How progressive is the new tax structure?
Budget 2013 sees the introduction of wealth taxes on luxury cars and homes. The tax system is getting more progressive, but the Government also has to increase social spending and transfers to reduce the income gap.
By Chia Ngee Choon, Published The Straits Times, 28 Feb 2013
AS AN open economy, Singapore has to strike a balance between maintaining international tax competitiveness and achieving domestic equity in its fiscal policy. Budget 2013 thus aims for "quality growth and an inclusive society".
As the income gap has inched up, fiscal policy is one tool to narrow that gap. Narrowing the income gap is done at both ends: targeting the low- to middle-income worker by redistributing income, and lowering disposable incomes at the higher end by taxing higher incomes and wealth.
Budget 2013 does both.
At the lower end, the Government will boost wages by co-paying 40 per cent of pay increases for Singaporean workers earning up to $4,000 for three years. As the median gross monthly income from full-time work is $3,480, the Wage Credit Scheme will help lift wages for at least half the local workers. The enhanced Workfare scheme for low-wage earners will boost the income of those earning up to $1,900.
Those who read Professor Lim Chong Yah's controversial "wage shock therapy" proposal will recall that he had suggested a rapid rise in incomes at the bottom and a wage freeze for top income earners. Budget 2013 does not introduce anything as controversial, of course. But it does make good use of a wealth tax to increase the tax burden on luxury homes and cars.
Overall, Budget 2013 sets Singapore well on the path of greater tax progressivity. This has been a declared intention of fiscal policy, as Finance Minister and Deputy Prime Minister Tharman Shanmugaratnam has said.
But will making a tax system more progressive also reduce income inequality?
How progressive is progressive?
BUT first, some basic definitions. A progressive tax system is one where a richer person pays a higher percentage of his income in tax than someone less well-off. Those below an income threshold may pay no tax.
How progressive is Singapore's personal income tax structure?
Data from the Inland Revenue Authority of Singapore's annual report for year of assessment 2011 shows that resident taxpayers with annual incomes below $100,000 contributed 11 per cent of all personal income tax assessed. The remaining 89 per cent comes from those with assessed income above $100,000 a year. The ultra-rich - those earning above $1 million - contribute a greater share: 20 per cent of all personal income tax. The top 1.5 per cent earners contribute 38 per cent of the tax share.
A study on the progressivity of taxes by Mercatus Centre senior research fellow Veronique de Rugy at George Mason University shows that the richest 10 per cent of American households (those making US$112,124, or S$140,273) contributed 45.1 per cent of all income taxes. The Organisation for Economic Cooperation and Development (OECD) average is 31.6 per cent of total tax share from top earners.
This puts the US among the most progressive income tax systems among OECD countries, along with Canada, Australia, the Netherlands and New Zealand.
In other words, in Singapore the top 11 per cent of earners contribute almost 80 per cent of the total tax takings, compared to 45.1 per cent for the US and 31.6 per cent for OECD countries. Singapore is more tax-progressive than the US and the average of OECD countries since the top 10 per cent pay a bigger share of taxes.
The 30 per cent income tax rebate, subject to a cap of $1,500, announced in Budget 2013 will make the tax system even more progressive as the median income worker need pay no taxes.
What more can be done? Currently the highest marginal tax rate is 20 per cent for taxable income exceeding $320,000. Adding more tiers will increase tax progressivity: for example, taxing those who earn above $500,000 or $1 million at higher rates.
Tax the rich more?
APART from taxing personal income, a tax system can also be made more progressive through a surtax - a tax on an existing tax - on the ultra-rich.
Budget 2013 marks a decisive shift towards taxing wealth to make a tax system more progressive, going beyond the usual way of slapping higher rates of tax on income. The rich will now pay higher taxes on premium cars and luxury housing.
The Additional Registration Fee (ARF) is a tax on car ownership. It is calculated based on the open-market value (OMV) of a car. Before the certificate of entitlement (COE) vehicle quota system was introduced in 1990, the ARF was the key fiscal tool to curb car ownership.
