Budget Debate, Day 3
Budget for 'fair, progressive system that is sustainable'
Tharman says approach is about empowering people and aspirations
By Rachel Chang, Assistant Political Editor, The Straits Times, 6 Mar 2015
THIS year's Budget seeks to put in place a fair and progressive system that can be sustained beyond the current generation and into the future, said Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam yesterday.
He said that the Budget concludes the Government's major initiatives in recent years to forge a new social compact for Singapore.
Urging MPs, including the opposition, to support what he passionately called "the right path for Singapore", Mr Tharman emphasised that the new compact is not one that apes the "cradle- to-grave welfarism" of Western countries.
"Our approach is about empowering people and aspirations, and rewarding responsibility through life," he told a packed House at the end of a three-day debate.
That is, the major pieces of the Government's strategy are designed to reward personal responsibility and self-reliance, while actively intervening to temper life's inequalities.
In a 90-minute speech after 55 MPs had said their piece on the Budget, Mr Tharman told the House how the Government will unsparingly support local small and medium-sized enterprises, build a fair and inclusive society, and work to produce a fair and progressive Singapore system that is fiscally sustainable beyond the current generation.
Its fundamental goal is social mobility, where Singapore has done better than most.
Of those who start life in the bottom one-fifth of families, 14.3 per cent move up into the top one-fifth as working adults.
This shows a far more fluid situation than in the United States, the United Kingdom or the Nordic countries, where only 7 per cent to 12 per cent of those who start at the bottom can climb to the top.
But with each decade, sustaining social mobility gets more difficult as the natural workings of society accentuate inequalities, he said. Hence, the Government has committed significant resources to try and tilt the balance back.
It wants to boost educational achievement and home ownership among those from disadvantaged backgrounds, to counteract the forces that leave them behind.
So, the SkillsFuture initiative, which gives every Singaporean adult an initial grant of $500 for approved training courses, is not just an economic strategy, but "a major force for social mobility".
"At its heart, it is about helping every individual (fulfil) their potential through life. Everyone has a strength, although we may not figure it out during our school years... and it's never too late in life to identify your strengths, identify your interests and push your potential. It's never too late to learn," he said.
As he rallied MPs to back the new social compact, Mr Tharman also assured them he had his eyes fixed on sustainability, so that future generations do not end up paying for benefits they themselves will not enjoy.
Singapore's social spending ballooning into dangerous territory had been a dominant concern in the House.
Mr Tharman made clear the Government will not cross the "red line" of failing to balance its Budget in every five-year term of government - a requirement that is set out in the Constitution, he pointed out.
The $6.7 billion deficit in Budget 2015 is largely due to investments in infrastructure and is fully plugged by surpluses from the last few years - with a few billion more left over.
Noting the Workers' Party's support for "all the major thrusts of the Budget", he thanked the party and said: "I trust you have the courage to take the same position and extend the same support during the elections."
Despite making clear that this year's Budget puts in place the final pieces of Singapore's new social compact, Mr Tharman said the country is just at the beginning of a long road.
Harking back to the Singapore Pledge's promise of justice and equality, he said: "These values and aspirations are what we started with. But achieving them is continuous work in a changing environment and with a changing society."
Social mobility 'must be part of Singapore identity'
Society here is more fluid but keeping it that way will become tougher: Tharman
By Tham Yuen-c, Assistant Political Editor, The Straits Times, 6 Mar 2015
SOMEONE who comes from a low-income background has a better chance of making it to the ranks of the richest in Singapore than in the United States, Britain or the Scandinavian countries.
But while society is more fluid here than in other advanced societies, sustaining this mobility will become more challenging as the country matures.
Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam yesterday said social mobility "has to be part of our Singapore identity", as he sketched out the Government's efforts to build a fair and inclusive society.
Wrapping up the Budget debate in Parliament, he said: "Social mobility is the defining challenge in every advanced country today. We're fortunate that Singapore has so far done relatively well. It is actually still a more fluid society than most."
Among young adults in their mid-20s to early 30s in Singapore, 14 per cent of those from families in the poorest one-fifth have moved into the top one-fifth of income earners, he said.
