The discontent expressed by Singaporeans during the 2011 elections are symptomatic of a deeper unhappiness with “the current model of economic and social development: the over-riding emphasis on growth over distribution; the inadequacy of our social safety nets and the uncertainty that this creates; wage stagnation for significant segments of the workforce even as a small segment at the top enjoys large increases; and the increase in inequality,” they wrote.
As growth slows, income inequality rises, and social mobility falls, there has to be a fundamental change in the way citizens and leaders view the role of government.
“We should not accept our high inequality as an inevitable or immutable fact of life,” they stressed. “On the contrary…it is because we are small and open that it is incumbent on government to play an activist, redistributive role… we have to harness the power of the state more actively to ameliorate rising inequality, especially through the provision of social transfers and public goods.”
Singaporeans first
Professor Paul Cheung, Director of the United Nations Statistics Division, suggested the problem is that Singaporeans simply do not feel secure and satisfied.
The paper cites recent social science research that shows people care more about fairness and relative incomes than their absolute gains.
With a maturing economy and ageing population, economic security is crucial. Singaporeans need to feel that their government is protecting their interests, not those of the ever-increasing number of foreigners, Cheung said.
Chua Hak Bin, Director of Global Research for Bank of America Merrill Lynch, discussed the new “Singaporeans First” polices regarding employment, housing and healthcare which have already been put in place.
He raised the examples of eliminating the job work scheme for foreign graduates, leaving them only 3 months to find a job, the 10% stamp duty hikes for foreigner purchasing property, and the emphasis on more inclusive growth that focuses on lower income groups and median wages.
The need for more change
However, the government has to go further than this, the authors and several panelists argued.
Associate Professor Hui Weng Tat from the Lee Kuan Yew School of Public Policy explained that retirement adequacy is qualified by a healthy income replacement ratio (IRR) of 66% - a retirement income that is 2/3 the percentage of a worker’s last drawn pay.
Using a simulation of three categories of workers based on educational attainment, median salaries and wage growth, he showed that the existing CPF system would not be able to adequately provide for the retirement needs of a large majority of the resident workforce, especially among the growing share of those with post-secondary education and above.
Assuming that HDB purchases are made by age 30 at the maximum price supportable by CPF contributions with two spouses contributing to mortgage payments, the IRR drops to between 17% and 28% for the different wage groups, at a retirement age of 65.
A person with post-secondary education earning $2560 can only expect to live on 22% of their last drawn pay when they retire. If only one person is shouldering the burden of mortgage payments, retirement income is even more adversely affected.
A $100,000 increase in HDB home price would reduce IRR by 3.0% to 12.4% across different wage groups.
The consensus of the conference appeared to be that the complex relationship between our social security, housing and healthcare systems necessitates increased government spending and intervention in all three areas.
Practical suggestions raised included an unemployment saving program, a wage loss insurance program, the need for government to deflate public housing prices, to rethink the use of public housing as the primary instrument of social security and to increase spending on healthcare while tapping into the private sector for manpower and infrastructure development.
Can we afford it?
The authors contended that such change is possible.
Looking at the success stories of Hong Kong, Taiwan, South Korea, they pointed out that Singapore starts from stronger fiscal position, making a more expansive social policy financially sustainable.
“Even if we increase public spending from the current 16% of GDP to around 25% GDP (over a 10-20 year time frame), Singapore would still be one of the smallest governments among developed economies. Public sector spending in advanced economies is usually well over 40%; among advanced Asian economies, it is typically 25-30%,” they wrote.
“Importantly, the growth in our unencumbered financial reserves would mean that by around 2030, when our elderly population reaches a peak and our savings rate naturally slows, significant percentages of GDP should be available to the government as a current fiscal resource, while still allowing the protected reserves to grow at a pace commensurate with economic growth.”
The limits of government
Yet, persistent wage stagnation, the possibility of a recession in 2012 and the problems of an ageing population make these reforms a struggle.
Chua Hak Bin, Director of Global Research for Bank of America Merrill Lynch, pointed out that with lower growth comes smaller tax revenues and limited fiscal flexibility - the government is not going to be able to be as generous with special transfers.
And, unrealistic expectations of the government can be counter productive to effective change. Singaporeans must not fall into the “naïve belief that government policy can mandate cultural change,” warned the authors. And, successful measures will only be discovered through trial and error, which require a citizenry tolerant of their government’s mistakes and confident that it has their best interests at heart.
Ultimately, piecemeal adjustments to meet short-term goals will not suffice.
“The government has to have a national conversation on how Singapore’s social compact should evolve over the longer-term and forge a societal consensus on long-term vision,” the authors said.
As Singapore continues to try to find the balance between the “market-mimicking governance” of old and the new flexibility and innovation needed to address the challenges of globalization, the question we should all ask ourselves is: What kind of Singapore do you want in the next 20 years?
By Sharon Chen
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