It started out at 15 per cent of OMV in 1968, rose to 55 per cent in 1974 and then to 100 per cent in 1975 and 150 per cent by 1980. When the COE scheme was introduced in 1990, ARF was gradually reduced to 140 per cent in 1998. It has remained at 100 per cent since 2008.
Budget 2013 introduces a new tiered formula for ARF that makes the car tax more progressive. More expensive cars with open-market values exceeding $20,000 will pay higher ARF, at 140 per cent or 180 per cent. The higher ARF can amount to tens of thousands of dollars, or in excess of $100,000 for luxury cars, significantly increasing the cost of owning a luxury or a sports car in Singapore.
The revised tiered car ownership tax hints at likely wealth taxes to come. Taxes on luxury yachts or other luxury consumer goods may be in the making.
But as a global city that wants to attract talent, Singapore cannot raise personal income tax too high. Tax authorities here and worldwide are thus turning to other means to generate tax revenue. Wealth taxes, "sin" taxes on alcohol and tobacco, and green taxes are likely avenues.
The other obvious tax to use is tax on property. Budget 2013 uses property tax to add tax progressivity. Before 2011, home owners who lived in their properties paid a flat tax rate of 4 per cent of the property's annual value. Since Jan 1, 2011, owners have been paying 0, 4 or 6 per cent for owner-occupied properties, with higher rates for homes of higher value. This year's Budget raised the rates to 8 to 16 per cent. For investment homes or non-owner-occupied residential properties, the tax rate of 10 per cent will go up to a tiered rate of 12 to 20 per cent.
Property tax is considered a fair tax on wealth as it is based on a person's ability to pay. It is also efficient as it is hard to evade or dodge: A property purchase needs to be registered by law and the price declared. In Singapore, public housing home owners form over 80 per cent of households, but pay only 15 per cent of residential property tax (in fiscal year 2011). In the last 10 years, property tax formed about 7 per cent of the total tax revenue.
The new property tax tier reduces tax rates for owners who live in their properties and load tax increases on higher-end housing that is rented out. This can help narrow the income gap. It also sends a message that a home is meant for living in - for consumption - and that property investors must brace themselves for higher property taxes.
Making people who buy luxury cars and own high-end investment homes pay more in taxes is one way to redistribute income from the wealthier households to the less well-off ones. Such redistribution is needed to forge a new social compact for Singapore.
But does introducing progressivity in tax reduce income inequality?
The short answer is that it helps, but is not enough. A more progressive tax burden can only shift some of the burden of taxation so the rich bear a bigger load.
To reduce income inequality, the state needs to redistribute income or give tax-related benefits to target groups. There is scope to do more in this area.
First, the state can collect more taxes. Singapore's tax to gross domestic product (GDP) ratio, at 12 to 17 per cent of GDP, is low compared to the OECD average at 34 per cent.
Next, spend more to bridge income divides. Singapore runs a small and lean government with overall social spending of just above a third of the OECD average. There is room to raise this judiciously.
Budget 2013 is a conservative one with an estimated overall surplus of 0.7 per cent of GDP. Compared to last year, the estimated expenditure (total expenditure plus transfers and top-ups) are lower. The budget for special transfers and top-ups is lower this year.
Special transfers and top-ups have been a major financing structure for social protection programmes in Singapore. While this year's Budget has made the tax system more progressive, there is still scope for more targeted government spending to reduce income inequality.
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.
It's sound to tax wealth over income: analysts
But S'pore may have to raise income or consumption levies in the future
By Kenneth Lim, The Business Times, 28 Feb 2013
The progressive tax measures unveiled in this year's Budget will raise duties on those who own a lot rather than those who earn a lot, a subtle distinction lauded by observers.
But there are limits to how far wealth can be taxed, and Singapore may eventually have to consider raising income or consumption levies in the future for additional revenue.
