Monday, 24 February 2014

Reactions to Budget 2014







Not populist by any stretch
By Siew Kum Hong, Published MyPaper, 24 Feb 2014

THIS year's Budget saw the Government continue, if not accelerate, the trend of increased social spending over the past few years. Apart from the usual measured help to address social inequity and issues like rising health-care costs, the Government also introduced the generous Pioneer Generation Package (PGP).

But almost inevitably, muttering about "vote buying" surfaced soon after the Budget speech ended. I was not surprised, but I will confess to being a little disappointed.

In the first place, this is almost certainly not an election budget. One of the most interesting things about the PGP is how it will be funded, via an $8 billion endowment funded by the Government's current surpluses.

Election budgets in Singapore are usually marked by big-ticket cash giveaways for voters, but such schemes must be funded through current surpluses. The PGP will seriously restrict this Government's ability to fund such giveaways.

And seriously, which government looking to pick up votes would take the unpopular decision to increase sin taxes on alcohol, cigarettes and gambling?

More importantly, there is absolutely nothing wrong with the Government introducing policies that are good for Singaporeans, even if Singaporeans like them and may become more likely to thank the ruling party at the ballot box.

There is a fine, but very crucial, difference between popular and populist policies: The motivation behind the policies.

The former are good policies that happen to be popular; the latter are policies that are made for the primary purpose of winning votes, regardless of whether they are good policies.

And the Budget announcements on Friday fall squarely into the category of good policies. Growing social inequity and the rising cost of living mean that there is a legitimate and increasing need for social spending; indeed, there is a strong argument that the increased social expenditures in recent years are merely to compensate for significant under-investment in the previous decades.

To accuse the Government of populism or vote-buying, when it makes good policy that Singaporeans also happen to like, says more about the speaker than it does about the Government.

Singaporeans can, and should, criticise the Government and hold it to account when it makes mistakes or bad policies. But not everything that the Government does is bad, erroneous or misguided. And we need to recognise that and act accordingly, if political discourse in this country is to progress and mature.

Such knee-jerk cynicism could also inadvertently make it harder for the ruling party to pursue good and popular policies in the future, if the party has to cater to its conservative base, which is known to have an ideological aversion to populism and an almost macho desire for making "hard choices", as opposed to simply the "right choices".

We must recognise that we all benefit when the government of the day, whoever it may be, makes good policies. Isn't it all the better when those are also policies that we like?

The writer is vice-president of civil rights group Maruah, a corporate counsel, and former Nominated MP. He wonders if there will be a Generation X Package when he becomes a senior citizen.






A 'levelling up' Budget, one worth remembering
It is notable for the social initiatives it contained as well as the features it left out
By Vikram Khanna, The Business Times, 22 Feb 2014

Few Budgets are long remembered. Budget 2014 deserves to be one of them. It will be remembered most of all for its pathbreaking social initiatives, particularly its pioneer generation package which, at a stroke, provides a raft of health-care subsidies to some 450,000 Singaporeans for the rest of their lives, with no ifs and buts, and no uncertainties - the $8 billion needed to fund this initiative is already in the bag.

Budget 2014 also deserves to be remembered for its "levelling up" approach to dealing with the problem of inequality - or as Finance Minister Tharman Shanmugaratnam put it: "Building a fair and equitable society."

In this context, one of the Budget's notable features is what it did not contain. There was no increase in income taxes (though no tax rebates either), no lowering of the threshold for the top rate as some had expected and no new wealth taxes, not even on property.

Rather than penalising upper-income earners, or relying on trickle-down economics, Mr Tharman chose to "pull up" those at the lower end of the scale, through expanded subsidies for education, wages, housing and health care. A remarkable statistic cited in the Budget was that the social initiatives of the last five years, plus those in Budget 2014, provide support to lower and middle-income Singaporeans that is about 21/2 times what it was a decade ago.

This Budget reaffirms and reinforces the sea change in the Government's approach to governance, with social policies being accorded at least as much (if not more) importance than economic incentives, which used to be the mainstay of Budgets in the not-so-distant past.

One of the keys to any "levelling up" approach to tackling inequality lies in education, which is the ultimate ticket to social mobility. Mr Tharman, a former minister for education, has over the years been generous with funding for this critical sector.

In Budget 2014, he has raised the ante, with more fee assistance for kindergarten education for both lower and middle-income households and more generous bursaries for tertiary education, which now cover students from about two-thirds of Singaporean households.

The education sector is now so riven with subsidies, with varying qualification criteria, that it might be worth considering simplifying things by making education free, or almost free, for all Singaporeans across the board, all the way to the tertiary level. Social mobility considerations aside, this may also be the best way in the long run to reduce dependence on foreign talent.

Businesses will be relieved that there was no further tightening of policies on foreign workers, except in construction. This makes sense, first because this sector contains one of the highest concentrations of foreign workers, and second because Budget 2014 incentivises - and in some areas, mandates - construction companies to adopt more productive, less labour-intensive technologies such as pre-fabrication and pre-casting, which have long been the norm in other advanced economies and should have been here long ago.

Small and medium-sized enterprises in particular have welcomed the extension of the Productivity and Innovation Credit (PIC) scheme for another three years and the new PIC-plus scheme, which will raise expenditure caps for qualifying activities by 50 per cent. Also helpful is the extension of the 50 per cent additional tax deduction on qualifying research and development expenditure for another 10 years, which provides more durable and predictable support for this long-haul activity.

The incentives for the adoption of information communications and technology products and services will be equally welcomed by both users and vendors. The Budget also fills some of the other gaps faced by SMEs in the areas of start-up funding and support for internationalisation.

Wide ranging as it was, is there something Budget 2014 missed that should have been there? A case can be made, especially in the light of the generous support for health-care users, that relatively little was provided for health-care suppliers, or potential suppliers.

While the Government has been proactive in wooing and supporting industries in the technology space in the form of tax breaks, funding and other subsidies, it has not done anywhere near as much for the health-care industry (including elder care), in which the private sector can also play a role. Hopefully, such support will be forthcoming.

Finally, on property: the big story here was, again, what was not in the Budget - no rollback of any of the property cooling measures was announced, which will disappoint some players in the industry.

There are plausible arguments for keeping the measures in place - the overheated market is still a recent phenomenon, and interest rates are still low. However, asset values have started to fall in some areas, and monetary policy is likely to tighten, moving forward. Mr Tharman said that the Government "will continue to monitor the property market and adjust (its) measures when necessary". Hopefully, it will act pre-emptively to prevent overcooling - just as it did to prevent overheating.











The makings of a social investment state
By Eugene KB Tan, Published TODAY, 22 Feb 2014

The Budget is not just a fiscal instrument policy. It is very much an economic, political and social instrument as well. It is a unique opportunity to define and reaffirm the society that we aspire to have.

The Budget unveiled yesterday seeks to be a popular one. At a time when many other countries have continual difficulties finding adequate fiscal resources and balancing budgets, this Budget provides Singapore with the wherewithal to attend to our growing social needs. It sets the tone for the FY2015-16 Budget, when the nation celebrates its golden jubilee.

The key economic themes persist: Productivity, restructuring, reducing reliance on cheap foreign manpower, infrastructure investments and long-term planning. But social themes dominate this Budget: Taken as a whole, it exudes inclusiveness, equity (not equality) through redistribution, appreciation and gratitude (the Pioneer Generation Package, or PGP), welfare (but not welfarism) and opportunity.

