Thursday, 17 January 2013

Making ends meet: Financing the future of Singapore

By Devadas Krishnadas, Published TODAY, 16 Jan 2013

The annual national Budget is something that most Singaporeans take only passing and selective notice of. They should give it more attention. 

The Budget is not simply an exercise in national accounting. It is an expression of where the tyre meets the road for policy. No money, no talk as the saying goes. 

Singaporeans should take comfort in three important features of the national Budget.

Firstly, unlike almost every other of the world's advanced economies, our Budget is not debt financed. Thus, we avoid being at the mercy of fickle credit markets. The net result is that within the boundaries of our fiscal space, we can act with confidence. This makes us fiscally credible and policy predictable. 

Secondly, the Government runs lean comparative to other economies in our GDP per capita bracket. Considering the modern city we inhabit, this means we get considerable bang for each buck of public expenditure. 

Thirdly, unlike the other advanced economies, we have been reducing the burden of taxation rather than increasing it.

Direct taxation has fallen over the past decade though indirect taxation has increased. The Government has practised a tax-and-transfers model to moderate the regressive nature of consumption taxation.


To most fiscal planners these features are highly desirable.

However, in recent years - most loudly during the series of political elections over the past 18 months - there has been growing contention that there should be less emphasis on economic growth and greater expenditure on social safety nets.

Well-founded concerns over growing income inequality have also led to suggestions that "something" must be done to countervail this trend.

If we want to increase public spending on social investments, there are three ways to go about it.

The first is to choose different ways to cut up the revenue pie.

This calls for a change in priorities in public expenditure and acceptance of ensuing trade-offs.

The second approach is to increase the revenue pie with higher taxation or a greater share of investment returns from our sovereign wealth funds.

The third approach is to persist with trying to grow the economy and thereby expand the revenue base.

We are facing three large public finance drivers.

The first is the infrastructure needs to support population growth.

The second is the needs of an ageing society. Third is the moderation of growth as we settle into economic maturity.

The fiscal future of Singapore would probably require a mix of all three approaches to public finance. Should these still be insufficient, we would find ourselves resorting to risky measures of debt financing or running down reserves.


Simple budget expansion is not a panacea for the challenges that Singapore and Singaporeans face.

And yes, there is a distinction. When we think about "Singapore", it is as an abstract. Doing so permits policy-makers to arrive at technically-clean policy solutions.

However, it is when there is a need to reconcile these solutions with how we think about "Singaporeans" as a citizenry that policy-making becomes conflicted and sometimes controversial. This is because while policy should be considered a means and, to a considerable degree, can be treated objectively and rationally, the ends are unfailingly political and thus inherently subjective and ideological.

Therefore, the first task of analysis in our consideration of any Budget is to make a distinction between what is policy means and what is political end.

As illustration, let us take the central thesis of the ruling party's political narrative. This concerns the role of economic growth. Is growth a political or policy objective?

A large number of Singaporeans in the recent past have taken issue with the prioritisation of economic growth over social policy considerations. Their occasionally heated, but clearly sincere, perspective is understandable if we accepted two things as fact: The first is that economic growth is a political objective, and the second is that its prioritisation needs to be mutually exclusive to social policy. But neither of these assertions are true.

The political narrative characterises economic growth as a policy, not a political end. The political end is national survival. The rationalisation is that Singapore must have growth in order to prosper and without prosperity, we decline and fail. This is because of two actual facts of economic and political reality.

First, there is no such thing as a "standing still" or "rest point" for the economy. We are either growing or we are contracting.

Second, our survival is conditional on our relevance in the international space. Being a very small country, our only credible channel of relevance is economic. All our other dimensions of engagement, whether political, military and cultural, are conditional on our being economically relevant.

While seemingly objective, this is still arguably an ideological point of view. It would be perfectly possible to take a different view. Radical political ideas in the past have asserted that national survival is not consequential and the greater end is some form of social transformation - anarchy, class dominance, even racial supremacy.

More recently, some have suggested that while national survival was primal, as an idea it need not be indexed to growth but to other measures like "happiness". However, what has hitherto proved impossible is how to make this work.


In Budget 2011, the Government clearly articulated a shift in emphasis from "quantity" growth to "quality" growth. Budget 2011 set the goal of growth as being real income growth for all Singaporeans.

Providing jobs for all who can work and boosting real incomes make for the best possible social policy formula. It gives our citizens the dignity of taking care of themselves and the sense that they are doing better over time. The mechanism for achieving this target is to improve productivity across the economy.

Achieving productivity improvements is rarely straightforward. But unless the economy restructures onto a more productive plane, we cannot expect to stay competitive. Unless we are competitive, we cannot afford the social investments we commonly desire nor could we keep the ones we already have made. Such is our reality.

Until otherwise proved, we must thus accept that our particular circumstances imply that economic growth as a policy objective is sound and serves the supreme political end, national survival.

Economic growth and social investments are not mutually exclusive. The challenge is how to find a mix where the first can be sustained such that we can continue to afford the price of the second, and where well intentioned social policies do not inadvertently undermine our ability to grow or stay fiscally sound.


The future political contests will be on two axes. The first, and more difficult, is the contest of political ends. The ruling party has a well-oiled political narrative. The Opposition could try to present an alternative political narrative to win the support of the people.

The second axis is where the Opposition could embrace the prevailing political narrative and limit its case to arguments about policy means. The second approach need not necessarily weaken any eventual claim by the Opposition to form a government but neither does it help it.

If the Opposition is unable to present a countervailing political narrative, it should avoid confusing the electorate with disputes about what are essentially shared political ends. Their focus should be on the debatable policy means to secure those ends.

Future debates must be characterised by political actors investing energy and intellect to study, compose and present compelling policy ideas to move us forward.

There is an onus on all political actors to premise their platforms on two principles of action. The first is that these platforms should be more than about what they are standing against, and extend to include a clear articulation as to what they are standing for. Second, provide policy solutions on how to actualise their political goals.


One's relationship with the Budget should not be restricted to responding to it upon its release. There is much scope for more participation by academics, civic leaders, the citizenry and all political actors to engage more intensively to generate ideas and feedback to the Budget process.

When doing so, there is an obligation to make clear not only how the suggested policy means serve declared political ends, but also an acknowledgement of the consequential fiscal imperatives.

The Government should erect a big tent for a rigorous debate over policy ideas. If it does, it is up to us to set aside the temptation to merely pin feathers of opinion onto the canvas, and to walk in prepared to share in the heavy lifting of policy solutions.

Devadas Krishnadas is the Director of Future-Moves. He was previously Deputy Director of Fiscal Policy at the Ministry of Finance. This is extracted from a longer article posted at IPSCommons.

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