Tharman: Govt will fund, sustain social policies

5 priorities to be kept in mind so that policies are good for generations ahead

By Rachel Chang, The Straits Times, 24 Aug 2013

DEPUTY Prime Minister Tharman Shanmugaratnam has set out just how the Government plans to pay for and sustain a broader, stronger social safety net, and its reasons for moving in this direction.

"As we intervene boldly, we will ensure that our policies can be funded and sustained well into our children's future," he said.

He was speaking at an Academy of Medicine event just five days after a National Day Rally that Prime Minister Lee Hsien Loong said marked a strategic shift towards greater state support for the vulnerable in areas such as housing and health care.

DPM Tharman, who is also the Finance Minister, said Singapore is at a good starting point as compared to mature economies in the West. They built up large debts in their rapid growth years and when their populations were young, while Singapore did the opposite.

They will now have to take from their budgets each year - at least 2 per cent of gross domestic product (GDP) - to service national debts, while Singapore is able to get 2 per cent of GDP from the income on its national reserves for its social and economic priorities, he said.

To ensure that its policies for a fair society are good not just for two or three electoral terms but for generations ahead, Singapore will have to keep in mind five priorities, Mr Tharman said, elaborating on each in turn.

The first is to keep government subsidies targeted at those who most need them, rather than commit to benefits for all. Universal subsidies are "wasteful and inequitable", and hard to take away once given, he said.

The second is to design redistribution policies in a way that spur self-reliance and individual responsibility. This is to avoid the erosion of the work ethic and personal effort that has led to high youth unemployment rates, even in Europe's successful economies.

"This is not about leaving things to self-reliance, or about leaving families to face uncertainties on their own," Mr Tharman said. Rather, the Government's strategy is to support individuals as they strive to achieve their aspirations, to own a home by working and paying down a loan, and to save for retirement.

"This paradox of active government support for self-reliance has to run through all our social policies. It is how we help people to stand with pride and contribute to society," he said

The third is to make sure tax incentives and grants "aggressively" support and catalyse community and civic efforts, and strengthen "the values that drive us to be our brothers' keepers".

The fourth priority is to maintain and build on a progressive system of taxes and benefits to fund social spending.

Those in the bottom 10 per cent now receive benefits equal to 30 per cent of their lifetime incomes, he noted.

"We will preserve and build on this progressive system of taxes and subsidies in future, even when we eventually, in future terms of Government, find it necessary to raise revenues to support our growing health-care needs," he said.

Finally, Mr Tharman cited the intangibles that make up a fair and just society, saying this was not just about incomes but also people's opportunities to enjoy quality living in public spaces, to keep learning no matter how old they are, to forge fellowship in schools and be part of a workplace culture that treats all employees with respect.

There must also be space for people to pursue causes they believe will lead to a better society.

Ending on a spirited note, Mr Tharman said Singapore faces the challenges of its new phase, such as median income growth and social mobility, "from a position of strength, not despair".

"There is no assurance that we will succeed, but that makes it all the more necessary that we put all we can into succeeding."

'Inequality has risen, but so have incomes'
Rich-poor gap not caused by recent growth strategies: DPM Tharman
By Robin Chan, The Straits Times, 24 Aug 2013

THE gap between the rich and poor here is not a result of the Government's recent growth strategies; it is a problem Singapore has had since the 1980s.

It then worsened in the 1990s even as families saw their standards of living rise, said Deputy Prime Minister Tharman Shanmugaratnam yesterday as he set out "basic facts" of Singapore's inequality story.

Speaking at a ceremony where he was conferred an honorary fellowship by the Academy of Medicine, Mr Tharman said that inequality here stems from the fact that Singapore is a city-state and is made worse by a phenomenal growth in education levels over a single generation.

Noting that the proportion of students with only primary education has dived from 50 per cent to just 2 per cent in 30 years, he said: "What it means is that the older generation of workers, who had low skills and wages for most of their lives and who were part of the developing economy that Singapore was, now find themselves in a developed economy, where incomes of younger people are a world apart from what they grew up with.

"As a result, we have both low and highly educated cohorts of workers in the workforce at the same time."