LEFTWARD SHIFT CONTINUES?

In some respects, the Budget continues the People’s Action Party Government’s apparent leftward shift. The Budget’s centrepiece is the PGP, reflecting both the nation’s ability and the political imperative to care for the pioneers who laid the foundations for Singapore’s success. This has important and salutary effects, because it provides the tentative assurance that recognition, appreciation and care must be the hallmarks of this society.

The continuation and expansion of schemes to help lower- and, increasingly, middle-income households all indicate the abiding concern with the income gap, social mobility and cohesion. The Government is not known for its “generous” Budgets, and the larger social spending each year is bound to make those who value fiscal prudence and tight-fistedness worry.

However, I see it more as playing catch-up to make up for past under-investments in the social sector, especially in healthcare, where the budget is increasing by almost 25 per cent.

Lest the intent is misunderstood, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam emphasised the centrality of personal and collective responsibility as a means to ensure that the Budget’s social accent does not unintentionally enervate our work ethic or set us down the road to welfare dependence.

BETTER-OFF MUST UPLIFT LESS WELL-OFF

It’s a thin line between a popular and populist Budget. While it is absolutely crucial to reduce class divides, this Budget’s greater social spending is measured and seeks to avoid setting ourselves up for a class war where the societal reflex is about “tearing down the wealthy”. The poor are not poor because the rich are rich. But the Budget could do with more direct benefits to the average Singaporean; the well-off Singaporeans benefit more directly from already low personal income taxes, for instance.

The Budget must nudge more giving by Singaporeans and corporate entities. It would be excellent if this and future Budgets could inspire Singaporeans to think about what else can be done to uplift the less well-off.

Money is necessary — but time, expertise, commitment and effort by better-off Singaporeans would make those social dollars engender meaningful, rather than stop-gap, measures and outcomes. I welcome the Budget’s effort to develop social sector professionals.

SEEDING SOCIAL CAPITAL

I also welcome the 1 per cent increase of the CPF employer contribution, which will be chanelled to the Medisave account. This is timely and I hope employers see this as the right thing to do and recognise their social responsibility to contribute to the healthcare needs of their Singaporean employees.

In short, the Budget can play a vital role in developing social capital. Strong social capital can help make our social expenditures more impactful and sustainable, while strengthening societal bonds. We will then have the benefit of a more gracious, caring, and cohesive society.

I believe we have the makings of a social investment state — one where public expenditure is not viewed as an expense, but is used to provide stabilisation and social insurance against externally generated risks, as well as to sustain the physical, human and social capital necessary for growth.

What’s unique about Singapore’s social investment state is that, unlike the Nordic models, high public expenditure is not accompanied by high taxes — well, not yet anyway. As needs grow and rapidly evolve, each Budget will have to provide a platform for positive change amid continuity, and new sources of income will have to be found.

Eugene K B Tan is Associate Professor of law at the Singapore Management University School of Law, and a Nominated Member of Parliament.






PGP: A Precedent-Generating Package?
Also a phenomenally generous one, it could spark demands of 'more, more'
By Chua Mui Hoong, The Straits Times, 22 Feb 2014

IN ONE fell swoop, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam yesterday slayed two urban legends about Singapore.

One: that you can die, but you can't afford to get sick. Two: that the Government is in competition with business and does not support small and medium-sized enterprises.

Budget 2014 was officially titled "Opportunities for the Future, Assurance for our Seniors".

For a Budget widely expected to focus on households and social measures, there turned out to be significant measures to help companies boost productivity and nudge them up the value chain.

Instead of competing in the market, the Government made use of its power as regulator and enabler to subsidise companies' use of technology, their purchase of equipment, and even their fibre broadband access.

The Government also made use of its market dominance as a land-owner: Companies that tender for, or build on government land sales sites, have to meet efficiency standards for construction.

But it was people, not businesses, that were at the heart of most measures of assurance in this Budget. As Mr Tharman put it: "We cannot leave people to face life's uncertainties on their own. That is not our approach. But as we strengthen our social support and safety nets, our whole approach must encourage a compact between personal and collective responsibility, where each reinforces the other."

The crown jewel of Budget 2014 was the much-anticipated Pioneer Generation Package (PGP) of health-care subsidies to the 450,000 "pioneers", or those aged 65 and above this year.

Subsidies at specialist outpatient clinics (SOCs) will go up for most patients. For the pioneer generation, an extra tier will increase the subsidy to as high as 85 per cent.

The Government will also subsidise and pay premiums for this group under MediShield Life, the new universal health coverage scheme that begins in 2015.

Three things stand out about the package.

First, by offering the PGP benefits for life, the Government is building on the promise made when it said MediShield Life will cover everyone, for life, and include pre-existing illness.

Taken together, the change makes a world of difference for the elderly.

Today, many 80-year-olds do not even have basic MediShield insurance coverage: they never signed up, or dropped out when premiums rose with age. But come next year, the same person will be covered under MediShield Life, and with the extra premium subsidies under the PGP, will have premiums fully paid for.

Within a year, they go from zero health coverage - and full exposure to the risk of illness - to full health coverage, with 100 per cent premium subsidy.

This Government has responded decisively in an amazingly short time to tackle anxiety about health-care costs. The adage that you can die but cannot afford to fall sick will continue to be uttered at opposition rallies - but it will not have the same sting in General Election 2016.

You could call the PGP the Phenomenally Generous Package.

Two: The PGP is not means- tested, which means everyone in the same cohort qualifies for the same benefit, regardless of income. And unlike cash handouts of yore, there is no need to put in even a token co-payment.

Will Singaporeans come to expect more subsidies that are given to all, regardless of income, for life, with zero co-payment? Will the PGP turn into the Precedent- Generating Package, sparking clamorous demands of more, more, more? Human nature being what it is, I would bet on it.

Of course the Government can say that the PGP is for a special generation that built the country. But every cohort, generation, or demographic in need, can claim to be special. The Government can also say that the PGP sits on top of health-care subsidies, like those for SOCs, that are already means- tested.

But the fact is that the PGP benefits are the same, whether a 70-year-old lives in a Sentosa Cove bungalow or across the gateway in a one-room rental flat at Telok Blangah. The absence of means-testing, and the absence of a phased-in tier of subsidies, makes the PGP, while well-intended, regressive.

Meanwhile, a cleaner born in January 1950 (64 years old this year), will have to fork out $34 to see a SOC specialist, when his towkay boss born a month earlier, in December 1949 (and 65 this year), pays $17.

The PGP suffers from the "cliff effect" - when a small difference in age means a huge difference in subsidy - which could result in someone shunning treatment. Since health and lives are at stake, I wish the Ministry of Finance had thought a lot harder about how to soften the cliff effect.

Three: The PGP is fully funded today, even while its commitments are expected to last for a good 20 years or more. From this year's Budget, $8 billion will be set aside. With interest, this is expected to generate enough to cover the $9 billion cost over the pioneers' lifetime. The Government could have drawn on reserves for this group, which among all age groups has the strongest moral claim on the reserves as the generation that built Singapore. But it didn't.

Is the PGP a vote-getting measure? I think it will win some votes among the elderly. But if getting votes were the main intention, the Government could have made it harder for future governments to get access to the funds, such as by requiring the use of reserves which would need the Elected President's consent.

Right now, the money has been put aside, and no matter who is in power, the package gets paid out.

In other words, today's government took the financial hit to its bottom line; but tomorrow's government can still take the credit, as the benefits get paid out.