This compares with 7.5 per cent in the US and 9 per cent in Britain. Even in the Scandinavian countries, reputed for their comprehensive social welfare programmes, only about 10 per cent to 12 per cent of those in the lowest income quintile end up among the richest one-fifth.
Citing these figures yesterday, Mr Tharman said that sustaining social mobility will be more difficult as society gets more settled.
"But we want to give the best chance for someone who starts off with a low-income background or middle-income background to move up," he said.
To do so, the Government has been deliberately putting in place six initiatives in the past eight years that aim to help Singaporeans at every stage of their life.
First, it has made a good education available to all, he said.
Enhancing social mobility "means starting earlier, finding every way to help every kid who has a weak start to gain confidence and to get a strong start".
To this end, the Government has increased spending on education, made school fees more affordable, and is creating more different paths to success, Mr Tharman said.
A second initiative has been to promote home ownership.
Stressing that it is especially critical to help young people own a home, he noted that the Government has built more HDB flats and given out more housing grants, among other things.
These measures are "unmatched" in nearby cities such as Shanghai, Seoul and Sydney, he said. "Homes are more within the reach of our young than they are in any other leading Asian city."
A third move to preserve social mobility is by helping Singaporeans upgrade their skills and fulfil their potential at every stage of their lives, said Mr Tharman.
He said initiatives such as SkillsFuture, which he described as a "major force for social mobility", are precisely for that purpose. The programme pays for Singaporeans to learn new skills.
Fourth, the Government has "taken significant moves to temper inequality", said Mr Tharman.
Over the years, it has introduced various measures to redistribute income and shrink the rich-poor gap. These include Workfare and the Progressive Wage Model to help raise the income of low-wage workers, and GST Vouchers to help poorer families cope with living costs.
The fifth move is to provide older Singaporeans with "greater assurance in old age" so they "can make the most of life".
The Government has offered companies incentives to hire and retain older workers, and is giving more help to low-income retirees.
One of this year's Budget measures, Silver Support, will help in "tempering inequalities through life" by giving the poorest elderly folk cash payouts for life.
Lastly, the Government has also made it easier for people to pitch in to help one another, by encouraging donations through tax breaks and matching grants.
"If you take it all together, it has been a set of major moves at every stage of life, strengthening our policies, providing greater assurance and opportunities in education, in work, in health care, in retirement," said Mr Tharman.
Silver Support 'aims to mitigate inequality'
By Charissa Yong, The Straits Times, 6 Mar 2015
THE main aim of the Silver Support Scheme that gives low-income seniors cash payouts for life is to temper inequality in Singapore, said Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam yesterday.
The permanent scheme will benefit about 150,000 and be rolled out early next year.
In his wrap-up of the three- day Budget debate, Mr Tharman laid out the six policy initiatives underpinning a new social compact the Government has been putting in place in the past seven to eight years.
One of them is the introduction of redistributive schemes that reduce inequality. These include the Silver Support Scheme and Workfare programme, which boosts the income of low-wage workers.
Together, they are a key pillar of Singapore's social security system, said Mr Tharman.
"I have to emphasise again that (Silver Support) is not about tackling absolute poverty. It is about mitigating inequality," he added.
Many among the bottom 30 per cent of the elderly have other income sources, such as personal savings and money from relatives.
Also, there are other dedicated ways to help the most needy Singaporeans, he said, citing the network of Social Service Offices and the Public Assistance scheme. What sets the Silver Support and Workfare schemes apart is that they aim to supplement incomes to mitigate inequalities. Hence, they will stay permanent even as living standards rise, he said.
Addressing concerns from MPs such as Mr Ang Wei Neng (Jurong GRC) and Mr Liang Eng Hwa (Holland-Bukit Timah GRC) on their sustainability, Mr Tharman said Silver Support and its future funding needs have been built into Singapore's fiscal planning.
It will be funded out of the annual Budgets. This is unlike the Pioneer Generation Package, which is fully paid for from the revenues collected during this term of government, he added.
