying out for more foreign workers where productivity improvements are most desperately needed, he added.

Quotas by sector would also give certain firms unfair advantages over others on the ground, he noted, and cause smaller firms to lose out to bigger ones that can 'classify' themselves favourably to get more foreign workers.

Mr Low said he was not convinced, saying: 'We need micro-management and not just macro-management. Each industry has its own features, its own difficulties. Foreign workers are a lifeline to (some of) them, at least for now.'

Mr Tharman replied, saying that such an approach will lead to 'faster foreign worker growth, lower productivity growth and, thirdly, some unfairness between firms - which I'm sure you didn't intend'.

Health care: Spend more, tax more?
No reason to simply match developed world spending levels: DPM
By Robin Chan, The Straits Times, 2 Mar 2012

RAISING health-care spending to the levels seen in other developed countries would require taxes here to be much higher as well, said Deputy Prime Minister Tharman Shanmugaratnam yesterday.

He was responding to comments made by Workers' Party chairman Sylvia Lim (Aljunied GRC) on Tuesday. She had noted that the Government here spends only 1.6 per cent of gross domestic product (GDP) on health care, lagging behind much of the world.

She said that despite the Government pledging to raise its yearly spending on health care to $8 billion over the next five years, it would still be much lower than the 6 per cent of GDP that is the average level of health-care spending globally.

Speaking in Parliament yesterday, Mr Tharman said that if Singapore were to raise spending to 6 per cent of its GDP, the goods and services tax would have to be correspondingly raised from 7 per cent currently to 20 per cent.

Another alternative would be to raise corporate tax rates from 17 per cent to about 40 per cent, or raise the top personal income tax rate to as much as 60 per cent, he added.

'So if you want health-care expenditures to go to 6 per cent of GDP, I'm sure there are many wonderful things we can think of in terms of how we spend it, but there are also wonderful ways of raising taxes. Choose which one,' he concluded.

But he acknowledged that health-care spending needed to rise over time as the population ages and this would be a 'key challenge' fiscally for the Government.

The Government already plans to raise spending from $4 billion a year to $8 billion a year over the next five years, building new hospitals, increasing manpower and expanding subsidies, which would take the share of health-care spending to 2 per cent of GDP.

Spending will rise further to 3.5 per cent of GDP or more by 2030.

'For these five years, we are okay,' said Mr Tharman. 'But in the 10 to 15 years after 2016, we do have a real challenge and we'll have to think beyond growing the economy and sustaining revenues based on GDP growth. We'll have to think of new ways of raising revenues.'

He noted, however, that it is not the amount of spending that is important, but the outcomes that the money brings.

'We are not the best health-care system in the world, but we get relatively good outcomes compared to most countries despite spending much less.'

But the framework can still be refined, and he said he would take in some recommendations from MPs, such as the move to pool more risk in schemes like ElderShield, which were ideas put forth by Ms Lim and Nominated MP Laurence Lien.

The Government will also look at giving more incentives to encourage the use of portable medical insurance, as Mr Yeo Guat Kwang (Ang Mo Kio GRC) proposed.

'Why I don't like idea of First World safety net'

IF WORKERS' Party chief Low Thia Khiang wanted to give the Government a pat on the back, Mr Tharman Shanmugaratnam would have none of it.

Said Mr Tharman: 'I think you were congratulating us for moving into a First World social safety net. I felt very intimidated when you said that, because I don't like the idea of a First World safety net.

'Because it means First World taxes and First World debts. And I don't like both ideas.'

Mr Low (Aljunied GRC) later clarified what he meant in his remark on Wednesday: that First World countries ensure their citizens 'are well looked after', in terms of health care, retirement and so on. To laughter from the House, he added: 'The challenge to this Government is, can we have the outcome of the social safety net in a First World country, without the same level of tax?'

Mr Tharman countered that such countries have merely 'postponed the bill' of social spending to future generations. Their populations were fooled, and are now paying the price, he said.

With a laugh, he also said: 'I suggest you write a novel on this. It will sell very well in the West.'

Catch up, Tharman tells Gerald Giam
By Daryl Chin, The Straits Times, 2 Mar 2012

DEPUTY Prime Minister Tharman Shanmugaratnam yesterday hit back at Workers' Party member Gerald Giam's comments about Singaporeans being unable to afford a flat, telling him to 'catch up' with policies already introduced.

He said the Government has made 'major moves' in the past five years, which include improving housing subsidies.

'So I would like to assure Mr Gerald Giam, who might not have caught up with all the developments... that a family with $1,000 income can now, through our housing subsidies, purchase a small flat,' Mr Tharman added.

'How much is $1,000 income? That captures about 98 per cent of our younger cohorts, those who are below 35.

'So you're concerned about younger people being unable to afford a flat. Try and catch up on what we've been doing.'

He was responding to Mr Giam's speech on Wednesday which stressed that economic growth must go hand-in-hand with a fairer distribution of wealth.

