By Charles Tan Meah Yang, Published TODAY, 13 Apr 2013
There’s a famous quote that laments how there are only two things certain in life: Death and taxes. In Singapore, however, it would appear there is a third: Inflation.
I am reminded of this inconvenient fact each time I return home, because the bowl of bak chor mee I always have at my local hawker centre seems to go up in price by 50 cents every other year or so (it is now an exorbitant S$4 per serving). If only bak chor mee were a financial asset; the returns on investment would be amazing!
Inflation is a thorny issue for many, as are the closely related topics of housing affordability and immigration. All three issues are interconnected and share a common root, but to put it simply, we are a victim of our own success.
We have made Singapore is an extremely attractive place in which to live, work and invest – which, by definition, means that we attract inflows of both human and financial capital. With more people demanding the same goods and services, and more money available to bid for them, should it come as any surprise that prices rise as quickly as they do?
WHO LOSES OUT?
Immigration is perhaps the trickiest issue of the three, but it is also the one that I feel most strongly about. Having worked in London for the past five years, I don’t have to imagine what it is like to be an unwelcome “bloody immigrant” – I live it every day.
My personal experience has taught me that high levels of immigration may be symptomatic of the problem at hand, but discouraging it altogether is not the solution. Such policies are regressive, both from a moral and an economic standpoint, as London is slowly, but surely, finding out.
The British government has taken the easy way out of the immigration debate, perpetuating the spurious belief that it is possible to keep “British jobs for British people”; but by setting onerous conditions for new applicants and making life more difficult for existing immigrants (such as yours truly), all the UK has done is to drive away a pool of hungry, productive workers at the behest of less motivated ones.
A recent incident illustrates this point well. My oven broke as I was warming up a pizza one night and I was quoted £175 (S$350) by a repairman to have it fixed. “That’s ridiculous,” I protested, “that’s almost as much as a brand new oven!”
“Fine,” the man replied, “but you won’t find anyone who will do it for less, except maybe them Poles, if you can find one” – pointing to the fact that many of them have been sent back under recent legislation.
Infuriated by his remarks, I did some research on the Internet the next day, bought a spare part for £12 on eBay, and fixed the oven myself in 15 minutes with nothing more than a screwdriver. In this instance, the British job “disappeared”, the Briton stays unemployed, and the man who would have fixed my oven for me is probably now the millionaire owner of a handyman business in Poland.
Economic theory suggests that GDP growth is driven by two key factors, population growth and productivity; the former increases the number of producers/consumers of goods and services, the latter increases the potential output per worker. Admittedly, we have focused a little too much on the first and not enough on the second in the past decade, but recent shifts detailed in Budget 2013 reflect that our politicians now acknowledge this.
The point I would make, however, is that we cannot, and should not, attempt to solve our problems by vilifying or ostracising the immigrant population. At the lower end, they help take up more menial jobs so that locals can refocus their energies on better value-added positions.
At the higher end, they bring with them valuable skills, expertise and capital, and overall, the competition they foster in the labour market makes us all ‘hungrier’, which I believe keeps our society from slipping into a dangerous sense of entitlement and sloth.
JAPAN’S CAUTIONARY TALE
The rising cost of living, and inflation more generally, is indeed an unfortunate side effect of high immigration, and the negative impact this has on our citizens and, thus, the need for mitigating measures, is undeniable.
However, in order for Singapore to remain relevant in this fast-moving, increasingly globalised world economy, we need to demonstrate that we are “open for business”, which requires that we are open to immigration, though that does not mean we need to operate an indiscriminate “open-door” immigration policy.
To impose draconian legislation and arbitrary limits on immigration as the UK has done will only serve to push us closer toward a Japan-type scenario: One where the inflation problem is “solved” (prices have been broadly unchanged in Japan for the past 20 years), but only because the population is ageing and shrinking, there is net emigration from the country, and the economy is in a state of decline.
Productivity may be high, thanks to investments in technology, but corporations are still rife with inefficiency in no small part because of the protectionist, jobs-for-life culture, which is cemented into Japanese law.
The challenge, therefore, is to find a balance: To reconcile what most of us can agree is a morally correct ideology (ie. one that fosters an open and inclusive society which rewards hard work and celebrates diversity) with our moral imperative for social justice (ie. that the gains, and equally, pains of economic growth are shared so that no Singaporean is left behind or made worse off for it).
Special taxes on foreign labour and investment are justified, to the extent that they benefit from a system that we have built, and one that we will ultimately have to defend, so it is only fair that foreign workers and investors pay their share of the costs: Past, present and future.
However, we must also take care to craft these taxes in such a way that they do not overly distort the market from its proper functioning.
TWEAK PROGRESSIVE TAX FURTHER
Increasing taxes on investment properties, as was done in the most recent Budget to make the system more progressive, is fair and a step in the right direction. But I would suggest some improvements.
For example, the tax does not differentiate between tenanted and vacant investment properties; my view is that we should adjust taxes to discourage the latter, because empty houses are precursors to housing bubbles, since a house that isn’t lived in, either by the owner or a tenant, is arguably a house that didn’t need to be built, and contributes to the potential glut of properties that hit the market when the next recession inevitably comes around.
Imposing a recurring, punitive cost on empty properties would add to the disincentives for speculative investment, and by indirectly encouraging landlords to lease out their houses, we would almost certainly bring down rental rates – a significant component of the overall cost of living – helping young people, like myself, to accumulate savings to eventually buy houses of their own.
The taxes collected from foreign workers and investors could then be used to fund additional Singaporean-only subsidies or investments to relieve the strain on infrastructure in the areas where immigration has had the most visible impact: Transportation, healthcare and housing, to name a few.
FAR FROM PERFECT
In closing, ours is a model that is far from perfect, but in many ways it is a system that strives to be fair and, thankfully, is one that embraces change rather than resisting it.
Everything that we have achieved to date has been built on this sense of meritocracy – the notion that we welcome all who are ready to work hard, play by the rules and contribute to the betterment of society, regardless of race, language or religion – and it is for this reason that we need to fight our natural instinct to blame foreign elements for the uncomfortable changes that we have had to make to adapt in an ever-changing global economy.
It is thanks to their leadership that we are today one of the most desirable cities to settle down in, and it is thanks to our world-class education system that I have achieved all I have despite my working-class upbringing. So, yes, Singapore is indeed expensive, but you know what, the best things in life often are.
Charles Tan Meah Yang is an Investment Analyst working in London and intends to return in the near future.
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