Saturday 20 April 2013

Ask DPM Tharman

Deputy Prime Minister Tharman Shanmugaratnam gave a wide-ranging interview on topics such as politics and the economy to The Straits Times last week for its current affairs website Singapolitics

Full transcript of the interview with DPM Tharman on 12 Apr 2013.

FOREIGN WORKERS: Keep it at one-third

FOREIGN WORKERS: One-third cap is it
By Aaron Low, The Straits Times, 19 Apr 2013

THERE are no further plans to tighten the foreign worker policy unless their numbers rise well above the targeted one-third level, said Deputy Prime Minister Tharman Shanmugaratnam.

The Government, he added, is determined to cap the number at this level, even as many sectors will always need foreign workers.

Locals, including permanent residents, accounted for about 66.4 per cent of employed workers as at December 2012. Foreigners, excluding domestic workers, formed the remaining 33.6 per cent.

"Keep the ratio of foreigners in the workforce to about one-third over the long term. And if we achieve that, we won't need to tighten further," said Mr Tharman, who is Finance Minister.

He accepted that sectors such as construction, health and marine struggle to find Singaporean workers, but there is a clear need to "reduce reliance on manpower" in those sectors.

Mr Tharman was speaking to The Straits Times in a wide-ranging interview on topics such as politics, society and the economy.

Questions posed to him were generated by analysts and economists but readers of The Straits Times' Singapolitics website voted on those he should answer.

Mr Tharman noted that the sectors which rely the most on foreign workers are also the ones with the lowest productivity compared to global leaders. Thus, they have the biggest scope to upgrade. They also tend to be those where local wages have not moved up enough.

Still, he stressed, even as the economy restructures and pain is felt across all firms, the Government is looking out for small and medium enterprises, which generate most of the jobs here.

In this year's Budget, it rolled out a $5.3 billion support package to aid firms to move up the value ladder. The bulk will go to SMEs.

"So we are providing very strong support for any SME that wants to upgrade, whether it's equipment or software or training for the management," he said.

Asked if he thought the restructuring could have started earlier, he agreed it could have.

But he explained that in the early part of last decade, as Singapore recovered from a rough patch of unemployment and weak income growth, policymakers' priority was on creating jobs.

More foreign workers were allowed in so that firms could take orders and create demand. But with easy access to labour, firms had little incentive to raise productivity, leading to stagnating wages at the bottom.

Hence the Government now has to shift course, by getting firms to raise productivity and thus lifting wages, he said.

At the middle end of the workforce, there is a "bit too much of a bulge" of foreigners and the Government's intent is to ensure Singaporeans compete on a level playing field with foreign talent for white-collar jobs.

This will be done by raising the salary requirements for foreigners in these jobs.

And for young Singaporeans starting out, especially in the financial sector, the goal has also to be to ensure they get the attention they need in career development.

On the young Singaporeans, Mr Tharman said: "Your employer must have his eye on you, to see what experience you need, what are the ways in which you can develop your career."

LOCALS & FOREIGNERS: Developing local talent in the banking sector

ECONOMY: Look overseas, firms and workers told
By Aaron Low, The Straits Times, 19 Apr 2013

THERE will be abundant opportunities for Singaporeans and local firms but increasingly these will be found overseas and in markets which may not be familiar to them.

This was the message Deputy Prime Minister Tharman Shanmugaratnam had for firms and workers as he sounded an optimistic note about Singapore's future economic prospects.

Responding to a question about Singapore's biggest economic challenge in the future, he said that Singapore's traditional markets such as Japan, the United States and Europe will face tough challenges fixing their economies.

These countries will remain key markets for local firms but if companies want to prosper, they will also have to pay more attention to emerging markets.

Emerging markets include big economies such as China and India as well as smaller economies in Latin America, Middle East and South-east Asia.

"Tremendous opportunity for us. And it means that not just our large companies but our small and medium enterprises (SMEs) have to be outward-oriented," he said.

In fact, a significant proportion of SMEs are already getting more than half their revenue from external markets, a marked improvement from a decade ago, he said.

Chasing these opportunities will mean that Singapore, firms and workers have to re-orientate themselves overseas, which will in turn mean adjustments for individuals and government policy.