The Non-Constituency MP had said many younger Singaporeans from low-income households, who dream of buying a house for themselves and their parents, will find this difficult, 'given our widening income gap, increasing high inflation, and slowing social mobility'.

The Government gives an Additional Housing Grant of up to $40,000 to allow low-income Singapore families to buy Housing Board (HDB) flats. It introduced a further Special Housing Grant last year of up to $20,000.

Mr Tharman also said yesterday that two recently announced schemes to help the elderly unlock the value in their flats could be tweaked.

The Silver Housing Bonus gives owners $20,000 to downgrade to a smaller unit, while those on the Enhanced Lease Buyback Scheme sell the tail end of their lease to the HDB in return for $15,000 upfront and monthly payments for life. But MPs including Dr Lily Neo (Tanjong Pagar GRC) have called for less money to be locked up in this savings account to help the elderly take advantage of the schemes.

Mr Tharman said: 'That's a valid point because for those who are, let's say, in their mid-70s, if they want to take advantage of our scheme, it may not make sense for them to top up all the way to the prevailing minimum sum for the purpose of CPF Life.

'So it's something which we are studying and we will complete our review on this within a couple of months.'

Other MPs also had their say on housing, albeit on different issues.

Ms Lee Bee Wah, chairman of the Government Parliamentary Committee for National Development, urged the HDB to give downgraders priority when allocating flats.

Ms Lee also called for a review of a rule that forces downgraders who sell their private property to wait 2 1/2 years before buying a public flat.

Middle-income families doing better
By Janice Heng, The Straits Times, 2 Mar 2012

DESPITE inflation, middle-income Singaporeans are doing better than their counterparts in Hong Kong, Taiwan and other developed economies.

Their real income has been rising in the last five years. But this outcome is not by chance.

Raising the incomes of this group is the Government's main strategy to help them cope with the rising cost of living, said Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam yesterday. The second strategy is to keep their tax burden low.

Mr Tharman was responding to the concerns raised by MPs such as Mr Patrick Tay (Nee Soon GRC) and Mr Sitoh Yih Pin (Potong Pasir), during the 21/2-day Budget debate.

They were worried the middle-income 'sandwiched class' earned too much to qualify for help, but were financially squeezed by rising costs of living.

On Wednesday, Mr Sitoh proposed to help this group by subsidising their education, and removing or reducing the goods and services tax (GST) on necessities.

But yesterday, Mr Tharman said that raising the incomes of this group 'is our most important strategy for helping them to cope with the cost of living and to be the drivers of Singapore's success'.

'And we haven't done too badly,' he added. Figures he produced show incomes have risen more for Singaporeans in the middle, than at the top and bottom, in the last five years.

Income per household member grew in real terms - after taking inflation into account - by 3.2 per cent each year for median households, or those in the middle of a range.

This is more than the 2.6 per cent growth at the bottom, and the 2.7 per cent growth for households at the top.

The higher income growth of the median households is 'quite rare', said Mr Tharman, noting that real median incomes either fell or rose more slowly in other developed countries.

Mr Tharman also stressed the importance of keeping taxes low for the middle-income group.He said they face lower taxes than people elsewhere - mainly just GST and 'very limited' income taxes. Some pay maid levies or taxes on cars.

Over a lifetime, a middle-income family with a car gets about 80 cents in benefits for every tax dollar paid, said Mr Tharman. If they do not have a car, they will get back $1.55 in benefits per tax dollar.

This is why the Government is investing heavily in public transport, to make it as convenient as possible for most Singaporeans to do without a car, he added.

But families with a car are still getting a good deal. 'There are very few systems where for every dollar of tax you pay, you get 80 cents back over your lifetime for the average household.'

A word of caution on expanding help
By Leonard Lim, The Straits Times, 2 Mar 2012

WHILE the Government has pledged to help those on low incomes, it must not go too far, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam cautioned yesterday.

As benefits expand, people would have an incentive not to upgrade their skills, he said - and this is something that every society has found to be a problem.

'So we have got to be quite careful,' he said in a Budget round-up speech in Parliament yesterday. 'Preserve that drive to do better, to learn a new skill and to have your whole family move up, because that drive at every level of Singapore society has defined us.'

He noted that the Government is already providing nearly 20 per cent of the low-income group's income through benefits. 'We're doing more to build an inclusive society, but let's not try to do more across the board and more every year.'

How to address the income gap and the perils of a permanent underclass was a recurring theme in the speeches of many of the 65 MPs who spoke over the three days of debate. Some highlighted the plight of cleaners and security guards, who may earn only around $700 a month.

Mr Tharman promised yesterday to do more on a tripartite basis - with the Government, employers and unions cooperating - to help these 'lowest-wage workers'.

Part of the reason for their pay remaining stagnant for the past few years, he said, is the make-up of these industries' workforces. Three-quarters of cleaners, for instance, are older Singaporeans with only a primary school education.

'We do need to do more to help them and make sure they get a proper wage, enough to live on and enough for their families to get by,' said Mr Tharman, who is also the Manpower Minister.