Described as a tax on wealth by Finance Minister Tharman Shanmugaratnam in his Budget speech on Monday, the Budget's progressive tax measures include tiered tax rates for property and vehicle ownership.
Those tax changes are not necessarily aimed at wealth gaps only.
"The underlying rationale behind these announcements may be seen in the wider context of the government's strong resolve to cool the hot property market here by discouraging investment in residential homes, and to dampen car growth rates on our increasingly crowded roads," said Alan Lau, KPMG's head of financial services.
But the progressive aspect of the policies - the tiered impact of the higher taxes - has not been lost on observers.
"What's happening around the world is income disparity is becoming more severe," said Jimmy Koh, head of research and investor relations at United Overseas Bank. "That's why I think this Budget is quite interesting because it's quite innovative - whether it works or not is another thing, but at least they're trying."
But progressiveness can be a delicate tight rope. "It has to be a holistic and balanced approach, and you have to be very careful about taking progressiveness too far as you have seen in some Scandinavian countries where it acts as a constraint on incentives to work and doing business," said Leif Eskesen, an economist at HSBC Global Research.
Singapore's approach to revising property and vehicle taxes, rather than income tax, drew praise for seeking to distinguish between how much a person has versus how much a person works.
"Sometimes, wealth is not the result of hard work," UOB's Mr Koh explained. "It could be inherited, for example . . . Income is more directly correlated to working hard."
Poh Eng Hin of Nanyang Business School said that a property tax was less distortionary on the market.
"If you're very rich, I doubt you're going to give up your bungalow just because you're taxed more," Prof Poh added. "It shouldn't be as distortionary as an income tax, that's my gut feel. It's an existing tax, there's no need to put in a new administrative mechanism; and there's a high correlation between people's dwelling and their income or wealth status."
Assets were also probably one of the least sensitive areas to improve a more progressive tax regime, the observers said.
A capital gains tax, for example, would potentially be progressive because the affluent are more likely to have more capital gains, but to impose one would mean a sharp departure for Singapore, which has never taxed capital gains.
"A capital gains tax is really rewriting the Singapore economic model," Mr Koh said. "It's a city where it's capital gains tax free."
A revision of the Goods and Services Tax (GST) to exclude staples or to tax luxuries more heavily has been raised before as a possible way to make the consumption duty less regressive, but actual implementation can be problematic.
"Tweaking the GST system to increase its progressiveness may also be administratively difficult and undesirable," KPMG's Mr Lau said. "Other countries which have attempted to levy a higher GST rate on luxury groups consumed by the higher-income group have shared that such tweaks are often controversial and tedious to implement. This is largely because of the difficulty in determining which products should be categorised as luxury goods."
The experts also noted that the existing GST voucher for lower-income households is a progressive accessory to a regressive tax.
Reinstating the estate duty, which Singapore repealed in 2008, would also run counter to the country's drive to grow as a private wealth management hub.
"A lot of the wealth management centres around the world, they don't want to have that," Mr Koh said.
The analysts largely expected the government to hold off on further steps to make our tax system even more progressive, in order to gauge the impact of the latest measures.
Tax is also not the only avenue in which the government attacks wealth disparities.
"A tax is just to raise tax revenue," Prof Poh said. "You can have a regressive tax, but if you can redistribute handouts in a progressive way, it can still be progressive on the whole. You have to take into account the entire system."
But if the public expenditure were to continue rising - not far-fetched considering the current focus on improving infrastructure - increasing taxes on wealth assets may not be enough.
"At the end of the day, when you've done the low-lying fruits like property or cars, you either go for a capital gains tax or raise marginal tax rates for high-enders," said OCBC Bank economist Selena Ling. "Or in the past, you'd do the GST, which they say is regressive, but at least you don't hamper the work incentive."
Ms Ling noted that discussions about raising the GST rate may be put on the shelf for now given the pains of the current economic restructuring efforts.