"We've got to have that cultural flexibility of being able to work and operate in these environments because there are plenty of opportunities for Singaporeans," he said.

The Government will, on its part, make the education system more accessible for Singaporeans who have worked overseas, so that they can re-integrate their children back in Singapore when they return from their external stints.

"We probably need, in my opinion, a couple of more schools offering the International Baccalaureate and make it easier for them to fit back in, so the parents don't feel worried about what happens to the children when they come back," he said.

Apart from the international schools based here, local schools such as Anglo-Chinese School, Hwa Chong International and St Joseph's Institution offer the IB programme to their students.

Likewise, there will be strong support for firms looking to grab opportunities in the emerging markets, which will be an increasing source of prosperity of Singapore, he said.

"So if you take a broader view, I think there's more opportunity than challenge.

"And what we have to do is to upgrade our enterprises, train workers and move productivity, skills and expertise so that incomes can go up," said Mr Tharman.

COOLING MEASURES: No more for now

Home prices moving the right way: Tharman
Government has no plans for another round of cooling measures for now
By Robin Chan, The Straits Times, 19 Apr 2013

PROPERTY prices remain high but they are moving in the right direction, said Deputy Prime Minister Tharman Shanmugaratnam, adding that the Government has no plans for another round of cooling measures for now.

The Government is determined to lower the prices of homes relative to incomes, he added, but does not want to cause a crash in the short term.

"We're not planning another round of measures, but it depends on market conditions," said Mr Tharman, who is also Finance Minister and chairman of the Monetary Authority of Singapore (MAS).

"We're determined to achieve our objective of having prices come down relative to incomes. And that can be achieved both through income growth as well as some stabilisation or even cooling of prices, he said.

His comments came amid speculation that more cooling measures could follow the seventh and toughest round in January.

Mr Tharman was replying to a question on how the Government can manage inflation in a wide-ranging video interview with The Straits Times last week.

The question had picked up the third most number of votes from readers in an online poll on The Straits Times' current affairs website Singapolitics carried out over seven days. The videos are available at

Mr Tharman, who also gave insights into the tax system, the economy and politics, and shared his vision of society in the future, said he believes "there is bound to be some softening in prices" as more new homes come into the market over the next two years.

But he did not completely shut the door to more measures.

The Government has a range of tools to stabilise the market, and can also tighten the criteria for banks giving loans, though it does not directly control the mortgage spreads, he said.

"Whether we do anything more on the MAS front, on the fiscal front, or on supply measures depends on market conditions. We don't rule out any measure," he said.

The Government has rolled out seven rounds of measures to bring under control a rising property market fuelled by a long period of extraordinarily low interest rates and pent-up demand.

It has also delinked the prices of Build-To-Order flats from the resale market, and rolled out 70,000 new flats since 2011.

Mr Tharman's comments will temper speculation that an eighth round of measures is already in the works.

New private home sales surged to an all-time high last month, though analysts believe the momentum will not continue as the tough measures kick in.

Mr Donald Han, special adviser at HSR Property Consultants, said: "This will help reassure the market that the Government is working to find a level of sustainable prices in the long term, but will not bring it down with a sledgehammer."

In the longer term, Mr Tharman said, he favours a more steady growth of property prices and the ratio of prices to incomes being "somewhat lower" for "the average family... including those who are in the upper middle income group and go for private condominiums".

The Government has not decided what level it wants to reduce that ratio to, however, and the change will be through an "evolution" rather than any sharp correction.

Speaking more broadly about inflation concerns, DPM Tharman said that excluding housing and cars, "regular inflation" - costs for basic items, education and health-care needs - is "getting under control".

MERITOCRACY: Vision of S'pore as society of equals
Call for a broader meritocracy where people recognise each other's strengths
By Robin Chan, The Straits Times, 19 Apr 2013

HOW you did in school at age 18 should not define your life, Deputy Prime Minister Tharman Shanmugaratnam firmly believes.

This is why his vision for Singapore in 20 years is for it to become a society where people treat each other as equals, regardless of their education or job.

What matters is not which school one went to, or how one did at 18. What should matter is whether everyone has the opportunity to continually improve and upgrade his lot in life, whatever his starting point.