That's not very savvy politics. But it is good fiscal discipline - and the moral thing to do, not subjecting the pioneer generation's peace of mind to political vicissitudes.







Goodies sweet but leave some gaps unplugged
By Salma Khalik, The Straits Times, 22 Feb 2014

THE slew of help the Government is giving to counter rising health-care costs is staggering, especially with the added benefits the 450,000 older people will get under the Pioneer Generation Package.

Everyone will have insurance from next year - at no added cost for at least a few years.For the lower- and middle-income group, the premium subsidy will be permanent.

This alone will take a huge load off the minds of older people especially, who foresee their premiums soaring as they age and their Medisave money dwindling.

But among the goodies, a most pleasant piece of news is: The cost of seeing a specialist will be almost halved for lower-income patients; instead of paying 50 per cent of the bill, it will be 30 per cent. For the Pioneer Generation, the bill will be further reduced to only 15 per cent. Hence, a poor senior will pay less than one-third of what he is paying now to see a specialist.

While such generosity is laudable, the downside is that it may encourage the wrong behaviour. With the cost of seeing a specialist so cheap - a $200 bill reduced to just $30 - will seniors, most of whom suffer from some chronic ailment, insist on being treated by a specialist all the time, instead of a general practitioner or polyclinic doctor who is well able to care for them?

Such an attitude would be worrisome. Not because of the cost but what it would do to the already acute shortage of specialists for treating the seriously sick. Other measures need to be put in place to prevent such an outcome.

One that was announced yesterday is the additional 50 per cent discount at polyclinics for seniors. This means they need pay only a fraction over $3 for consultation, and 35 cents for a week's supply of each subsidised drug. This may keep poor patients from dashing to a specialist outpatient clinic.

But what about the better off among the 450,000 pioneers? Would they prefer seeing a GP or a specialist? After all, as subsidised patients, they need to pay only 25 per cent of the bill.

Would giving all of them the Community Health Assist Scheme card do the trick? Perhaps, if they would also get the higher subsidies that go with the blue card aimed at the very poor.

Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam spoke of the need to "reduce the over-concentration of patient load in our acute hospitals". But the bulk of goodies is for hospital treatment, both as in- and outpatients.

Many seniors have difficulty going for treatment. For them, home care makes more sense, and good home care could keep them out of hospital. Greater government aid in this area would be welcome.











Higher productivity everyone's business
It is not a challenge for firms alone - all S'poreans will have to change tack
By Fiona Chan, The Straits Times, 22 Feb 2014

THE stakes have been raised in Singapore's crusade to restructure its economy with the Government making it clear yesterday that everyone - not just companies - must chip in for the transformation to succeed.

The Republic is entering the fifth year of its campaign to raise productivity with precious little to show for it so far. Productivity growth was zero last year and shrank 2 per cent the year before that.

In response, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam yesterday adopted three approaches to urge greater productivity in Singapore.

First, he underlined the fact that companies too slow to raise productivity will lose out.

For the first time in five Budgets, Mr Tharman introduced no across-the-board measures to reduce foreign worker inflows.

Instead, he turned up the heat on productivity laggards. Firms in the construction sector, which have trailed the rest of the country in productivity gains, will have to fork out even higher levies for low-skilled foreign workers from 2016.

They could also eventually be required to employ a minimum proportion of high-skilled foreign workers among their staff, Mr Tharman said. As a concession, construction firms will be allowed to hold on to their foreign workers for a longer time, a request they have often made.

In contrast, companies already with stakes in the productivity game were rewarded.

Those maxing out their productivity expenditures were given higher spending caps, for which they can claim tax deductions or cash payouts under the popular Productivity and Innovation Credit (PIC) scheme.

Companies adopting infocomm technology will also enjoy the fruits of a $500 million initiative, which encourages firms to step up their use of all kinds of technology from high-level data analytics and robots to the rather more pedestrian broadband subscription.

With these "sharper incentives", the overall message to bosses was clear: the Government will lend a helping hand to firms, but only those that are serious about upping their productivity game.

"We will aggressively support every form of upgrading by firms," Mr Tharman assured companies. "Any company that invests in order to save manpower or achieve innovative breakthroughs gets government support, as long as it has its own money in the game."

To underscore the point, he revealed that Singapore's productivity schemes are giving back to companies more in support than the additional foreign worker levies collected.

In other words, companies not taking advantage of these schemes will simply be subsidising those who do.

It will also be harder for them to survive as business costs continue to rise. Unlike in last year's Budget, Mr Tharman gave no blanket help for firms struggling with higher expenses, despite loud pleas in recent weeks.

In fact, he unexpectedly announced that companies would have to cough up more in Central Provident Fund (CPF) contributions for all workers - particularly older employees - to help them cope with health care and retirement needs.

The second approach Mr Tharman took to productivity yesterday was to emphasise that Singapore's restructuring drive is "a major, multi-year undertaking".

As such, the Government will keep some of its productivity schemes in place for a longer period, in response to calls from companies to do so.

The PIC scheme, which was due to expire next year, will be extended for another three years. Initiatives to encourage research and development and more intensive land use will also be prolonged.

Mr Tharman's third and last major approach was to observe that when it comes to raising the whole country's productivity, all Singaporeans are in it together.

In a departure from previous productivity directives, he threw down the restructuring gauntlet to all Singaporeans, calling on them to do their part to help the economy take the next step towards transformation.

Higher productivity is not a challenge to be tackled by companies alone, Mr Tharman said. For the economy's restructuring to succeed, all Singaporeans will have to change their behaviour, whether as managers, workers or customers.

"Productivity is not ultimately about the dollars and cents of upgrading," he said. "We must all make the effort to change our social norms, in order to raise productivity and pay."

He listed three ways Singaporeans can get on board the restructuring drive.

First, company owners and managers must create a workplace culture where employees' views and contributions are valued. As any employee knows, an engaged and empowered worker is a productive one.

Second, each employee must develop a mastery of his or her job and take pride in it, "seeking not just competence but excellence".

This doesn't mean longer hours at work, but time better spent, Mr Tharman said. "Doing the job well is what counts, not long hours on the job."

Last and perhaps most important is our behaviour as customers: Singaporeans must get used to not having service staff at their beck and call. In most cases, a machine will do just as well - maybe even better.

"Quality service comes in many forms," Mr Tharman noted, adding that Singapore is behind many other cities in the use of self-service technologies such as check-out counters in supermarkets.

He also outlined a vision for restaurants and cafes to be more like those in Europe or the United States: operating with fewer employees, each with more responsibility and better pay, and "where customers treat staff with respect and the staff wear their uniforms with pride".

Restructuring Singapore's economy will only succeed if, "at its heart, it is about these changes in our social practices", Mr Tharman added.

Of all the productivity points mentioned in the Budget, it is this one - neither a carrot nor a stick, but a simple observation - that is perhaps the most important.

After all, it should be remembered that the ultimate aim of the productivity drive is to increase the real salaries and living standards of all Singaporeans.

It's time each one of us stepped up to the plate to play a bigger part in raising productivity.





The productivity ball is now in SMEs’ court
By Lennon Lee, Published TODAY, 22 Feb 2014

One word stuck in my mind after listening to Budget 2014, announced by Finance Minister Tharman Shanmugaratnam: For small and medium enterprises (SMEs) and local businesses, it was a refrain of productivity, productivity and more productivity.

On the wish lists of many SMEs had been the extension of and improvements to the Productivity and Innovation Credit (PIC) scheme as well as to certain funding initiatives, not to mention increased support for internationalisation.