This is seen starkly in the workforce where a disproportionate number of middle- and high-paying jobs are taken up by younger Singaporeans, while Singaporeans who are 55 and above make up half of those in the bottom 10 per cent of the working population.

Thus, how education has transformed the labour force "has been the real drama of our first half-century", said Mr Tharman, who is also Finance Minister.

But he added that the Government is helping those who were getting left behind. For instance, through schemes like Workfare and the Special Employment Credit, it is giving older low-wage workers about a 40 per cent top-up to their salaries. It is also urging employers to raise salaries for certain jobs at the bottom of the wage ladder.

Even then, he made clear that though this spike in education levels exacerbated high inequality, it did not create the problem.

"It (inequality) has always been high in Singapore - certainly since the 1980s," he said, noting that the country's Gini ratio was already 0.44 in 1980. Inequality then accelerated through the 1990s and the early part of the last decade, with the Gini ratio reaching about 0.48 in 2007 where it has stayed ever since.

The Gini ratio, between one and zero, is a widely used measure of the income inequality gap in a society, with a coefficient of zero representing perfect equality.

That inequality is inherent to Singapore is down to the fact it is a city and an open economy, with a concentration of talent and enterprise. The situation is therefore similar in cities like Hong Kong and Beijing, but with an important difference, he said: "In larger countries, if you do not like living with others in the city or if it gets too expensive, you move out to the suburbs. In Singapore, we are just MRT stops away from each other."

But he stressed that inequality in Singapore has been accompanied by a significant increase in standards of living for most of the population. The bottom 20 per cent of households has seen incomes rise by about 60 per cent in real terms since 1990, while median income households have doubled their living standards.

"Inequality does not mean that economic policies are failing," said Mr Tharman. Still, he noted that anxiety over income disparities is real: "With slower income growth, people feel less secure about their prospects, and it matters more when some people are doing better than others."

And there are now the same tough realities facing developed economies with globalisation and technology raising competition and replacing jobs, while rewarding the very skilled.

Thus, "established approaches... are being questioned and new solutions being sought".

Growing inequality in Nordic countries, too
TODAY, 24 Aug 2013

Nordic countries, generally regarded as the most egalitarian of societies, have in fact seen “some of the sharpest increases” in inequality over the last 30 years, said Deputy Prime Minister Tharman Shanmugaratnam yesterday.

Such is the reality of the global economy, with the revolution in technology and globalisation providing exceptional rewards to individuals with certain niche talents and entrepreneurial skills.

Before taking into account taxes and transfers, the Gini coefficient ratios of Finland and Sweden are, on average, about the same as Singapore’s, said Mr Tharman.

The welfare-state model found in Europe has reached its limits and “is in retreat”, as globalisation has taken away jobs in European countries and its sustainability is strained by growing life expectancies.

A third factor threatening the welfare state is how expansion of social entitlements has reshaped attitudes to work and society.

Sweden’s official overall unemployment rate is 8 per cent, but is estimated to be 20 per cent or higher if those on disability benefits, sickness benefits and who retire early are taken into account.

These are still nations with considerable strengths, but their governments and business leaders are “talking about the need for further, politically painful reforms to secure a good future”, he said.

Ensuring a fair and inclusive society

Deputy Prime Minister Tharman Shanmugaratnam last Friday outlined how the Government intends to fund its new approach to broaden social safety nets. Speaking at an event organised by the Academy of Medicine, this is an excerpt of his speech:

The Straits Times, 26 Aug 2013

OUR objectives are clear. We will do more to help those who start with less, starting from young, and ensure that every citizen has a fair share in Singapore's success.

We will do more to give the elderly a sense of security and provide special recognition to the pioneer generation of Singaporeans who worked with lower wages and built up the nation. And even as we intervene boldly, we will ensure that our policies can be funded and sustained well into our children's generation.

We have a good starting point. While the more mature economies built up large debts during their rapid growth years and when their populations were young, we did the opposite. We built up savings.

They will now have to take significant sums from their budgets each year - at least 2 per cent of GDP - to service these national debts. We are in the opposite position of being able to get 2 per cent of GDP from the income on our reserves to spend each year on our social and economic priorities.