As the country mulls over the kind of society it wants to be, it has to look beyond just raising wages, or what kind of tax policy to have. "It's about changing the way we think about responsibility to society... It's also recognising the role that everyone plays in keeping the society going."

He was responding to a question on what kind of Singapore he hoped for his four children in the next 20 years, when they will be aged between 37 and 42. The question was chosen online by readers of the ST current affairs website Singapolitics as the fifth most popular out of 20 possible questions for him to answer.

"We've had a working meritocracy. It has brought us quite far. It's allowed for a tremendous amount of social mobility in our first 40 years, but I think it has to evolve," he said.

"We've got to be a broader meritocracy recognising different strengths and different individuals, but also a continuous meritocracy where it doesn't matter so much what happened when you're in Sec 4 or JC 2 or when you finish your polytechnic or ITE (course), but what happens after that." It is not just education, he added, but also the way ordinary workers are treated whether in a restaurant or on a bus.

While significant changes to improve this have already been made in the last decade, he said, more is still needed.

"We are a meritocracy that's still a bit too much defined by what happened in your school years or your post-secondary years."

Mr Tharman, a former education minister, observed that the education system has created two groups of students.

One group know their strengths, but are not "sufficiently aware of their weaknesses, and not sufficiently aware of the strengths of others".

The other group have not done as well in school and are "very aware of what they didn't achieve, but not enough of them have discovered their strengths".

There has to be more mixing among people of different backgrounds, he said, and people have to be given opportunities to continually develop their skills and talents, or what he calls mastery.

"That's the only way in which, over time, quietly, without realising it, you recognise the strengths of others and you also know your weaknesses."

Singapore is the way it is, he explained, as a result of a combination of the British and Chinese approaches to education - the British system is "quite an elitist system", while Chinese education culture is "quite test-oriented".

Going forward, as Singaporeans think about the society they want, he hopes they will ask the fundamental question of "how we view fellow Singaporeans".

"Do you view them as equals? Do you do things together? That has to start from a young age and it has to continue through life."

RESERVES: 'No' to dipping into coffers
But the Govt is willing to review 50% cap on use of income from reserves
By Aaron Low, The Straits Times, 19 Apr 2013

THE Government is open to using more of the income generated from the reserves to pay for higher spending levels in the years ahead, Deputy Prime Minister Tharman Shanmugaratnam said.

But it will not change its stance on dipping into the reserves because doing so will weaken the capability of the reserves to benefit future generations of Singaporeans, he said.

He also said that the tax system can be more progressive and flagged raising asset taxes as a pragmatic approach.

Mr Tharman was speaking to The Straits Times in a wide-ranging interview that covered topics such as politics, society and the economy.

Questions posed to him were generated by analysts and economists but readers of The Straits Times' Singapolitics current affairs website decided which of these he would answer. One of the top questions was on Singapore's long-term fiscal strategy: Given that spending will rise, was it time to start tapping on the reserves?

Mr Tharman said the main reason it does not draw down on the country's reserves is that the ability "to give Singaporeans benefit by drawing income from the reserves perpetually will be weakened".

"We'd be able to do it for some time but for future generations they will not have this advantage," he said.

Instead, the Government draws on the returns from investing the reserves under the Net Investment Returns (NIR) framework. Under the NIR, the Government can draw up to 50 per cent of the long-term expected real rate of return on the reserves invested as well as dividends.

And Mr Tharman said that the Government is not ruling out changes to this rule, which was last revised in 2008.

"We shouldn't rule out modifications over time, particularly when it comes to the point when we need more revenues," he said.

But he ruled out tapping on land sales for the Budget, noting that land is already part of the reserves."The real question is: Are we drawing enough with this 50 per cent rule? That's something we can relook over time."

The Government has dipped into the past reserves only once. In 2009, it obtained the President's approval to draw down $4.9 billion from past reserves to fund special schemes in the light of Singapore's worst recession since Independence. In 2011, it put back all the money - $4 billion - it used into the reserves.

In fact, even under the NIR framework, the reserves are actually growing at a slower pace relative to economic growth.

For instance, if the reserves generate a "reasonable" 4 per cent in real returns, which is what the typical global portfolio of equities and bonds earned annually over the last 20 years, the Government can take up to 2 per cent of these returns.