CPF sustainable as it adopts the best from other systems: DPM
By Lim Yan Liang, The Straits Times, 6 Mar 2015
SINGAPORE'S Central Provident Fund system is sustainable and progressive as it takes the best ideas from both collective pension schemes and individual retirement accounts, while avoiding the disadvantages inherent in either scheme, Deputy Prime Minister Tharman Shanmugaratnam said yesterday.
At the same time, the Government has become more progressive in enhancing the CPF scheme, and will continue to find ways to help Singaporeans get by as they near retirement, he said at the end of the debate on the Budget statement.
To illustrate the hybrid nature of the CPF scheme, he compared the pros and cons of both collective pensions and individual retirement accounts.
Collective pensions, he said, promise individuals regular payouts through their retirement without requiring them to bear investment risks. Such a scheme therefore gives retirees peace of mind, and tends to be more progressive because of government redistributions to the lower-income group.
But they also transfer the cost of benefits to the next generation and have become unsustainable and inequitable in places like Britain. "Countries are now making major reforms, one after another, to cut back on the future benefits of today's working population because of unsustainable benefits that have been promised previously," he said. "So people who start work today have to contribute more but will receive less benefits compared to current retirees."
While individual retirement accounts, such as in the United States and Australia, are more sustainable as they are premised on each person saving responsibly, they are not without problems. Without resource pooling, individuals have to bear the investment risk, and such accounts tend to underperform the market.
How much savings a person has also depends on whether he is lucky enough to retire when the market is healthy, he said.
By using individuals' savings as the foundation while ensuring there is "a strong element of collective responsibility" by pooling risks - such as through CPF Life - the CPF scheme avoids the major disadvantages of either system, said Mr Tharman.
"The reason why the CPF system is both progressive and sustainable... is that the transfers that take place in the CPF are from the government Budget. Not through generations, from one generation to the next, or promises made to the current generation which eventually have to be funded by the next generation.
"It is transfers that are achieved through the government Budget, (from) a government that has a triple A rating. That is the strength of the CPF system."
Such transfers have increased since 2007 to become more progressive: through housing grants, Medisave top-ups that are permanent for the pioneer generation, and the extra interest on smaller balances in CPF accounts.
These transfers mean that a young worker today whose income is at the 10th percentile would have received $200,000 in CPF support by the time he retires at 65, said Mr Tharman.
Allowing members to withdraw up to 20 per cent of their retirement savings at age 65 also gives members some flexibility, he said.
While turning down a Workers' Party's proposal for an option for CPF payouts to begin at age 60, he acknowledged the need to help Singaporeans in their 50s and 60s who cannot yet access their CPF savings.
These include helping elderly home owners unlock equity in their homes, said Mr Tharman, who noted that 80 per cent of elderly households in the bottom quartile here own homes, compared with 20 per cent in Germany and Denmark.
While the Government already allows those unable to work owing to illness to withdraw their CPF savings early, it will also give "maximum support" for those who wish to work beyond 65.
'Unwise' to give option of CPF payouts from age 60
By Lim Yan Liang, The Straits Times, 6 Mar 2015
A WORKERS' Party (WP) proposal to give people the option to get monthly payouts from their CPF savings at age 60 instead of just at the allowed age of 65 "is not a crazy idea, but it would be unwise", Deputy Prime Minister Tharman Shanmugaratnam said yesterday.
In cautioning against the move, he highlighted how countries such as Denmark, Finland and France that took such a path have had to reverse course.
Also, its negative consequences would be suffered by both the individual and society.
Said Mr Tharman, who is also the Finance Minister: "Everywhere it has been tried, the result has been that those who take up this option of early payouts end up less prepared for retirement.
"Less prepared because they stopped work earlier, and less prepared because they will have lower payouts through the rest of their lives.
"The upshot of it... is the rest of society eventually has to take on larger responsibility to support them."
WP Members of Parliament Png Eng Huat (Hougang), Chen Show Mao, Muhamad Faisal (both of Aljunied GRC) and Non-Constituency MP Gerald Giam had earlier called for the lower-age option to give greater flexibility to CPF members who, for various reasons, are unable to work and need money urgently.
They also want the CPF withdrawal age to be delinked from the retirement age, so it is not the "moving target" that it is now.
But, Mr Tharman said, experts had taken a dim view of countries such as Britain, which had allowed retirees to take out their retirement savings early.
