Singapore faces 'demographic time bomb'

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Ageing population may mean changes to taxes, immigration rules, says economist

Next year marks an ominous turning point for Singapore's ageing population, according to research by economist Francis Tan from United Overseas Bank.

In 2018, the share of the population that is 65 years old and older will match that of those younger than 15 years old for the first time, he wrote in a report yesterday.

As the elderly population starts to crowd out the young, the "demographic time bomb" may mean changes to taxes, immigration rules and social services, he said.

At this rate, seniors in Singapore's population will make up more than double the share of the youngest residents in 2030.

With already the oldest population in Asean, the Singapore of 2030 will probably look a lot like the demographics-embattled Japan of last year, Mr Tan's figures show.

That is all making policy more complicated as the city-state seeks to ensure that the elderly population is being cared for without curbing the well-being of its younger residents.

One way to increase the labour supply would be to ease immigration restrictions, a move that would have to be done at a managed pace to avoid worsening the "foreigner assimilation issue" in Singapore, even though the country cannot afford zero immigration, Mr Tan said.

He used the analogy of a restaurant's kitchen to show how ageing threatens growth and the quality of output.

"If there are fewer new chefs coming into the kitchen to cook the massive pot of broth (because of low birth rates and low levels of immigration), the existing pool of experienced chefs is ageing and retiring, and there is no improvement in labour productivity, the amount of broth (gross domestic product) that will be produced in the next period will certainly be less, or worse still, be of inferior quality," he wrote.

The stark trend also helps explain why Prime Minister Lee Hsien Loong has said tax increases are not a matter of if, but when.

Mr Tan sees the Government increasing the goods and services tax (GST) next year to 8 per cent from 7 per cent, with an equal boost in 2019.

Still, he noted: "The demographic time bomb starts ticking only in 2018 - it does not mean that it will explode yet. There is still a sizeable percentage of working-age population supporting the economy. That said, one will have to understand that this cannot last forever."

In a briefing on the outlook for next year, OCBC Bank economist Selena Ling argued that it would be overly simplistic to immediately assume a broad-based GST hike.

There are many other options for taxes the Government could hike to substantially raise revenues, she said yesterday.

The timing for any tax hike has to be carefully considered, because next year will likely see a confluence of factors that will make the operating environment challenging for businesses in Singapore, and a GST hike would exacerbate matters, she noted.

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A version of this article appeared in the print edition of The Straits Times on December 07, 2017, with the headline 'S'pore faces 'demographic time bomb''. Print Edition | Subscribe