This means then that the reserves are growing at 2 per cent in real terms. Assuming the economy grows by 2 per cent a year, this means that the reserves are not growing relative to GDP growth.

Mr Tharman said that using the reserves in this way means that the majority do not pay income taxes and it allows the Government to keep the Goods and Services Tax at 7 per cent "for as long as we can".

He added that there is room for a more progressive tax system and noted the Government has moved on raising asset taxes in recent years. This year, taxes on more high-end property and cars were hiked.

"It used to be flat and two years ago we moved to a progressive schedule for property taxes," he said. "This year we made it even more progressive. I don't think that's the final step."

DBS economist Irvin Seah said any move to raise the contribution rates will probably be treated with a lot of caution, given the Government's conservative fiscal stance. "There is room to move but I suspect they will move with some caution as spending more of returns just means a lot less for the future," he said.

PAP: To remain dominant without being dominating
By Robin Chan, The Straits Times, 19 Apr 2013

THE People's Action Party (PAP) wants to remain a dominant party anchored in society - without dominating in all areas, said Deputy Prime Minister Tharman Shanmugaratnam.

It can do this as an open political party, he said, that galvanises a diversity of views and ideas, including critical opinions.

"I believe we can play a dominant role, retain a dominant position without wanting to completely dominate," DPM Tharman said in an interview with The Straits Times.

"It's in Singapore's interest that you do have a dominant party, but it's got to be one that's open to diversity, welcoming of a responsible opposition."

But Mr Tharman also took pains to stress that economic policy must remain important for the kind of society Singaporeans want, even as the politics may be changing.

He urged them to preserve what has allowed the average Singaporean to raise his standard of living over time, amid a debate on the continued importance of economic growth.

Mr Tharman was answering questions related to politics chosen by readers in an online poll conducted by The Straits Times' Singapolitics website. The questions came in fourth, eighth and 10th out of 20 questions.

Mr Tharman said he was optimistic about the future role of the PAP because the party has changed significantly over the last five years, and continues to change with a younger generation of ministers leading the charge.

"If we can continue to involve people and to help them to take responsibility collectively for making a better Singapore, I think we can retain our anchor role in Singapore society," he added.

Mr Tharman, who is second assistant secretary-general of the PAP, admitted that the party is, however, facing challenges on two fronts.

One challenge is that it is a natural part of human psychology to "want a check on the PAP", which has been in power with a large majority in Parliament since Independence.

A second challenge: it is becoming more difficult to raise the quality of life for Singaporeans at the same rate as in the past.

But this is the case in other Asian economies such as Hong Kong, Taiwan and South Korea, as well as in the United States and Europe, he added.

Singapore, however, has managed to help the average person continue to improve his life, he said. Any young person can find a job quickly, "in fact faster than anywhere else in Asia", and that must be preserved.

"So economic policy is not irrelevant to the type of society we want because we are a society that still has aspirations to move up.

"People do want to move up, basically. Families want to move up. They want their children to do better than the parents."

Since the 2011 General Election, which saw the PAP lose its first GRC and record its lowest margin of victory, Singapore has become better off, he said.

People are much more engaged and civil society is more active.

"Part of a healthy political system is one with a decent opposition presence in Parliament and outside, and a responsible opposition," he said.

It must also communicate policies well and have MPs who serve with a heart on the ground.

"In deciding on our basic policy objectives and our preferences for the long term... when you involve people in the thinking process, they become very aware of the trade-offs."

CARS: Loan curbs not first recourse
By Robin Chan, The Straits Times, 19 Apr 2013

LIMITING car loans was not his first solution to dealing with rising car prices, said Deputy Prime Minister Tharman Shanmugaratnam.

But with certificate of entitlement (COE) prices hitting record highs, the fear was that it would eventually affect a wider group of Singaporeans.

"It's not the first recourse at all," he said.

"The only reason why we moved is because the increase in COE prices has continued for too long, and it's been too sharp an increase...

"The short-term impact isn't so significant for the majority of people, but eventually it feeds through into inflation more generally."

To the criticism that the curbs are shutting out people who really need a car, he stressed that they are not permanent and also "not suitable for the long term". The Government will observe how prices "evolve over the next several months", he said.