"The reasons are the same all over the world: It is good to offer choice, but part of the human predicament all over the world is that we will all place greater priority on what happens today and the benefits we can get today rather than what we get well into the future," he said.
People also underestimate how long they will live, he added. As a result, some Nordic countries now link their pension and retirement ages to life expectancy.
"We should recognise these challenges honestly and not take positions for their populist appeal, when we know fully that putting such proposals into practice will merely set us back in tackling the larger challenge of ensuring adequate retirement income throughout the retirement years," he said.
More benefits for lower-, mid-income now than a decade ago
Deliberate tilt towards these groups the result of ongoing push to make Singapore a fairer society: Tharman
By Charissa Yong, The Straits Times, 6 Mar 2015
LOWER- and middle-income Singaporeans receive significantly more benefits today than 10 years ago, said Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam.
The deliberate tilt in favour of these income groups is the result of an ongoing push to make Singapore a fairer society, he added as he wrapped up the three-day Budget debate yesterday.
In his 90-minute speech, he set out how the Government has played an active role in redistributing resources between the haves and have-nots, with major schemes rolled out for Singaporeans at every stage of life.
As a result, Singapore has become more progressive, with higher-income households contributing most of the taxes and lower-income households getting the bulk of the benefits, he said.
Citing new data from the Finance Ministry, he said that as of last year, the top 20 per cent of households here pay 55 per cent of all taxes and receive 12 per cent of all benefits.
These taxes include taxes on income, property and cars, as well as the goods and services tax, he added.
The situation is flipped for the lowest 20 per cent of households, who pay 9 per cent of all taxes and get 27 per cent of all benefits.
As for the middle 20 per cent of households, they also receive more than they fork out: They pay 11 per cent of all taxes and get 20 per cent of all benefits.
Moreover, the mechanisms that help to redistribute this wealth are built into the system and here to stay, Mr Tharman said.
About 90 per cent of the Government's transfers to Singaporeans come from permanent schemes, with the rest from temporary schemes that Singapore can afford when the Budget is in good shape, he explained.
But the system does not just redistribute income from the rich to the poor. It also aims to give the middle-income group a leg up, said Mr Tharman.
For every dollar of tax middle- income Singaporeans paid last year, they received $1.73 in benefits, he said, citing Finance Ministry data.
This was up from benefits of $1.63 in 2009 and $1.38 in 2004 for every dollar of tax paid.
It works out to a much better deal than in other developed countries such as Finland, the United States and Britain, Mr Tharman noted.
While the middle-income groups in those countries may receive more overall benefits, they also have to pay much higher taxes than in Singapore.
"Some of them have free health care, free tertiary education, free many things. But they are paying for it. It's not free. It is never free," said Mr Tharman.
He also pointed out that the tax systems in these other countries - where "everyone is paying for the 'free' benefits that they're getting" - are less progressive than in Singapore.
Middle-income Americans pay income taxes of about 17 per cent, while the tax rate for middle-income Singaporeans is "close to zero" taxes, he said.
Dollars and cents aside, Mr Tharman emphasised that building a stronger society is not just about how much redistribution takes place.
Instead, the key lies in how to strengthen the values that bolster and sustain a fair and inclusive society.
"At the heart of it all, we're seeking to build a stronger social compact for the future, a compact where personal and collective responsibility go hand in hand," he said.
New rule 'will not change Temasek's strategy'
By Marissa Lee, The Straits Times, 6 Mar 2015
A NEW spending rule allowing the Government to use up to 50 per cent of Temasek Holdings' long-term expected returns to fund government spending will not change the state investment firm's investment strategy in the least, said Finance Minister Tharman Shanmugaratnam in the Budget debate yesterday.
"It is not a dividend policy in disguise that determines how much cash Temasek has to pay the Government each year."
Mr Tharman clarified that the net investment returns (NIR) framework enables the Government to draw down from investment entities' expected rather than actual returns.
This means that no pressure is put on Temasek, GIC or the Monetary Authority of Singapore - which were already part of the NIR - to sell assets, realise capital gains or pay more dividends.
"It keeps the investment strategies independent of the spending rule of government," Mr Tharman said.