"I think that will be hugely unpopular," she said.
Budget for time of transition
Policies reflect Singapore's shift to slower but higher-quality growth
By Chua Mui Hoong, The Straits Times, 26 Feb 2013
FOR a Budget that was supposed to be pro-business, this turned out to be surprisingly pro-worker too.
First, as expected, the low-income got a leg up. The Workfare Income Supplement will be expanded to cover those earning up to $1,900, bringing the bottom 30 per cent within its fold. Low-wage workers will also get higher Central Provident Fund (CPF) contributions from employers.
Second, for the middle- and high-income, there is a personal income tax rebate of 30 per cent, capped at $1,500. This is a completely unexpected but welcome measure in a year with no general election in sight and an uncertain economic outlook.
And third, the star of Budget 2013: a Wage Credit Scheme where the Government co-pays 40 per cent of employers' wage increases for those earning up to $4,000 a month, from this year to 2015. As $4,000 is above the median wage, this benefits most workers.
These are not just populist giveaways: The strategic aim is to spur businesses to do more with local workers and raise productivity, in the face of a tighter foreign labour supply; and to help workers cope with rising costs.
The Wage Credit Scheme is remarkable for achieving both objectives in one fell stroke.
With this measure, the Government demonstrates its willingness to embrace wage support as a key plank of its social policy.
This is a radical departure from its pre-2006 stance, when it preferred to help low-wage workers get trained to take up higher-paying jobs, rather than top up their wages. Training is still a key prong of the strategy to raise wages. In 2006, the Government also experimented with a one-off Workfare bonus, giving cash and CPF top-ups to the low-income. In 2007, Workfare was institutionalised.
At that time, there was discussion on whether wage support given to the worker, or to the employer, was more effective.
In 2009, as the world was poised on a global downturn, the Government introduced the Jobs Credit Scheme over two years: a wage subsidy given to employers. This helped companies stay afloat so they could retain workers.
The new Wage Credit Scheme aims to drive wage growth across the board as companies restructure. It is for Singaporeans, so it should alleviate some of the anxiety locals feel over competition from cheaper foreign workers.
The pro-worker measures are particularly welcome, after a bruising debate on the Population White Paper. Singaporeans objected to the paper's population projection of 6.9 million, complaining of an overcrowded city and lamenting the Government's seeming addiction to foreign labour-dependent economic growth.
If the White Paper was the bitter pill, Budget 2013 can be said to be the sweetener. They need to be taken together to get a fuller picture of the Government's economic plan: to continue tightening the supply of foreign workers, slow down workforce growth and change gears to a slower pace of economic growth driven by productivity.
Far from being over-dependent on foreigners, the Government will persist in tightening the flow of foreign workers, as Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam made clear. Foreign worker levies will rise, especially in less productive sectors with too many less-skilled foreigners.
Mr Tharman underlined the pain of economic restructuring when he said many industries will go through major, structural changes. Small companies will close if they cannot be productive, freeing up space for more efficient players.
The next few years will see a lot of churn in the small and medium-sized enterprises sector, which employs seven in 10 Singaporeans. Many will lose their jobs.
In a tight labour market, the hope is that workers who lose their jobs in the economic churn can find new ones easily, especially when the opiate of cheaper foreigners is no longer available to companies.
But older, less educated, less robust workers will not find it easy to adapt. They are the vulnerable ones in transition: the interim unemployed and their families; or those who end up permanently underemployed because their skills were specific to an industry that moved out of Singapore. (Example: a master tailor who became a security guard when the textiles industry moved out of Singapore).
Income support for the jobless, not just those lucky enough to have a job, would be welcome. The underemployed need help not only with training, but also with interim living costs and longer- term health-care costs, as few employers will be prepared to offer generous benefits to workers past their prime. For the latter, Singaporeans will have to wait for the Ministry of Health's promised review of health-care financing.
Every Budget not only builds on past ones, but also hints at future fiscal policy.