In February, it announced the drastic car loan curbs on top of a tiered tax system, sending demand for cars diving.

The curbs limited loans to 50 or 60 per cent, and capped the tenure at five years.

Previously, loans could be for the full sum and for 10 years.

Mr Tharman, who is also Finance Minister and chairman of the Monetary Authority of Singapore, noted that the Government learnt a lesson from previous loan restrictions on cars up to 2003.

At that time, the loan-to-value ratio was at 70 per cent, but it did not have much of an impact on COE premiums.

"That's why we decided this time we've got to do something larger.

"Do it larger, but don't hold it there permanently, because we are well aware of the fact that there are people who really need a car," he said in his first comments on the curbs.

The new rules have had an effect: The premium for cars up to 1,600cc ended at a nine-month low of $61,029 in the most recent April bidding exercise.

On whether a review of the COE system itself is needed, Mr Tharman said "there are issues the Ministry of Transport will study" but what is more fundamental is to improve the public transport system.

On the Government's roll-out of a $1.1 billion plan for new buses, he said: "Just in the next few years, we can make improvements, particularly through the bus system, significant improvements.

"And 10 years from now, the MRT system would be quite different from today."

CABINET: More left-of-centre now
By Aaron Low, The Straits Times, 19 Apr 2013

THE Cabinet has shifted to the left in how it views social policy and helping the lower income, Deputy Prime Minister Tharman Shanmugaratnam said.

"If I compare our thinking in Cabinet, or the weight of thinking in Cabinet, when I first entered politics about 11 years ago, I would say the weight of thinking was centrist but there were two flanks on either side of it.

"There were some who were a little right-of-centre, and there were some a little left-of-centre," he said. "Now I would say the weight of thinking is left-of-centre. You still get diversity of views in Cabinet, but the centre of gravity is left-of-centre."

Mr Tharman said the current team in charge is clearly "focused on upgrading the lives and improving the lives of lower-income Singaporeans and older folk too".

"Those are two very important social objectives and we're going to succeed. We're going to do something to improve life for these two very important groups of Singaporeans."

The Government is also still determined to keep the economy competitive to help the majority. And moving to the left does not mean the Government is and will become populist, he added.

Typically, a "left-leaning" government would be more concerned with social equity, developing policies that increase the presence of the state in areas such as social welfare.

Analysts agreed that there has been a shift in how the ruling People's Action Party has governed Singapore over the years.

While it started out being democratic socialist in approach, it embarked on market-oriented reforms from the 1980s, said Institute of Policy Studies senior research fellow Gillian Koh. "Today, there is a re-evaluation of the second stage to recognise the need for greater state intervention to mitigate for unequal outcomes and temper the effects of social stratification that might result from market orientation," she said.

But National University of Singapore associate professor Tan Ern Ser believes the shift has not been radical, noting the core fundamentals of governance remain the same - sustainable provisions, fiscal prudence, co-payment and encouraging self-reliance. "I guess Singaporeans expect the Government to do more to protect them from risks and vulnerabilities, and the party that is best able to deliver this protection is more likely to be elected," he said. "The party that continues to harp on individual responsibility and self-reliance may run the risk of defeat."

ST: May I perhaps end with a personal question? You've been in politics for 12 years. What has given you the most satisfaction? And on a personal note as well, people who've worked with you have described how you are extremely hardworking and very committed to what you do, often putting in very late nights. What makes you tick?

DPM: First of all, you have got to enjoy your work. And politics is not something you should be in unless you really want to do it and you enjoy it. You must enjoy meeting people, you must enjoy listening to people and you must find it very meaningful to help them through small and big problems. If you treat it as a chore, you'd better not be in politics. Then everything becomes business. Everything becomes time being spent. Whereas if you see that as your core purpose, then time is not important. It's all about how can I do it together with my volunteers and the others who are helping out on the ground? How can we best do it? And getting satisfaction for the person you're trying to help is I think a very important part of what keeps our political system responsive.

One good thing is we inherited the British parliamentary system - where to be a minister you have to be an MP in a local ward. It's a very useful discipline because when you think of policy, you're instructed by all the realities that you know on the ground. Whereas if you have systems like in many other parts of the world, where you just appoint ministers based on their professional capabilities and qualifications, I think you lose something.

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