To a degree, these wishes have all been addressed. In addition to the three-year extension of the PIC scheme, new schemes and enhancements were introduced, targeted at SMEs. They include PIC+, an Infocomm Technologies for Productivity and Growth (IPG) Programme, the second phase of the Co-Investment Programme (CIP) and the Government taking a bigger share of the risk for micro-loans.

To qualify for PIC+, an SME would have to have an annual turnover of less than S$100 million or a workforce of no more than 200 on a group basis. So, not only businesses with local shareholdings would benefit from the PIC+, but also a company incorporated in Singapore with 100 per cent foreign ownership.

LAST WINDOW OF OPPORTUNITY

Given that the Government has maintained its stance on restricting foreign labour growth, SMEs worst hit by the foreign worker levy and quota — especially those in the service sectors such as F&B and construction — and who have not embarked on productivity gains, will now have to seriously consider the use of technology and innovation, as the PIC+ and IPG expire in three years.

This may be the last window of opportunity that the Government will offer these SMEs.

Now that the SMEs’ calls have been heard to some extent, what remains is their readiness to tap these targeted schemes and programmes. There is still a third of SMEs with turnover of at least S$1 million that have not taken advantage of the PIC scheme since its introduction in Budget 2010. I would expect the PIC+ to have a similar take-up rate, unless more is done to identify and engage these SMEs.

The Budget did not provide any help to deal with the rising costs of doing business in Singapore — something that affects SMEs significantly. The reality is that as wages and rentals continue to pick up (not forgetting an increase in the CPF contribution rate by 1 per cent and a hike in the foreign work levy), profit margins are expected to be further eroded. There will be cash-strapped SMEs with little left to invest in productivity and take advantage of the schemes.

It is also interesting that one of the conditions for enabling high-speed connectivity for businesses under the IPG Programme requires the SME not to have already subscribed for the fibre subscription plan; otherwise, it would not be able to enjoy the 50 per cent subsidy on the plan and acquisition costs of the Wireless@SG equipment.

An SME could have subscribed to the fibre subscription plan for other uses such as email and intranet usage that is not connected to Infocomm Technologies-based (ICT-based) productivity solutions. I would think that it would be easier for the fibre subscription to be automatically subsidised as long as the SME adopts a qualifying ICT-based productivity-based solution.

In short, chasing productivity is the central theme for this year’s Budget for businesses, and special attention has been given to SMEs to encourage them to grow and compete internationally.

It’s up to SMEs to rise to the occasion with aplomb and dynamism.

Lennon Lee is a partner with the Corporate Tax Advisory Group of PwC Singapore.







Committing to productivity for the long haul
By Randolph Tan, Published TODAY, 25 Feb 2014

Budget 2014 could, in time to come, be seen as cementing a trenchant reform for Singapore’s economic policy that places productivity ahead of growth. By fine-tuning and extending many of the policies first promulgated in the aftermath of the 2009 downturn, the message demonstrates an unwavering commitment to the next phase of national progress.

In line with its declaration of a focus on depth, the Budget’s productivity message has coalesced around three key challenges: Technological upgrading, the resource constraints faced by small and medium enterprises (SMEs) and the skills of the workforce.

In terms of technological upgrading, the focus is squarely on infocomm technology (ICT). While ICT has pervaded our society, the exploitation of ICT to serve as a viable technological complement to employees has a long way to go. Since we are starting from a low base, the potential for productivity gains is significant.

For example, in the case of security companies, using remote cameras instead of personnel on the ground is a solution that has been available since the advent of high-resolution digital cameras and enhanced Internet bandwidth.

However, this technology has not been fully absorbed by the industry for many reasons — including, possibly, the degree of comfort with industrial applications of Internet technology. Industrial applications are different from casual usage in important ways, relating to issues such as reliability, bandwidth costs, online security and customers’ privacy.

LOOK INTO SUPPORT NETWORK TOO

Some of the Budget’s initiatives are clearly aimed at encouraging long-term innovation. Hence they may not yield productivity improvements in the short run. Even basic productivity-enhancing practices take time to show results.

There are still some quite basic challenges in introducing ICT that, if addressed, could yield large gains. Consider the use of iPads to take and convey orders in a restaurant.

In order for this to be a truly effective innovation, not only must the service workers and food preparation professionals be comfortable with such a system, there must also be adequate technological support. In other words, there must be a network of technology vendors to which the restaurants can turn to — if not, early adopters may be frustrated rather than aided by such a foray into innovation.

Some consideration should thus be given to analysing the extent to which such concerns prevent firms from undertaking more sophisticated productivity-enhancing initiatives.

THE GRAVITY OF REALITY

The Government has made strong efforts over the years to boost productivity. These efforts, originally spearheaded by agencies such as the National Productivity Board and the Productivity and Standards Board, exhorted our workers to work smarter and faster.

In contrast to the colourful mascot and catchy acronyms marking those initiatives (including WITS or work improvement teams), this Budget’s tone is more sombre. I believe that is a good thing, because it injects a sense of gravity about the challenges we face.

The longer we put off the real changes that need to be made in embracing a productivity-centred work culture, the further behind we will be compared with our global competitors. One thing we should be careful to avoid is the over-optimistic expectation of a spectacular improvement in productivity in a short time.

Since most people usually get better at their jobs if they do it long enough, it may be interesting to consider what could inhibit productivity growth, even given the massive undertaking of the past few years. The most serious factor would be a lack of preparedness — the workforce may be unprepared for changes that would occur with greater ICT penetration into their work processes.

The fact that key productivity-related initiatives are to take effect only from next year indicates that the changes are not meant to take anyone by surprise. The lead time of almost two years built into the next round of levy increases for the construction sector, for instance, should give employers enough reaction time to make the necessary adjustments.

THE WORKER AT THE CENTRE

From 2005 to 2008, the pressing needs of growth had a negative impact on productivity. The problem was that, contrary to the short-term imperatives of that period, which resulted in too heavy a dependence on manpower, productivity is very much a long-run challenge.

In contrast, by maintaining a more steady focus, the Budgets of the past few years as a whole will come to be seen as achieving a much-needed consolidation in what had been an inchoate stream of initiatives targeting productivity over the past few decades.

Still, based on experience to date, it is almost certainly clear that this Budget alone will not be enough. Productivity is more of a guiding philosophy than a pursuit: We should want it because it represents the correct way to do things.

Indeed it is possible — as has been noted by some economists — that fewer workers will be needed once productivity is achieved.

This is the other prong that a long-term policy on productivity must contain; this is why the focus on elevating workforce skills is required. That this Budget has sunk another S$500 million into the Lifelong Learning Endowment Fund, in anticipation of expanded needs from a review of the Continuing Education and Training system, is reassuring.

In short, while technology is an enabler, the central figure continues to be the worker.

BETTER TO HAVE DELAYED CPF CHANGES?

Given the urgent priority that the restructuring of the labour market plays in the scheme of things, I believe it would have been better to have delayed the Central Provident Fund (CPF) changes.

For older workers, for instance, with the change, employers will ultimately have to contend with a 2-percentage point hike for those aged 50 to 55, which is more than half the 3.5-point difference between that age group and the main one before the change.

It is unclear how the ongoing effort to increase older workers’ labour force participation rates will be affected by this.

More generally, while the 1-percentage-point increase in Medisave contributions is important as a long-term objective, I feel the timing could be better. I would think it should not be more urgent than the economic structuring still going on in the labour market.

