First, I must thank Finance Minister for restoring the CPF contribution rates and paying the Workfare Special Bonus, not for one year only but three. Thank you also for the many ways in which lower-income families are being helped for the long term, through KIFAS, CFAC and bursaries in universities and polytechnics. It feels to me that you listened carefully to the January debate on the motion on Inclusive Growth, studied members’ suggestions carefully, and responded in a serious way.
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Sir, I would like to focus on one aspect on the budget which was rather unexpected. This was the announcement of planned increases in Foreign Workers Levy. I have observed three different reactions.
The first type of reaction is denial. Some people believe that the Government is bowing to pressure from Singaporeans and therefore tightening the inflow of foreign workers ahead of the General Elections. They think the tap will be turned on again once the elections are out of the way. I’m glad this mistaken thinking was refuted by Senior Minister Goh Chok Tong.
The second type of reaction is to instill “fear, uncertainty and doubt” in the hope of inducing the Government to retreat for this path. People in this group, which I’m rather disappointed to note include CEOs of established businesses, cling to old arguments that Singaporean are too choosy, or that they will have no choice but to pass on the costs to consumers.
They have missed the point. The purpose of increasing the foreign workers’ levy is not to make employers substitute them for local ones. If that were the aim, the Government should adjust the Dependency Ratio, which is the minimum number of Singaporeans must hire to qualify to hire a foreigner.
Why then adjust the levies? Last year, the Government accepted the recommendation of the ESC to maintain the foreign component of the Singapore workforce at one-third. Given the insatiable demand for workers and the limited number that we can physically accommodate, pricing is a mechanism to distribute a scarce resource to whoever can make the best use of. Therefore, I see the purpose of the higher levies as moderating demand and to instill a certain discipline of not growing by increasing headcounts only but through other means.
The third type of reaction was quite pleasant and came from two unexpected sources. One was a local SME retailer Mr Kwek Theng Swee. His view was that while painful, higher levies were a necessary signal to local SMEs to change the ways they operated as they were not sustainable.
Another was the boss of a major construction company in Singapore. In response to my question, he said the higher levies would cost him “several hundred thousand dollars”. But he was not resigned to the situation. He has done projects in Australia and noted the cleanliness and productivity of the construction sites there. Next month, he will organise a group of his managers to see the Australian sites for themselves and improve the practices in Singapore.
I hope more businesses can be like the two examples I shared, taking the changes in a positive manner and being proactive to meet the challenges head on. Businesses are getting a lot of help – the PIC is so very generous. But before some have learnt to use it, some businesses have already started complaining that others benefit more.
Sir, I also wish to highlight the stubborn refusal by some businesses to think harder. Their common refrain is that there’s a limit to how much you can automate, and so the PIC is not useful. I feel sad that they’ve made up their minds already that there is no solution.
There’s more to productivity than automation. Productivity is not just about “same revenue, lower cost”. Productivity is also about “same cost, higher revenue”. So we can have two shops with the same shop space and number of workers, but if one shop’s products and services generate higher revenues than others, then it is more productive in terms of labour and space. Quality matters to the customer, not just price. So do services, speed, capabilities, design and so on. That’s why the labour movement advocates having a “cheaper, better, faster” economy and not just “cheaper” only!
Since levies have gone up, for some businesses, it will have to be “higher cost but even higher revenues”. One of the bosses who understand this is HSL Constructor executive director Charles Quek. He said firms need to get serious about reducing the use of cheap foreign labour and move into higher value work or risk being irrelevant as the industry moves forward. We need more to be like Mr Quek. It’s the only way we can transform our economy and achieve sustainable wage growth for Singaporeans. I appeal to businesses to embrace the shifts we need to make.
To me, having worked in EDB and A*STAR previously, I am very excited that the Government is not just putting pressure on businesses to transform but it is also putting more money to work for them. For example, the Government will set aside S$2.5 billion over the next 5 years under the Economic Development Assistance Scheme (EDAS). I have no doubt that EDB, IE Singapore, Spring Singapore and other economic agencies will make good use of these additional resources to help the companies move up the value chain or expand their markets internationally.
I’m also very excited by the plans for PMETs and will speak more on it during COS.
Sir, one of the important top-ups made was to the National Productivity Fund. As highlighted during the January debate on the motion on inclusive growth, we help the low-wage workers not by burdening business with minimum wage but by getting businesses to train their workers, improve productivity and share the gains.
