Let's have a Singapore Conversation about our finances

Finance Minister Tharman Shanmugaratnam's way of making policy change is like the move of a weiqi master player. One has to fight on multiple fronts in a game that rewards strategic thinking and patience.
Finance Minister Tharman Shanmugaratnam's way of making policy change is like the move of a weiqi master player. One has to fight on multiple fronts in a game that rewards strategic thinking and patience. ST PHOTO FILE

If you thought the People's Action Party lost the plot over the last decade, you should listen to Deputy Prime Minister Tharman Shanmugaratnam's round-up speech for the Budget debate yesterday.

Far from the Government "losing the plot" - a phrase MP Inderjit Singh introduced into the debate on Wednesday, if only to debunk it - Mr Tharman traced the slow and steady way in which it has introduced social policies to make Singapore more inclusive.

"We've embarked on major moves to build a more inclusive society and mitigate inequalities. It's not a recent shift. It's not a sudden shift. We started in a major way in 2007 and, since then, step by step, year by year, we've made enhancements in education, in housing, in health care and in retirement. A deliberate tilt to support our lower- and middle-income groups step by step...

"This Budget concludes the major initiatives we are taking in recent years to empower Singaporeans at each stage of their lives."

Mr Tharman's way of making policy change is like the move of a weiqi (also known as Go) master player. One can't secure a win by checkmating the king on a single battlefront, as in chess. Instead, one has to fight on multiple fronts, placing black and white chips on a board in a bid to expand one's own territory, protect one's own clusters and encircle enemies. It's a game that rewards strategic thinking and patience.

He did this as Education Minister from 2003, slowly but steadily dismantling the streaming system - merging the EM1 and EM2 streams (remember them?) and then scrapping the demoralising EM3 stream - so that by the time he left in March 2008, streaming was all but ended in practice.

On social policy, the pieces are now fitting together.

In 2007, the Workfare Income Supplement for low-wage workers was institutionalised, after a pilot in 2006. Subsidies for childcare and kindergarten went up sharply in 2013. Health-care subsidies for outpatient, long-term and home-based care have all gone up. MediShield Life will be implemented at the end of this year. On retirement, CPF Life now offers an annuity. The new Silver Support bonus will give poorer retirees an allowance equal to up to $250 a month.

What do these weiqi moves do? They expand inclusiveness, counter inequality, and protect the vulnerable. The policies aim to "temper the inequalities of life".

Taken together, they have transformed life for Singaporeans. Middle-income households are paying significantly less for childcare and eldercare. Anxieties about health care and retirement are being eased.

Singapore is well on its way to developing a robust social safety net, and at a pace I warrant few Singaporeans would have anticipated just five years ago.

Mr Tharman put it thus: "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."

Is it sustainable?

Mr Tharman defended the Budget's $6.67 billion deficit, saying "the deficit is almost entirely due to funds being set aside for future investments". In any case, surpluses from the current term of government that began after the 2011 elections will cover it.

But whether one accounts for spending by mentally slotting it into a category called "Social Spending" or "Capital Investment", the hit on the bottom line is the same.

Here, I wish the Finance Minister had said more about how Singapore is to proceed in future.

He reassured Singaporeans that the Constitution includes rules that prevent any government from accumulating deficits over its term of government. He also said the fiscal position is sound: By including Temasek Holdings into the returns that Budgets can tap, and with the other tax changes announced, "we will be in a good position for at least the rest of this decade".

But after that?

After all, as Mr Tharman noted, Singapore started from a strong position, "because when our society was young and growing, we practised fiscal discipline. We kept our expenditures trim, our social expenditures were basically education, housing and health care".

But today's Singapore is still relatively young; the citizen old-age support ratio last year was 5.2, meaning there were more than five working adults per elderly person aged 65 and above.

It will be 2.1 in 2030 - just two working adults supporting one elderly person.

If we already use half the returns from reserves to augment today's Budget, how much will we need then?

Singapore needs a serious conversation to get a social consensus on two things. The first is the level of tax the high-income are prepared to bear, to pay for what is rapidly becoming a middle-class welfare state. It is one thing to ask top earners to fork out for transfers to the old, sick and indigent; it is quite another to ask them to pay the bill for the middle-income's domestic maid levies, executive condominiums and expensive kindergartens. The worm will turn beyond a certain point.

The second is the balance between the generations. How much should we spend today from yesterday's reserves? How much to save today for tomorrow?

Yesterday, Australia released its Intergenerational Report to much fanfare. It is prepared every five years and "assesses the long-term sustainability of current government policies and how changes to Australia's population size and age profile may impact on economic growth, workforce and public finances over the next 40 years".

Singapore needs, if not a full-fledged report, at least a Singapore Conversation on the proper balance to be struck across generations.