Something similar to the two-year lead time for new levy increases in the construction sector could have been considered as it could make a difference in terms of substituting local for foreign workers.

The employment credits present a clear signal of the Government’s concern about hiring costs. But getting the taxpayer to fund hiring costs is quite extreme and may not be a good idea if it occurs with regularity. Short of an emergency measure in a recession, such employment credits may actually lead to labour market distortions.

So, the 0.5 percentage points funding through the two employment credit schemes to ameliorate the impact of the CPF increase is another indication, in my opinion, that it would have been better to delay the CPF increase by a longer time.

Delaying the CPF increase to a later time would have concentrated our focus on the labour market changes that are meant to contribute to the productivity-enhancement targets.

Associate Professor Randolph Tan is with the Centre for Applied Research at SIM University.





Budget 2014 is about doing the right thing
By Eugene KB Tan, Published TODAY, 24 Feb 2014

There are some who describe Budget 2014 as a relative non-event, one devoid of any major “wow” factor — probably due to the pre-Budget announcement of the Pioneer Generation Package (PGP) to much fanfare a fortnight ago. However, I regard this Budget as an important statement of the right things to do.

The PGP is one of them, even if it may be belated. What it means politically matters as much as the material benefits and assurance given to the pioneer generation. It represents the present and future generations’ commitment to care for the pioneers who laid the foundation stone for Singapore’s success.

The Government has wisely ring-fenced the hefty S$8 billion cost by budgeting for it in its entirety in Budget 2014. This means that the PGP will not appear as a line item in future Budgets, and future governments and generations will not have to bear the responsibility of financing it. Whatever changes come in the next two to three decades, there is money in the kitty to ensure the endeavour to care for our pioneers is not merely a politically expedient one.

The People’s Action Party (PAP) Government should reap political dividends from the PGP, as those aged 65 years and above constitute a valuable vote bank. This is the “3-to-1” generation — Singaporeans who lived the “Third World to First World” Singapore Story and can most easily identify with the PAP government, but who in recent years have become concerned with the rising costs of living and the sense that the country’s success may have passed them by.

No political party wants older voters to caution their children and grandchildren to not vote for it; conversely, renewed trust in the party and a good word by the pioneer generation could pay political dividends. I would not begrudge such political pay-offs because, quite simply, creating the PGP was the right thing to do.

STATE’S LARGER ROLE IN CARING

At the same time, Singaporeans with pioneer generation parents will feel more assured now that the State has taken on this significant commitment in healthcare costs. It should assuage one long-standing concern among Singaporeans, not only about the costs but also how this society regards ageing.

While future generations may not have the PGP, it is precedent-setting nonetheless. Beyond individual and familial responsibility, the package recognises that the State has a vital role to play in caring for the elderly too, given the changing demographic and healthcare landscape.

Budget 2014 also has its eye clearly on the future. The funding initiatives for pre-school to tertiary-level education underline the critical role of education as a vehicle of social mobility.

The various financial assistance schemes should be made administratively convenient in order to ensure that as many families as possible can avail themselves of them. Socio-economic immobility should not be hereditary — we must do all we can to reduce the inequality of access to educational opportunities.

CPF: BITING THE BULLET NOW

The unexpected surprise of the one-percentage-point hike in employers’ contribution to the Central Provident Fund (CPF) — an increase that will be channelled to Medisave accounts — is another right thing to do.

The Finance Minister also indicated that the Government does not expect to make further changes to the total CPF contribution rates beyond this in the short to medium term. Earlier last week, Acting Manpower Minister Tan Chuan-Jin, in response to a parliamentary question I filed, said that the considerations against raising employer contributions were and are to keep our wage costs competitive so as to not price ourselves out of the competition.

I am pleased that the Government has opted to bite the bullet now. There is never a good time to equalise the employer and employee CPF contribution rates, but the longer we delay, the harder it is to ensure Singaporeans’ adequacy for retirement. I appreciate the imperative of remaining competitive, but that must be balanced against another abiding imperative, that of ensuring the CPF institution is not compromised.

I hope also that employers see this as the right thing to do — that they have a responsibility to keep the social compact relevant by contributing to their Singaporean employees’ healthcare needs.

It will increase the costs of doing business, but that should be weighed against the already significant savings in doing business in Singapore — gleaned from the low corporate taxes, the excellent infrastructure, non-confrontational tripartite relations and a strong anti-corruption business environment.

CAUTIOUS — THE WAY BUDGETS SHOULD BE?

Budget 2014 should be emulated for the understated manner in which it reaffirms the society we should strive towards. Unlike past Budgets, it might be seen as a cautious fiscal statement. But perhaps that is what future Budgets ought to be.

This latest Budget is endowed with the same spirit for quality growth and inclusive growth as its predecessors, but with a distinct difference: A greater appreciation that public social spending is not merely a cost centre; it is also an integral part and key driver of the productive economy.

We can do even more to develop our own conception of the social investment state.

To be sure, our Budgets have typically not spurred the man on the street to consider how rising public expenditures can, or ought to, be funded. Even the S$8 billion price tag of the PGP came across as not being a significant challenge financially. But in future Budgets, this question of financing is likely to come to the fore more prominently.

Redistribution through taxes, especially direct ones, is one option. But we must be careful to ensure that there is no class envy or class war. It is convenient and populist to tear down those who pay income taxes, numbering about one-third of the workforce.

In an open economy like ours, a social investment state can provide a shield: A crucial stabilising support and necessary safety nets for its people against external risks and internal constraints. What must be more prominent is the social investment state’s sword — honing the physical, human and social capital necessary for economic growth, social cohesion and opportunities for all. Public expenditures, if properly targeted, can nudge behavioural change at the individual level, to build a gracious society founded on inter-generational equity and prudence.

Budget 2014 takes that important step in the evolution of our social investment state.

Eugene KB Tan is Associate Professor of law at the Singapore Management University School of Law and a Nominated Member of Parliament







The test of the Budget’s healthcare cake is in its eating
By Phua Kai Hong, Published TODAY, 26 Feb 2014

A key element in the recently-announced Budget is the beefing up of Medisave accounts of Singaporeans for the implementation of the universal MediShield Life programme next year.

The aim is to make medical insurance premiums affordable for the average elderly person, who is actuarially risk-rated to pay more than S$1,000 annually. There is currently a large group of more than 100,000 senior citizens who should be included as a priority as they do not have the basic Central Provident Fund and Medisave accounts. There is also a growing group of retirees who do not have enough savings to pay for medical expenses or insurance premiums.

HOW SUSTAINABLE IS THE PIONEER GENERATION PACKAGE?

A key question that arises is whether the generous package for the pioneer generation will set a dangerous precedent for Singaporeans to expect continuing hand-outs, which could negate all the effects of past policies that emphasised prudent savings and investments. There are concerns that a superfluous package may not be politically sustainable if future generations go on the slippery slope of relying on state welfare.

A huge S$8 billion fund has been earmarked to launch and maintain the entire package for this special generation for the rest of their lives.

But strong financial prudence is necessary so that it develops as a fully-funded scheme, rather than a pay-as-you-go one, which may not be sustainable in the long term.

This fund is also “ring-fenced” to protect it from other budgetary competition. While half of the amount will be spent over the first 10 years, this is estimated to average only S$500 million each year, or 10 per cent of Singapore’s annual health expenditure.