One fiscal policy hinted at deserves special mention: taxing the ultra-rich. Property and car taxes will rise for luxury homes and cars, by about 60 per cent for some luxury homes and 40 per cent for some luxury cars. That translates into tens of thousands of dollars: not insignificant, but within what these rich households can afford.
Making the proverbial top "1 per cent" pay more taxes is in line with global disquiet over rising income inequality. The top personal income tax rate of 20 per cent applies to annual income above $320,000. Will the taxman here do as others have done and impose a higher tax rate for, say, those earning above $1 million?
No one knows.
But when you put the pieces together, it is clear that this is a Budget of transition, for a Singapore shifting gears.
There are productivity boosts and help for businesses so Singapore can shift from high-octane to slower but higher-quality growth driven by productivity. And there are measures to bridge the rising income gap via a more progressive tax system, as the country shifts from being a hard-driving, capitalist society to a more compassionate one that ameliorates the excesses of the market with a deeper social safety net.
Schemes work hand in hand to boost wages
By Hoon Hian Teck, Published The Straits Times, 27 Feb 2013
IN THE first three decades or so of Singapore's economic development after independence, the big lift in Singaporeans' average standard of living occurred with equity.
Market forces pulled up the wages of the relatively less skilled by more than the wages of the skilled so the wage gap narrowed.
In the past decade, however, wages of workers at the bottom of the income distribution saw little growth after accounting for inflation. Policy intervention is therefore necessary to boost the earnings of low-wage workers and to strengthen social cohesion.
The question is how best to boost the earnings of low-wage workers? The Workfare Income Supplement (WIS) scheme in 2007 provided one answer.
It is to give income supplements to older low-wage workers, on condition that they hold a job.
In this respect, the WIS is different from a negative income tax, made famous by the late economics Nobel laureate Milton Friedman, which would provide an income supplement even if a person did not work and so had zero income. With a negative income tax, there is a pure wealth effect and no substitution effect towards work - that is, people are wealthier but not any more inclined to work.
Holding a job provides many non-pecuniary rewards such as engagement with colleagues and job satisfaction. Research also shows that the cost of long-term unemployment goes beyond just the loss of wages. The long-term unemployed also suffer non-monetary costs, such as quality of life.
With the WIS, the Government steps in to boost the worker's earnings while providing the incentive to hold a job. In Budget 2013, the maximum monthly income threshold for a WIS payout is raised from $1,700 to $1,900.
This gives incentives for more low-wage workers to take up the training opportunity provided by the Workfare Training Support scheme, without fearing that the higher pay they command after training would disqualify them from WIS payouts.
The larger share of WIS payouts given in the form of cash, from 29 per cent to 40 per cent, helps alleviate cashflow problems faced by low-wage workers. The increase in the amount of WIS payouts by 25 to 50 per cent will raise the take-home pay of low- wage workers. Central Provident Fund contribution rates by employers and employees will go up, boosting their retirement incomes as well. Overall, the WIS enhancements announced in Budget 2013 strengthen Singapore's social safety nets without weakening the incentive to hold a job.
It is a basic lesson in economics that high pay can only be sustained by sufficiently high labour productivity.
Singapore's reliance on the inflow of global ideas and technology, particularly in the manufacturing sector, delivered overall labour productivity growth until the past decade when the services sector further expanded.
While productivity levels in manufacturing are high by global standards, they remain low in many industries within the services sector that is dominated by small and medium-sized enterprises (SMEs).
The Wage Credit Scheme (WCS) introduced in Budget 2013 is an innovative policy instrument that works in tandem with the Productivity and Innovation Credit (PIC) scheme to help SMEs on their journey to becoming more productive. The WCS co-pays 40 per cent of wage increases for workers earning up to $4,000, for three years.