And while expected returns may exceed actual returns in some years, the Government can draw on a variety of sources to meet its liquidity needs for each Budget. "This is a liquidity management issue, not to do with the spending rule and not to do with investment strategies or investment entities," Mr Tharman said.
Another strength of the NIR framework is its stability, he said.
First, spending is based on expected long-term returns, not actual returns, which are more volatile. Second, the Government practises a "smoothening" of its asset base to counter the effect of cyclical changes in the asset markets.
For example, in the case of an asset market boom where the value of Singapore's reserves goes up, the Government does not spend on the basis of that boom. It sets aside some or all of the temporary boost in revenues for the future. "That way, we avoid feast and famine in our spending."
S'pore has to 'avoid political flaws of other nations'
By Marissa Lee, The Straits Times, 6 Mar 2015
SINGAPORE does not want to pay the price of committing to more long-term social spending than it can afford.
To balance the Budget across the generations, the Republic has to avoid the "political flaws" of other advanced countries, said Finance Minister Tharman Shanmugaratnam.
"We've got to sustain a fair and inclusive society for generations, not one election at a time," he said towards the close of the Budget debate yesterday.
Mr Tharman gave the example of Britain, where "with each electoral term, each party and each government coming into power has increased social spending".
"It's a vote buyer," he said, adding that the young and the poor there have borne the brunt of spending cuts now that the nation's welfare system has become unsustainable.
But Singapore's position is "exactly the reverse", he explained. Instead of building up social benefits with unfunded commitments in its growing years, Singapore has "kept social expenditures trim" and built up its reserves.
In fact, it is unconstitutional for the Government to borrow from future generations. Although it may run a deficit in a given year, each five-year term of Government cannot run a net deficit. For these reasons, permanent social spending such as the Silver Support Scheme is sustainable, and Singapore's fiscal planning "fair (to) current and future generations", said Mr Tharman.
His comments came as MPs queried how future Budgets would be balanced, noting the introduction of the Silver Support Scheme, which will cost about $350 million in the first year.
In Parliament on Tuesday, Mr Liang Eng Hwa (Holland-Bukit Timah GRC) had questioned whether the Silver Support Scheme would "balloon" into a much bigger spending commitment as the population ages.
Mr Tharman assured MPs that the government Budget has been in a "healthy position".
And in a nod to a number of MPs who had called for prudent budgeting, he said this year's $6.7 billion deficit "is almost entirely due to funds being set aside for future investments".
He emphasised: "Until this year during this term of government, we've not recorded a deficit in any year before setting aside funds for the future."
In Parliament on Tuesday, Mr Arthur Fong (West Coast GRC) noted that the Government has budgeted for a deficit in four out of the seven years from 2009.
Mr Hri Kumar Nair (Bishan-Toa Payoh GRC) noted that the Government has relied "significantly" on the national reserves to finance spending since first drawing on them in 2000.
Mr Tharman told the House that Singapore "will be in a good position for at least the rest of this decade", after the change in the Government's spending rule that will include expected investment returns from Temasek Holdings, as well as other new tax changes such as the rise in personal income tax rate for top earners.
Low Thia Khiang welcomes direction of Budget
By Charissa Yong, The Straits Times, 6 Mar 2015
WORKERS' Party (WP) chief Low Thia Khiang (Aljunied GRC) yesterday backed the direction set by this year's Budget, particularly schemes to develop local talent, such as the SkillsFuture accounts with an initial $500 credit for all Singaporeans aged 25 and above to use on approved courses.
But he called for Singaporeans to be given a chance to take on leadership roles in large local companies, in order to develop local talent who can replace foreigners in key positions.
Mr Low told the House that ensuring Singaporeans play key roles, and not just supporting roles, in the workplace is a major challenge for the country.
"Currently at some large companies, because of our foreign talent policy, it seems that many heads of department or senior management are all foreigners, whereas Singaporeans are merely middle managers," he said in Mandarin.
Many sandwiched-class Singaporeans feel they should have the opportunity to rise further, but cannot do anything about their situation, added Mr Low.