Let's keep clearly in mind a few priorities as we go forward so that we ensure that policies for a fair society are not just for two or three electoral terms, but for generations ahead.

First, we should continue to target subsidies at those who need them the most, instead of committing to benefits for all.

Universal subsidies are not just wasteful, but inequitable. They are also hard to take away once given. Even in the UK today, despite severe fiscal pressures and with the Conservatives in government, they have found it too difficult to cut entitlements that benefit the upper middle class and rich elderly.

Second, we should design spending and subsidies in ways that reinforce individual effort and responsibility for the family, values that keep our society strong.

This is not about leaving things to self-reliance or about leaving families to face uncertainties on their own. It is a strategy of government support for efforts by individuals to learn and strive to achieve their aspirations to own a home by working and paying down a loan, and to save for their retirement needs.

It may be a paradox, but this paradox of active government support for self-reliance has to run through all our social policies. It is how we help people to stand with pride and contribute to society.

Third, the Government must, for the same reason, find every way to catalyse and support community initiative for a fair and just society.

One of the paradoxes of the welfare state has indeed been the way an active state has freed people from the social and moral bonds of family and local community. We must strengthen, not weaken, the values that drive us to be our brothers' keepers. Our tax incentives and grants must continue to support the community and civic sector, and aggressively so.

Fourth, we must maintain a progressive system of taxes and benefits.

It is in fact more progressive than meets the eye. For instance, take our income taxes. Our top marginal rate of 20 per cent is low when compared with many other countries. But in fact, our income tax schedule includes Workfare (WIS) or negative income taxes for lower-wage workers. If you are older and of lower income, you get a 20 to 30 per cent credit from the Government through Workfare.

So our income tax schedule is actually 50 percentage points wide - from 20 per cent for the top income bracket all the way down to minus 30 per cent.

This progressivity in our system is even more so when we add in housing grants, which are the second pillar of our social strategies. The housing grants provide significant mortgage savings for lower-income couples.

Taking Workfare together with these housing grants, we are effectively providing low-income couples at the 10th percentile of the income ladder with benefits equal to about 30 per cent of their lifetime incomes.

This is, in fact, a conservative estimate as it does not take into account the appreciation in value of their homes, which even with modest assumptions implies significantly greater lifetime benefits. It also does not account for other subsidies that they receive, which substantially outweigh the taxes they pay through the GST.

We will preserve and build on this progressive system of taxes and subsidies in future, even when eventually, in future terms of Government, we find it necessary to raise revenues to support our growing health-care needs.

Finally, we cannot think about a fair and inclusive society purely in wage or income terms, or in terms of redistribution.

- It is also about people having access to a quality living in public spaces: for sports and arts, or just to relax in. We take public spaces seriously in Government, including providing green and blue spaces near our HDB estates.

- Or about opportunities to keep learning no matter how old you are, even if you are not learning for the purpose of work, but because there is something inherently satisfying about learning.

- It must involve developing a spirit of fellowship as our young grow up in schools.

- It has to include a workplace culture that treats all employees with respect, including our blue-collar workers.

- And it must include Singaporeans pursuing causes which they feel lead to a better society and doing something to help their fellow citizens see a better life.

So let me conclude. We are in transition as a society. We are no longer a developing nation, but we are not yet truly an advanced nation because our level of productivity, our skills and the wages of our ordinary workers are not there yet.

We face many challenges. Can we keep median incomes growing at a healthy pace and avoid what has happened elsewhere, not just in the developed economies but also in the Asian newly industrialised economies? Can we keep social mobility going, even as many among past generations of poor Singaporeans have already succeeded in moving up? There is no assurance that we will succeed, but that makes it all the more necessary that we put all we can into succeeding.

We are starting from a position of strength, not despair. We have one of the best education systems in the world and we have the most successful public housing programme in the world. We have, by international reckonings, one of the better health-care systems in the world. We also have the lowest rate of unemployment among developed societies, including Hong Kong, Taiwan, Korea.

But whether we do better at the end of the day will not just be a result of whether we've got the right policies and incentives and taxes and subsidies, but whether we retain a culture of responsibility in our society and the spirit of fellowship that I spoke about. We all play a part in keeping ours a fair and just society and taking pride in making it so.