How does the WCS work? Suppose a firm, encouraged by the enhancement of the PIC scheme that subsidises capital investment, chooses to automate a labour-intensive process. As a result of the automation, suppose that a worker's labour productivity is raised by 10 per cent. In normal circumstances, with an additional worker being able to contribute 10 per cent more to the firm's revenue because of the automation, the wage that it can afford to pay the worker and yet stay competitive is increased by 10 per cent. But with the WCS, the Government covers 40 per cent of this wage increase, leaving the firm with a higher profit.
The higher profitability may encourage the firm to further increase its capital investment, which would create a second- round effect of further increasing wages. Thus, there is a potential multiplier effect that leaves the firm more productive and paying its workers more.
Since the WCS is in force only from 2013 to 2015, some firms that might already have future plans to mechanise or innovate might choose to bring forward their investment plans.
Like a pair of scissors, we need two blades to work well. The WIS scheme, by supplementing a worker's wage, shifts out his labour supply. The WCS, in giving firms incentives to boost labour productivity in order to enjoy the wage credit, acts to shift out labour demand.
This is an innovative and business-friendly policy instrument that has the potential to boost the pay of low- to medium- wage workers while stimulating employment.
The writer is professor of economics at the Singapore Management University.
Walking a tightrope on foreign workers
By Randolph Tan, Published The Straits Times, 27 Feb 2013
THE primary thrust of Budget 2013 in addressing manpower, productivity and wage relativities is very much a continuation of a series of measures initiated in the aftermath of the 2009 recession.
Singapore's Budgets have never been shy about venturing into the bedroom or the boardroom, but the range of economic measures in this one will affect business operations to such an extent that we will see the impact at the places we work, eat, shop and live in.
On manpower, this Budget is the fourth successive one to raise levies on foreign workers, and the second in succession to tighten their Dependency Ratio Ceilings.
To many observers, it was inevitable. By setting a target to slow foreign manpower inflows significantly by 2020, the Government was already committed to imposing further tightening measures.
On the other side of the productivity equation, it is the fourth successive year that refinements are being introduced to the Productivity and Innovation Credit scheme to improve its accessibility.
With the introduction of the Wage Credit Scheme, it is the third time that the Government is funding an innovation to shift wage relativities in favour of groups of Singaporean workers.
Although the earlier levy increases would have run their course by the middle of this year, the last Budget had already warned of further levies if needed. So from a policy standpoint, it is hard to fault the coherence of the message.
The graduated increases in levies since July 2010 are not something one should expect businesses to welcome, but there can be no mistaking the direction or the need to prepare for the new labour market reality.
Appreciated or not, the policymakers are merely doing what no one else can in a free market economy.
The levy increases price in the future limits to manpower growth that businesses will ultimately have to confront. By doing so, the long-term prospects for companies will be better than if they were left to be taken by surprise.
The approach of this Budget is palpably different from those of previous Budgets. The measures are stronger and more insistent. The deadline is also clearer: The reductions in use of low-wage manpower have to be achieved within the next three years. This clarity will be helpful for businesses in planning their adjustment strategies.
Nonetheless, the tone of this Budget betrays some impatience that the hiring appetite of businesses has persisted despite the combination of quantitative and price restrictions.
If I have any concerns with the Budget, it is that the changes should not be precipitous. More than the changes themselves, it is the pace of change in areas such as restructuring and manpower use that has given rise to issues such as crowding and made productivity gains elusive.
A less hurried pace of change in the past would have afforded us more time to adjust. If the pace of increase in foreign manpower in the last seven years or so has stressed Singapore society, then the pace of change as it moves towards reduced reliance should also be cautiously managed.
While the need for stronger measures on manpower and productivity is easy to understand, it is another thing to expect that they will quickly produce the outcomes wished for.
One only has to look at many of the developed economies to see that policy action alone does not easily lead to job creation, or to productivity gains. Our conundrum could be worsened if these two were to be viewed as contradictory.
I am sure that is not a belief anyone holds, let alone policymakers. But the reality is that the policy will depress the first in the hope of urging the second.