As this is a once-off budget for a dwindling population over the next 20 to 30 years, it should certainly be sustainable, provided that the social protection fund is itself protected from the pressures of greater consumption.

It is expected that future generations of younger Singaporeans will continue to grow the nest-eggs of savings and endowments built up by the pioneers. Thus, in the social compact between generations, the principle of “shared responsibility” should prevail for inter-generational equity.

More comprehensive and targeted programmes must be implemented to identify the truly needy and to provide social protection beyond just the age criterion.

Means-testing may help, although it imposes administrative and other costs, but it is necessary to design public subsidy programmes with built-in incentives or disincentives so as to prevent wasteful spending.

TOWARDS UNIVERSAL HEALTH COVERAGE, BUT WHAT ELSE?

It appears that the Budget is well-formulated to contribute towards universal health coverage for the entire population. There are subsidies and incentives to use outpatient services, plus Medisave top-ups to pay for hospital expenses and premiums for compulsory health insurance.

For the pioneer generation, the Pioneer Generation Package recognises their right to universal coverage for basic health services. It is expected that MediShield Life will be a valued social insurance programme, providing peace of mind by underwriting lifelong coverage for catastrophic illness.

However, like any kind of financing, the money to be made available can only buy more healthcare, but not necessarily better health.

It is intended that the current 3M healthcare financing system, based on a combination of Medisave (compulsory savings), MediShield (catastrophic illness insurance) and Medifund (subsidy for the indigent), will be strengthened further by the measures.

But we should also not neglect the rest of the healthcare system, where the other health needs of the population should be addressed.

What other innovative funding or incentives should be provided to further develop health promotion, disease prevention and cost-effective, community-based and long-term social care as substitutes and alternatives, rather than more institutional medical care for the population?

HOW TO SHARE THE GROWING HEALTHCARE CAKE?

Another concern is whether the doubling of the health budget will lead to a race to offer the best and the latest medical care for our elderly population, even when it is not needed.

Will the generous package be used effectively to promote better health for senior citizens and not only more expensive medical care? Will more money for medical insurance generate even greater demand that could be induced by the supply side? All these issues will obviously depend on how the allocated budget will eventually be spent. Right now, it is very encouraging to be given an enlarged budgetary pie that balances economic growth with social spending.

The test of the cake will not only be in its eating. There will always be requests for more ingredients such as icing on the cake — and why not, if they are affordable and healthy? We must ensure that we will continue to grow and share the healthcare cake together in a fair and responsible manner, enjoying not only the short-term benefits but also watching out for the effects of inequitable or unnecessary consumption on our collective health.

Dr Phua Kai Hong is a health economist who teaches health and social policy at the Lee Kuan Yew School of Public Policy, National University of Singapore. He has consulted for numerous governments and international organisations, including the World Bank and the World Health Organisation.






Budget's generous payout reassuring to all S'poreans
By Alvin Foo, The Straits Times, 25 Feb 2014

THE recently announced Pioneer Generation Package offers about 450,000 pioneers some relief with health-care costs for the remainder of their lives.

For the rest of Singapore, it provides a different type of assurance: the comfort of knowing the public coffers are so strong, this blockbuster scheme can be funded from a single year's Budget, without having to either dip into past reserves or raise future taxes.

Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam announced last Friday that the package - the biggest-ever one-off special transfer for a single measure - will be entirely financed by an $8 billion Pioneer Generation Fund set aside in this year's Budget.

This ensures that future generations will not have to worry about paying for the package, and that the fund can continue making payouts regardless of economic circumstances down the road.

That the whole package can be financed in a single Budget attests to the Government's fiscal prudence over the years, and indicates there is likely still space for the authorities to fund large social spending packages in the future as necessary.

Even after accounting for the mammoth Pioneer Generation Fund in this Budget, a modest deficit of just $1.2 billion, or a mere 0.3 per cent of gross domestic product, is expected.

Mr Tharman said last Friday that this is close to a balanced Budget and will not result in a draw on past reserves, as the Government has sufficient surpluses from recent years within the current term of government. In the last two years alone, the Government has booked overall surpluses of nearly $10 billion.

The funding for the package was also achieved without the need for any obvious trade-offs.

Although the Government helped pay for this year's Budget by taking more from investment returns on the past reserves - a record $8.1 billion - there was no mention of raising the cap for net investment returns contributions from the current limit of up to 50 per cent.

Under the current regime, the Government is allowed to take up to half of the net investment returns on the net assets managed by the GIC and the Monetary Authority of Singapore, as well as up to half of the investment income of Temasek Holdings.

As CIMB economist Song Seng Wun puts it: "I don't think they even reached anywhere near changing the cap."

The Government also did not raise taxes for companies, individuals or the well-off, moves which some experts had warned would dampen Singapore's economic competitiveness regionally.

Singapore's strong fiscal position today is a result of three main factors.

One is its robust economic recovery in recent years, which has paved the way for larger tax takings as households and firms earn and spend more. The strong economic expansion has also partly fuelled the need for cooling measures in the property and car markets, via higher taxes and fees.

This has resulted in a trend of bigger-than-expected fiscal surpluses in recent years. The Government originally budgeted for a $1.27 billion surplus in 2012, which turned into an actual surplus of $5.82 billion. Last year, an expected $2.42 billion surplus was revised to $3.92 billion.

In fact, even though a slight overall deficit has been budgeted for this year - which would be the first since 2009 - economists say this may also end up as a surplus, as the local economy is expected to ride on the global recovery and turn in another year of steady growth.

Another factor is Singapore's healthy reserves, the returns from which are a significant source of fiscal funding.

The third factor is that the Government has spent conservatively over the years - in some areas, some say perhaps too conservatively.

For example, Singapore's state spending on health care is below 2 per cent of GDP and is less than half the national health-care expenditure of about 4 per cent of GDP - still relatively low when compared with other developed countries.

But this could change in the coming years. Mr Tharman said in last Friday's Budget speech that Singapore's spending needs will rise "significantly" in the next 10 to 15 years, and that "government health-care spending for the population as a whole will grow".

The good news is that the Government clearly has the firepower to fund higher social spending amid rising health-care costs and an ageing population.

This could come in handy down the road, when there may be a need to help older Singaporeans too young now to qualify for the Pioneer Generation Package.

It will also give the Government fiscal space to keep up with the recent trend of higher spending on social development. Total expenditure on this sector has increased from 6 per cent of GDP in the 2008 fiscal year to 7 per cent of GDP for this year's Budget.

DBS economist Irvin Seah said Singapore's fiscal policy is shifting more towards catering for the elderly as the population is ageing. "If we don't make the necessary adjustments now and plan ahead, the financial burden on future Singaporeans will be heavy."

It is key to remember, however, not to take the nation's fiscal might for granted.

To preserve sustainable economic growth and strong tax revenues, Singapore will need to succeed in its current economic transformation. Otherwise, with lower rises in takings and higher spending, this year's feat of generosity towards our pioneers may not be so easily repeated.





Budget 2014: A macro view
Even with the huge allocation for the Pioneer Generation package, the Government's projected fiscal deficit for 2014 remains modest. It also has a track record of underestimating revenues and overestimating expenses.
By Chan Kok Hoe, Published The Straits Times, 26 Feb 2014

MOST of the attention surrounding Budget 2014 justifiably revolves around Budget initiatives, such as the Pioneer Generation Package, the Productivity and Innovation Credit Plus scheme, and CPF contribution rate increases. But it is also instructive to think about the Budget as a whole, and consider the size of the Budget balance, the level of government spending, and what they mean for public finance in the near future.

