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Lam Keong Yeoh
about 9 months ago
Comments on DPM Tharman's speech " No way to give something to everyone without raising taxes for middle class "
With all due respect (and believe me I have LOTS ) for DPM Tharman, there are a few facts and arguments that need to be pointed out to put the important issue of social spending, equity and fiscal sustainability in better balance:
1. The ADEQUACY of Govt spending on social protection and social security, especially for the poor and underprivileged is surely as, if not more important than how progressive it is for the middle class.
Concretely, for eg, WIS is a great scheme ; it helps low income workers without disincentivising work, is very progressive but at an average payout of $150-200 per month ( largely in CPF) it is sadly inadequate. How much is adequate? Given current living costs $500 to 600 per month and largely in cash. How much more would it cost us? Roughly $1 Bn pa or 0.3% of GDP pa. Similarly the Silver Support scheme is another great new scheme that needs to be trebled to really make a difference. Additional cost? $700-800mn pa or 0.2% of GDP.
Between these 2 reforms we would largely eliminate much of the absolute poverty and hardship we currently still see in spite of a decade of insufficient policy action to ameliorate it in a way we can well afford. Is the government taking poverty " very seriously" or seriously enough? Then what are we waiting for? I leave you to make that judgement yourself.
2. How about needed broader social protection in key areas that also benefits the middle class? We are talking here about Govt spending on unemployment protection and insurance, affordable healthcare, a high quality, egalitarian education system, public housing and transport etc.
Healthcare and education reforms are likely to be the most expensive in the long run, going by OECD experience and given our ageing population. Here again, adequacy counts. Such key public goods and services for the middle class are difficult to measure in terms of subsidies received per tax dollar eg $1.20 in Finland vs $2.00 in Singapore. Much of the benefits are indirect and only received when unemployed or sick but no less important for social security and social mobility for eg the number of teachers per student, adequate unemployment protection, affordable hospital or long term care both at home and in nursing centres, excellent public transport etc. What is fair here is more a matter of adequacy combined with social equity norms than benefits received per tax dollar. Many Middle class members in developed countries don't mind paying higher taxes to have the security of a higher level of social protection and mobility as well as to look after the less privileged. Here again, Singapore has one of the lowest public spending rates on healthcare, education and unemployment protection in the OECD and I would argue still pretty inadequate for a rapidly ageing economy highly exposed to the volatility and wage stagnation that globalisation and technological change tends to generate in developed economies today.
3. Finally can we afford to upgrade social spending to better levels of adequacy without raising middle class taxes substantially? Here I am more optimistic that Singapore is in an exceptionally strong position to be able to have the fiscal headroom do so. First, because of our extremely conservative budget accounting, the IMF no less estimates that we have a structural budget surplus of 7% of GDP or well over $20 Bn.
Second, taxes on the rich are extremely low and can be raised to globally still competitive levels. Third environmental and sin taxes can be raised substantially further looking at the experience of other very competitive countries . Finally, the spending rule on reserve investment income is also very conservative requiring that half of investment income be kept for future generations. This is a very conservative time preference given that future generations ar likely to be much richer and less in need of basic social spending which we so far have yet to provide adequately for current generations.
4. Finally I fully agree with DPM Tharman that fiscal sustainability must be part of rational and responsible policy debate on BOTH sides of the house. For this to happen sufficiently, full public knowledge of fiscal resources and projections is first necessary. In the US for example, the Congressional Budget Office ( CBO) reports to Congress long from budget and fiscal projections regularly which is subject to scrutiny and debate by think tanks, academia and the public. Financial market analysts have come to trust CBO projections more than Treasury projections. In Singapore by contrast, there is a sad lack of basic budget knowledge, even in parliament or government about our true fiscal position as much of the data is secret or confidential and not rigorously discussed.
Finally I commend DPM Tharman for keeping public finances in Singapore progressive in an exemplary way and for the significant gains in social protection - MediShield Life, the Silver Support Scheme, more affordable BTO flats that the government in its leftward shift has implemented and fought for both within cabinet and in public policy. I am heartened he recognises there is still much work to do.
Fiscal sustainability is also of paramount importance, no question.
Let's retain these as much as possible without losing sight that we are still way behind on basic adequacy measures in several key areas - poverty alleviation, unemployment protection, long term healthcare, egalitarian education geared towards a creative, knowledge based economy.
Can we find a uniquely Singaporean way that combines adequate social protection, fairness to the Middle class and future generations as well as fiscal sustainability? I believe we can. But we need to have much clearer public debate before we can do so.