The Ministry of Manpower is working with the National Environment Agency and the Ministry of Home Affairs to improve wages for cleaners and security guards. More details will be provided later, Mr Tharman said.

Of the Feb 17 Budget's focus on inclusive growth, Mr Tharman said it was a continuation of moves such as Workfare and Comcare introduced in the past five years to address inequality.

MPs like Mr Ang Hin Kee (Ang Mo Kio GRC) had also suggested extending the Special Employment Credit (SEC), a wage subsidy to those who hire workers above the age of 50, ex-offenders and back-to-work mothers.

But Mr Tharman said he would be very careful about extending the scheme to more and more groups.

'The SEC is a major intervention in the job market, and not everyone faces the same disadvantage. There are some homemakers who move in and out of work; they're not necessarily at a disadvantage when they come back,' he said.

Set aside the partisan point-scoring
By Chua Lee Hoong, The Straits Times, 2 Mar 2012

THE shirt that Finance Minister Tharman Shanmugaratnam wore to Parliament yesterday was light blue. Was his no doubt unwitting sartorial solidarity with the Workers' Party (WP) a reflection of what seems to be a growing bipartisan meeting of minds on policy issues?

On Wednesday, we heard Mr Chen Show Mao acknowledging the need for balanced budgets in fiscal planning.

Yesterday, Mr Low Thia Khiang said that the WP welcomes foreigners who can add value to Singaporeans.

Barely six weeks ago, during the parliamentary debate on the ministerial pay review, we saw the WP endorsing three key principles of the new system, namely the need for competitive salaries, the ethos of political service and the system of clean wages.

Over the last 21/2 days of debate on the Budget statement, the biggest bone of contention between the WP and the Government seemed to be the small matter of how much micro-management there should be in the allocation of foreign worker quotas.

The WP argues that dependency ratios should be calculated based on industries, not broad sectors like manufacturing, construction and services, and calls for consultations with individual companies and stakeholders.

'High-end' industries should be given lower quotas, it suggested, while lower-end ones should get higher quotas.

Yesterday, Mr Tharman gave a painstaking explanation of why such an approach would not be practical, and in some cases, even inequitable.

The philosophy behind the levy, he said, is to control numbers by controlling the price. It is a level-playing field as every firm knows what the price is.

Would a more fine-grained system be better? He took the aerospace industry, first cited by Mr Chen, as an example.

While this seems 'high end' at first glance, it actually comprises many different segments. There is airplane maintenance, which is highly labour-intensive. There is also components manufacturing, which is high-skilled and less labour intensive. Some big firms do both, while small firms may do just components.

If the small firm doing components is subjected to a more stringent quota, it would be disadvantaged compared to the big firm doing both components and more 'low-end' airplane maintenance. This would not be equitable.

There was no immediate comeback from Mr Chen or Mr Low on this point, although Mr Low said he remained of the view that micro-management is needed.

Having few substantive disagreements with this year's Budget, the WP thus tried to claim credit for it.

On Tuesday, Ms Sylvia Lim argued that it showed the Government 'course-corrected'.

On Wednesday, Mr Low hailed the Budget as reflecting 'a major shift in the Government's thinking... after the 2011 General Election'.

Both claims are dubious.

As Mr Tharman pointed out yesterday, the Government has been giving out social transfers to low-income households for a number of years now. From 2007 to last year, these transfers amounted to 19 per cent of the income of these groups.

'We have moved significantly in the last five years through a range of interventions towards addressing the issue of inequality and building an inclusive society. It is not new. It is not post-GE 2011,' he said.

Likewise the tightening of controls on foreign worker inflows.

The latest curbs come on top of a series of levy hikes first announced in Budget 2010, and which will be fully phased in by July next year.

Again, nothing to do with the 2011 General Election.

Finally, there was Mr Low hailing the Budget as providing a 'First World social safety net' - a term he brandished gleefully as his parting shot on Wednesday.

Responding yesterday, Mr Tharman said he took it that Mr Low was congratulating the Government, but still, he 'felt intimidated'.

'I don't like the idea of a First World social safety net. Because it means First World taxes and First World debts,' he said, proceeding to spell out the level of taxes in developed countries.

Never one to be deflated, Mr Low countered with a new challenge to the minister - to have the developed world's strong social safety net, but without its level of tax.

A deadpan reply from Mr Tharman: 'I suggest you write a novel on this. It will sell very well in the West.'

The sparring between the Finance Minister and the opposition enlivened the Budget debate, but overall, I am not sure I welcome it if such partisan point-scoring diverts attention from the more important task of economic restructuring.

I believe the latter is not just important, but absolutely essential for the livelihood of citizens. The effort has been ongoing for more than 10 years, but the pace has been glacial.

The Government and the opposition should set politics aside and work together to speed it up. After all, both sides agree on the need for this policy.

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Deputy Prime Minister and Minister for Finance, Mr Tharman Shanmugaratnam Budget Debate Round-up Speech for the Financial Year 2012