Here is a look at three macro- level issues surrounding Budget 2014.

Global economic outlook

LAST Friday, the Finance Minister unveiled Budget 2014, calling for an overall Budget deficit of $1.2 billion in Financial Year (FY) 2014. This is based on the Ministry of Trade and Industry's economic growth forecast of 2 percent to 4 per cent. The deficit is modest, being only about 0.3 per cent of expected 2014 GDP, and is sized to maintain the low resident unemployment (2.8 per cent) and subdued consumer price inflation (2.4 per cent) of 2013.

For an open economy such as Singapore's, the world economic climate matters greatly for growth estimates.

The International Monetary Fund (IMF) has projected that the world economy will grow at 3.75 per cent in 2014, up from 3.0 per cent last year. This improvement will be mainly driven by economic recovery in advanced economies of the United States and the euro zone. That appears to augur well for the Singapore economy.

There are, however, considerable downside risks. In January, many emerging economies were rocked by large and rapid financial outflows. Countries as geographically dispersed as Turkey, South Africa and Argentina have seen the value of their currencies battered, prompting memories of contagion during the Asian financial crisis of 1997-8.

Nearer home, China's growth is based too heavily on investment and credit expansion. Of particular concern is the presence of a large, opaque and increasingly shaky "shadow banking" sector that exhibits high leverage and interconnectedness.

India could also return a weaker coalition government after its May general election, thereby slowing the pace of economic restructuring.

As the Finance Minister acknowledged, "the global outlook for 2014 is uncertain". A modest deficit for FY2014 can thus be seen as building a fiscal buffer. By not draining current reserves, accumulated from recent Budget surpluses, the Government is in a strong position to run fiscal stimulus in reaction to the downside risks, should they materialise.

Fiscal sustainability

THE highlight of Budget 2014 is the Pioneer Generation Package. But what makes it even more interesting is the way the Government has chosen to pay for it.

Because it is designed to give lifelong help to our pioneers for their health-care expenses, including generous subsidies for MediShield Life premiums, most of the associated expenditures will happen in future years.

Indeed, MediShield Life itself is likely to be introduced only at the end of 2015. Yet, the Government has decided to fund the package entirely through Budget 2014, placing $8 billion into a Pioneer Generation Fund for this purpose.

That the Government has decided to use Budget 2014 monies alone for the Pioneer Generation Fund reflects the belief that this is the fiscally prudent decision. It frees up future Budgets for other needs.

Indeed, other needs are arriving. Construction work for the $8 billion North South Expressway and the $18 billion MRT Thomson Line will start in FY2014, but most of the work will happen in FY2015 and beyond.

Government expenditures and transfers (excluding injections into endowment and trust funds) have already been growing steadily, from 13.4 per cent of GDP in FY2010 to approximately 17.5 per cent projected for FY2014. This trend is set to continue as both infrastructure spending and social spending expand with population increase and ageing.

The Government is able to fund the Pioneer Generation Package without raising rates for broad-based taxes, such as personal income tax. This is because it has drawn on an $8.1 billion Net Investment Returns Contribution (NIRC).

The NIRC comprises up to 50 per cent of the net investment returns on the net assets managed by GIC and the Monetary Authority of Singapore, and up to 50 per cent of the investment income from the remaining assets (which include Temasek Holdings).

First used in FY2009, the NIRC has now become an indispensable part of the Government's finances.

The Government does not disclose the size of net investment returns on its reserves, nor does it disclose the percentage of net investment returns it draws to form the NIRC. But the NIRC is constitutionally limited to be no more than 50 per cent of net investment returns.

This latter provision is a prudent built-in safeguard to ensure that the reserves will continue to grow, but it also means that the NIRC has limits to its expansion. Increases in government expenditures and transfers in future years may eventually have to be funded by higher taxation on income and goods.

Budget balances improve over time

DURING the Budget 2014 speech, the Finance Minister also presented the fiscal position of FY2013. It turns out that last year's projected $2.4 billion overall surplus was revised upward to $3.9 billion.

This must have been a surprise to economists. Given that economic growth of 4.1 per cent in 2013 well exceeded the official growth forecast of 1 to 3 per cent, many economists had predicted a far larger surplus, with estimates going as high as $6.5 billion.

There is still some hope for the bullish predictions to be realised. This is because the $3.9 billion figure is itself an estimate. The financial year ends on March 31, and final data on spending and receipts are not yet available.

We will only know how large the actual FY2013 surplus is when Budget 2015 is unveiled next year. There are grounds to suggest that it could well be considerably larger than $3.9 billion.

Let me illustrate my point with FY2012. When Budget 2012 was unveiled two years ago, the Government's initial estimate was that it would run a $1.27 billion overall surplus. When FY2012 was reviewed a year later, the Government revised its estimated overall surplus to $3.86 billion. In last Friday's review of FY2013 fiscal position, the actual FY2012 overall surplus was revealed to be $5.82 billion.

FY2012 was not an anomaly. In each of the three financial years spanning 2010 to 2012, the Government had underestimated revenues and overestimated expenses. Revised estimates for the overall Budget balance beat initial estimates by an average of $2.5 billion. In turn, actual balances exceeded revised estimates by an average of $1.6 billion.

These upward revisions can be explained largely by factors that are specific to each year, which may not be repeated in other years. FY2010 saw the economy growing at the stellar rate of 14.5 per cent as it recovered from the 2009 recession. Unanticipated run-ups of revenues from stamp duty and vehicle quota premiums occurred in FY2011 and FY2012.

Nonetheless, institutional features also contribute to systematically positive Budget revisions. For example, ministries often do not use their full budget allocations, preferring to keep internal contingency funds. Fiscal prudence does not just reside at the Cabinet level, but permeates through multiple levels of government.

Perhaps the Government is becoming more accurate in its initial estimates - the gap between initial and revised estimates shrank in FY2013, compared to recent financial years.

Still, I would not be surprised to see another $1 billion eventually added to the FY2013 surplus. We shall have to wait till next year's Budget to find out if I am right.

The writer teaches at the Department of Economics, National University of Singapore, and is a member of its Singapore Centre for Applied and Policy Economics (Scape).





Uniquely Singapore way to fund needs
By Chia Ngee Choon, Published The Straits Times, 27 Feb 2014

BUDGET 2014 is elder-centric and, in particular, pioneer-centric. It sends a clear assurance to Singapore's pioneering generation that, having made significant contributions to Singapore when it was a Third World country, they can now retire with health-care security in a First World nation.

The Budget, announced last Friday, has set aside a whopping $8 billion in a Pioneer Generation Fund to finance health-care costs. This is the largest one-time capital injection to a single fund, and exceeds expectations in terms of its initial start-up capital and its comprehensiveness and inclusivity.

In terms of fund size, the Pioneer Generation Fund dwarfs Medifund and Medifund Silver, both of which were also introduced to address concerns of health-care financing. It also offers benefits across all income groups, unlike the two other funds which offer only targeted assistance to the needy.

Medifund, a social safety net to help Singaporeans who are unable to pay their medical expenses, was set up about 20 years ago with a start-up capital of $200 million. As of financial year 2012, the capital sum had grown to $3 billion. Medifund Silver was launched in 2007, in response to an ageing population, with an initial capital sum of $500 million.

Given the large quantum of the Pioneer Generation Fund, is its financing sustainable? Singapore is unique in that our budgetary position allows us to pay for the whole fund from a single Budget, with only a small projected deficit of $1.2 billion. This is equal to just 0.3 per cent of gross domestic product.