One of the main reasons cited for the United States' inability to quickly regain the millions of jobs it lost during the Great Recession is uncertainty. We should not underestimate the effect that too uncertain an environment could have on businesses, because any damage may not occur in degrees.
There is no guarantee that too sharp a fall in reliance on foreign manpower will not impair the generation of jobs. So Singapore is on a tightrope moving forward. Job losses are to be expected, and the pain of transition will be real.
That is a very dangerous tightrope to walk in too a short time. The best way to ensure success is for everyone involved to walk it hand in hand, and to make sure both businesses and workers have enough time to adjust.
The writer is an associate professor at the School of Business, SIM University.
Tap part-time workforce to ease labour crunch
By Tan Khee Giap, Published The Straits Times, 27 Feb 2013
BUDGET 2013 is best understood in tandem with the Population White Paper.
The latter spelt out the underlying population trajectory for Singapore. In fact, what the White Paper did not say, but which is clear to me, is that a larger population is not a target; it is an inevitable outcome if Singapore is to aim to remain a thriving city despite its ageing and shrinking workforce.
This is because Singapore's economy is well on the restructuring path towards a more labour-intensive services economy.
Over the last decade (2003- 2012), value-added in goods-producing industries has been declining from 33 per cent to 29 per cent, while value-added in services-providing industries has steadily increased from 63 per cent to 69 per cent.
The services sector is less amenable to automation and other labour-saving technological improvements. As a result, Singapore needs a relatively bigger labour force over time, comprising both resident and non-resident blue- and white-collar workers.
Such a trend of restructuring from manufacturing to services is irreversible in the longer run as the experiences of developed economies have shown, especially when citizens desire higher wages, which have to be supported by higher value-added industries.
Budget 2013 is full of measures such as productivity incentives to help companies continue on this restructuring path, especially those targeted at small and medium-sized enterprises (SMEs). It also gives incentives to employers to favour locals over foreigners as employers will have to pay higher levies and face stricter quotas if they want to hire foreigners, but will enjoy subsidies for wage increases if they hire locals.
The move to give incentives to companies to hire locals is in line with the push by the Government to attract more female and older Singaporeans back to work. This is a good initiative, but there is a mismatch between available jobs and workers' expectations. More can be done to reduce that gap.
For example, the Government can make it a policy to regularise a part-time Singaporean workforce by incentivising or even mandating companies to give decent pay commensurate with productivity to part-timers and to adopt flexible work scheduling.
This is one way to mitigate the rapid rise in the number of blue- collar foreign workers. Such a regularised part-time Singaporean workforce can boost additional household incomes and reduce income disparity.
In fact, the Workfare Income Supplement (WIS) scheme can be expanded to cover part-time work. Rather than calculate wages on a per month or pro-rated basis, wage supplements can be linked to an hourly living wage. The Government can then augment part-time workers' hourly wage, once the part-time Singaporean worker is certified by the Workforce Development Agency (WDA) as productive, with feedback by employers on good performance track records.
Some large and multinational corporations are able to attract consistent and productive part-timers thanks to their work environment and scheduling. Preliminary industry survey findings by the Asia Competitiveness Institute at the Lee Kuan Yew School of Public Policy suggest that raising hourly wages to certain levels can help other companies such as SMEs do likewise.
A regularised part-time worker scheme can also be justified or perceived as an internship or on-the-job training, which should be encouraged especially in services sectors among university, polytechnic and the Institute of Technical Education students.
Efforts to tighten the foreign labour market must be undertaken together with measures to raise employment rates of locals by creative measures to draw out potential workers such as housewives, retirees and students, who may be willing to take up part-time work.
There have been suggestions that the Government cap the number of foreigners at present levels. As business associations have warned, this will have an impact on business growth. Job creation for Singaporeans and the vibrancy of Singapore would be affected as SMEs and MNCs plan to relocate in anticipation of a severe labour crunch. Infrastructure build-up would be delayed, timelines for the additional 200,000 units of public housing may not be met and prolonged low gross domestic product (GDP) growth would mean a Government Budget revenue squeeze.