If the situation continues, it will threaten Singapore's development and youth, he said. "When Singaporeans can't even be the leaders in their own country's companies, to a certain extent, it means Singapore has lost a leadership role, and we will not be able to develop the younger generation to take over and become leaders in various domains."
He went on to spell out two other challenges the country had to address. First, Singapore cannot be overly reliant on foreign manpower. He welcomed the current strategy of economic transformation and increasing productivity as a path to maintaining the country's long-term interests.
Second, the widening gap between the rich and poor must be mitigated. Society will be divided if the Government does not help those who are left behind by economic growth, he added.
This is why he said Silver Support, a new permanent scheme which will give lower-income senior citizens aged 65 and above some cash to help with their daily expenses, was a necessary step.
Speaking after him, WP MP Lee Li Lian (Punggol East) also supported the Government's skills upgrading push in the Budget, saying this would help change mindsets among employers, some of whom were reluctant to let workers go for training.
Ms Lee also welcomed the move to subsidise course fees for those aged 40 and above by at least 90 per cent, and called for this age limit to be lowered to 35, saying this was the age where many, especially new mothers, look to switch careers.
Gradual path for revamp of economy
Tough for some firms, but others growing: Tharman
By Chia Yan Min, The Straits Times, 6 Mar 2015
ECONOMIC restructuring has been tough on companies, but there is plenty of life in the business sector yet, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam said yesterday.
The number of new companies set up here, net of those that have shut down, has been around 20,000 a year for the past five years. This is more than double that of the preceding five years, he said.
He was responding to concerns expressed by MPs - including Nominated MP Thomas Chua, Ms Lee Bee Wah (Nee Soon GRC), Mr Inderjit Singh (Ang Mo Kio GRC) and Mr Gan Thiam Poh (Pasir Ris-Punggol GRC) - that the Government is not doing enough to help firms manage rising costs and the labour crunch.
The main reason for rising business costs is high demand for limited resources such as land and labour, Mr Tharman said. This shows Singapore is "not an economy in crisis... Businesses are still trying to do business, trying to expand" even as the economy undergoes a painful transition.
There were two approaches the Government could have taken when it started economic restructuring in 2010, he said. It could have used taxpayers' money to subsidise business costs like rents and wages, or gone in the other direction by withdrawing all support and allowing market forces to more quickly "sort the winners from the losers".
Instead, the Government has taken the middle path, gradually cutting foreign labour inflows to allow market forces to take effect, while also channelling the revenue from higher foreign worker levies back to businesses that invest in boosting productivity.
Mr Tharman said that the process of re-engineering a company and training people takes time, as NMP Randolph Tan and others pointed out during the Budget debate.
But Singapore can afford to take this "phased" approach because it is not an economy in crisis and does not need to resort to more drastic measures. "Shock treatment doesn't just weed out the weakest players," he noted. "It has a way of weeding out good businesses as well... When you go through a deep crisis, you lose many good businesses, including very promising entrepreneurs."
A more gradual transition also imposes less of a cost on workers by preventing a sharp spike in layoffs, the minister said. In fact, the labour shortage has resulted in higher labour force participation among older workers and people returning to the workforce, particularly women.
This might hamper productivity growth in the short run as it takes time for workers to gain the necessary skills, but fulfils the Government's social objectives of encouraging more people to stay in or join the workforce.
Meanwhile, the Government is "sparing no resources" in helping small and medium-sized enterprises through this tough transition, Mr Tharman said. While MPs and some in the business community have raised concerns about the bureaucracy involved in navigating the array of productivity-boosting schemes, "frankly, these are second-order issues", he said.
"It just depends on the entrepreneurs. If they are willing to take advantage of the schemes, the schemes are there. They are more generous than in any other economy I know of."
Charities gain from tax perks for donations
The Straits Times, 6 Mar 2015
TAX incentives to encourage people to donate to charity have put a small dent in the state coffers but resulted in significant gains for charities, Deputy Prime Minister Tharman Shanmugaratnam said.
Since 2009, people have been allowed to deduct from their taxable income 2.5 times the amount they donate to charity.
This has cost the Government about $120 million in tax revenues annually, but the charitable sector has gained about $870 million a year, Mr Tharman said yesterday.
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