Part of the reason is that Singapore's unique method of financing social protection programmes by setting up funds reduces the need for higher taxation. Funds are established with capital injections of government monies as principal. For endowment funds, only incomes generated from the fund's principal amount are used, whereas for trust funds, the principal can also be drawn down. The Pioneer Generation Fund is a trust fund.

Year by year, the returns from the fund and a portion of the fund will be withdrawn to meet these obligations. As long as the fund yields good returns, and if surplus returns are reinvested when returns exceed drawdowns, the fund will be able to support the subsidies. The Government will not have to draw on past reserves or future taxes to finance the Pioneer Generation Fund.

This is enviable as many nations have to struggle to enhance social security through raising taxes. For example, Japan is in the process of raising its current consumption tax from 5 per cent to 8 per cent in April, and then to 10 per cent in October next year. The rise in revenue has been earmarked to finance social security expenditures, particularly pension, medical care and long-term care. Funding social security in this manner puts more burden on the current young Japanese taxpayers.

So the current Pioneer Generation Fund is sustainable.

But could more have been done to give pioneers more peace of mind?

Currently, the average premium for seniors aged 65 and above is about $856.

Under the new enhanced inclusive MediShield Life, premiums are expected to be higher. Let us assume the new average premium for seniors is $1,113, a conservative jump of 30 per cent or so over today's premium.

Taking into account the mortality experience of the elderly and life expectancy improvements over time, I estimate the cost of subsidising MediShield Life premiums fully for those aged 80 and above to be about $3 billion to $5 billion, depending on how much premiums increase over time.

To put this amount in perspective: The overall Budget surplus was $5.82 billion in FY2012, and another $3.92 billion in FY2013.

Expanding full premium subsidies to the whole pioneer generation for life will double the financing cost. Whether this will be fiscally sustainable would depend on Singapore's demographic landscape, economic growth and the global economic situation.

These have a direct impact on Singapore's fiscal revenue capacity and the expected returns of the fund. As Singapore's population ages and becomes superaged, and if the economy slows down, can the Budget surpluses of FY2012 and FY2013 be repeated?

Fortunately, the programme will become less costly over time as the pioneer generation cohort shrinks. In 2025, the premium subsidies will be enjoyed by 65 per cent of the initial 450,000 pioneers. In 2030, about half of the pioneers will be left. In 2035, only about a third of the pioneers will remain.

Financing for an ageing population is indeed challenging. Singapore is lucky that there are resources to set aside to meet the long-term medical needs of the pioneer generation.

Moving forward, perhaps this financing framework can be expanded. One area worth looking at is giving a basic pension to older pioneers. To keep costs manageable, this can be means-tested, and given to those with low savings and no cashable assets.

Paying for MediShield Life premiums and helping to subsidise outpatient-care costs are good moves. If fiscal strength permits, an allowance will add an extra layer of protection for financially frail pioneers.

The writer is associate professor at the department of economics and a steering committee member of the Singapore Centre for Applied and Policy Economics at the National University of Singapore.






Budget 2014: No clear answers on the economy
Problem reflected in productivity numbers, which have been disappointing
By Han Fook Kwang, The Sunday Times, 2 Mar 2014

If the Finance Minister wanted to show that the Government was completely focused on the Pioneer Generation Package in this year's Budget, he succeeded handsomely.

I can't recall a Budget where the social objectives of the Government so outshone its economic imperatives.

This is unusual for Singapore and makes you wonder why and what it means going forward.

Does it mean the economy is doing well enough and there are no major issues to tackle or rethink?

Does it signal a change in the Government's priorities, putting social issues ahead of economic ones?

How far will this rebalancing between the hard and the soft aspects of governance go, and what implications will this have for individuals and for businesses?

There had been much talk about this shift since the last general election but Budget 2014 walked the talk in the most explicit way.

Indeed, Prime Minister Lee Hsien Loong spoke about this in an interview with the Chinese weekly magazine, New Century, which was published last month, when he said that in balancing the two needs, to be competitive as well as to take care of the people, Singapore needed to do somewhat more to tilt towards the latter. As competition gets fiercer, the middle- and lower-income will need more attention.

"If you go too much towards competitiveness, you lose that cohesion and sense of being Singaporeans together," he said.

Many Singaporeans welcome this change and some think it took too long to come.

For much of its history since independence in 1965, the country pursued hard goals - jobs, investments, infrastructure - with much success, transforming the economy and raising living standards.

But the last decade was especially tough - growth slowed, wages stagnated, the income divide widened and many Singaporeans in the bottom half wondered if the good life was still within reach.

There are two issues this raised: How to spread the benefits of growth to more people while continuing the economic success story that had brought the wealth in the first place.

For me, Budget 2014 provided clearer answers to the first than it did the second.

The Pioneer Generation Package, the increased spending on health care for lower- and middle-income Singaporeans and the various measures to raise wages of the lowest wage workers will help bring a greater share of the pie to more people.

As long as Singapore has the financial means to do so - such as paying for the entire $8 billion Pioneer Generation Package in one go - the way forward on this front seems relatively straightforward.

Not so the second challenge of growing the economy.

I worry that the effort to transform the economy to one with quality growth based on "innovation and deeper capabilities", as Mr Tharman put it, is facing strong headwinds.

This is the fifth Budget since the Government embarked on its restructuring exercise in 2010 but the results have been patchy.

Mr Tharman chose to be positive, noting that he had seen real progress on the ground, and cited several examples of companies doing innovative work.

They were a security firm using surveillance cameras to reduce manpower, a menswear retailer that had developed software to translate customers' measurements to design and a restaurant with a mechanical table clearing device.

But the problem is reflected in the overall productivity numbers, which have been disappointing, with no growth since 2010.

It shows how difficult it is to bring about changes that will bring Singapore companies to the next level, up there with those of the advanced economies.

The initiatives that were announced to help bring this about sounded like more of the same - more grants for companies, government support for SMEs seeking loans, various incentive schemes to spur innovation, and so on.

There was no magic bullet and no headline-grabbing scheme to match that of the Pioneer Generation Package.

Still, these initiatives do not come cheap. In fact, they cost big bucks, with transfers to businesses estimated at $2.85 billion for the coming financial year.

In contrast, help for households in the same period, including the Pioneer Package, will cost $762 million, about a quarter as much.

To be fair, it was always made clear that economic restructuring was a multi-year undertaking, and it would be unrealistic to expect quick results.

But at some point, the productivity effort must show significant results or the Government will have to do some serious rethinking.

More worrying for me was a report issued by the Trade and Industry Ministry a few days before the Budget statement that showed how challenging the problem has become.

The study found that many of the sectors that were experiencing low productivity growth - construction, business services, and accommodation and food services - actually saw employment numbers growing.

Singaporeans were being attracted to these low-growth industries.

Conversely, sectors that were having better productivity performances, such as electronics, and transportation and storage, saw employment go down.

What's happening?

The study concluded that while Singapore should try to improve productivity in all sectors, it was perhaps more important to restructure the economy towards those sectors with the best potential for growth.

The bad news is that it's much harder to do the latter.

Easier to continue with the industries already here and try to improve them bit by bit.

Much harder to declare, no, it isn't productive to continue with this sector, and to move to some other industry with better growth prospects.

Has the time come for Singapore to bite this bullet?

Perhaps we will know the answer in future Budgets.











































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