The Population White Paper warned that a stagnating economy would lead to migration of younger Singaporeans. The more educated and wealthier may indeed migrate. But my concern is that in a stagnating economy, the vast majority of Singaporeans would be trapped at home with mediocre jobs as most have only one effective business language: English, or worse, Singlish.
They would not be effective or competitive in emerging economies which are Chinese-speaking, including mainland China and Taiwan. Neither would they be effective in Indonesia or Malaysia, or be able to compete with Europeans and Americans, who have a much better command of English.
The best way to give the majority of monolingual Singaporeans a chance to make a good life is to give them home-ground advantage by making Singapore itself a vibrant cosmopolitan city. This requires modest workforce growth via greater use of indigenous labour and some immigration.
The writer is co-director at the Asia Competitiveness Institute, Lee Kuan Yew School of Public Policy, National University of Singapore.
The inclusive society and its limits
By Tan Ern Ser, Published TODAY, 26 Feb 2013
Before the multi-cornered debate on the Population White Paper has even settled, we now have Budget 2013, which provides a fairly detailed analysis of the challenges facing the Singapore economy and society.
It also offers some robust responses on how best to handle the foreign worker issue, while keeping the economy vibrant and productive, and the society, Singaporean-centric.
Budget 2013 comes across as focused on addressing the 2011 General Election and post-election hot button issues — housing, transport, healthcare costs (particularly that of seniors), income inequality and relative social mobility — as comprehensively as possible, and seemingly with greater urgency.
The proposed Budget also dispenses a broad spectrum of support — including some in generous form — to Singaporeans.
But it does not deviate from the fundamentals — particularly that of ensuring financial sustainability, and that every giveaway should serve some purported social or economic end.
Correspondingly, while the Budget items to promote an inclusive society can be construed as welfarist, they do not undermine the ruling party’s known position on the welfare-state model.
MIDDLE-INCOME UNCERTAINTY
What, then, is new about Budget 2013?
For one thing, the term “middle income” appears quite frequently throughout the speech. This differs from previous years where primarily the low-income were slated for assistance, in order to help them achieve some measure of self-reliance, such as through Workfare.
This year specifically, there are various items, such as progressive tax rates on properties and cars, even measures aimed at further controlling the issuing of S- and E-Passes, which can be interpreted as benefitting middle-income Singaporeans.
Also prominent in the Budget statement is the term “social mobility”. Unlike previous official positions on this issue, which argued that social mobility is possible and does occur even for low-income Singaporeans, Budget 2013 recognises that relative social mobility differs across the income hierarchy and that it takes more than bursaries and fee waivers to help low-income Singaporeans rise up socially.
It proposes some Budget items aimed at helping children from low-income families acquire social and cultural capital through enrichment and support programmes in school.
Clearly, there is much to applaud in Budget 2013. However, I am not sure if it can go far enough to help the middle income believe that the Singapore Dream is not only possible, but highly probable.
While real income has risen over the last five years, I reckon the confidence of middle-income Singaporeans regarding job and income security, and the career prospects of their children, has been somewhat shaken.
At the same time, some among the middle income also form part of the “sandwiched” generation. While admittedly there are new proposals targeting elderly Singaporeans, I wonder if middle-income folks who have to support children through university together with uninsured ageing parents in poor health can find any reason to celebrate the senior-friendly aspects of Budget 2013.
On balance, I believe Singaporeans will benefit from Budget 2013, but it would be much harder, though not impossible, to take achieving the 5Cs for granted. I guess a consolation is that we are better off than folks in some parts of the euro zone, precisely because we uphold the principle of fiscal prudence.
Dr Tan Ern Ser is Associate Professor of Sociology at the National University of Singapore and Faculty Associate at the Institute of Policy Studies, Lee Kuan Yew School of Public Policy.
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