To promote such efforts, NTUC launched the $40 million Inclusive Growth Programme (IGP) last year with government’s funding support. IGP is only 6 months into implementation. Already, 190 projects have been lined up. As the projects are implemented, close to than 17,000 workers will benefit.
I hope that the increases to the National Productivity will allow the IGP to be provided with additional resources. We should aim to help at least 100,000 low-wage workers in three years.
I note that the Finance Minister has taken pains to ensure two things in this Budget:
The ‘hongbaos’ total $3.2B are slightly less than the $3.4B investments for the future
These commitments were made AFTER we have returned $4B to the reserves
The news headlines have been mostly positive. The only not-so-positive ones related to the planned increases in the Foreign Worker’s levy. One said “Worker levy increases shock businesses”, another on the same topic reads “Painful, but there’s a logic to levy hike”. The mostly positive headlines stand in sharp contrast to other countries’ Budget announcements.
Take Ireland. When the Budget was unveiled in November last year, the headlines were gloomy. The Daily Mail said “Stricken Ireland cuts spending to the bone” while another paper quoted former Prime Minister Brian Cowen as saying “No one will be sheltered”. One other headline went so far as to say “Fear and anger as Ireland prepares savage budget cuts.”
In France, the budget deficit in 2010 stands at 148.8 Billion Euros. The International Herald Tribune called this “A French tradition: Pain in the provinces; As Paris cuts spending, rural enclaves are left to struggle.” Very strong language and not at all happy.
Singapore is indeed unusually successful in managing our Budgets. That is something we should not take for granted and why I wish to share a cautionary tale with Singaporeans so that we understand what’s needed to have good Budgets every year and not just this year.
In 2000-01, the labour government in the UK ran a budget surplus of £15.4 billion which was 1.6% of GDP. But between the years of 2001-2005, public expenditure rose by 4.4% a year in real terms, nearly doubled the rate of economic growth over the period. In 2004-05, it chalked up an estimated deficit of £34.4 billion, which was 2.9% of GDP.
This was a huge deterioration in its structural balance – about £50B over 4 years. The labour government really went on a spending spree. Then Chancellor of the Exchequer (Finance Minister) was Gordon Brown. In 2005, the Economist commented that “Gordon Brown's fiscal imprudence will help him into 10 Downing Street (the Prime Minister’s residence), but he'll pay in the end”, noting that “Prime Minister Brown will have to sort out the problems that Chancellor Brown created”.
The Labour Party led by Gordon Brown eventually lost the elections and the right to govern. So a spending spree, a so-called “Election budget” can cost a party in power; rather than help it, contrary to what the opposition claim.
June 2010, the newly elected Coalition government announced an Emergency Budget. In the budget, the VAT, a consumption tax, was raised from 17.5% to 20%. Also announced were major reductions in government spending which would see over 300,000 civil servants lose their jobs. Some £11 billion of welfare cuts would also be made by 2014-15, including cuts to child-benefit rates and housing benefits.
Sir, I’m not making any prediction about Finance Minister’s next promotion after this year’s Budget bonanza, and what happens after. There are two points I wish to make.
As the UK example shows, without good growth, we cannot increase spending without bankrupting ourselves.
The price of a bad Budget is inevitably paid by the people, in the form of higher taxes and cuts to public services which they have come to rely on. Conversely, the benefits of a good budget are enjoyed by the people, in the form of sustained growth and societal progress.
Therefore, in my view, Singaporeans should evaluate this Budget on what it does for them today and in the future, and not whether it favours any political party in the short term. That is the only worthwhile yardstick.
How do we know whether this Budget will benefit Singaporeans in the future? Interestingly, there are useful lessons from the past.
Take the Budget of 2001, a decade ago. Dr Richard Hu was then Finance Minister. In February that year, he delivered a Budget that produced headlines such as “$1B bonanza for businesses”, “Generous tax cuts for individuals” “Goodies for everyone: Generous to a fault”.
Unfortunately, despite the good Budget, the economy went into a tailspin after September 11. As a result, Government had two rounds of off-budget measures. The second-round announced in October, worth some $11B, included a $2.4B tax relief package for firms and individuals, $2B worth of reliefs for individuals. Cabinet Ministers took a pay cut of 17.3 per cent to signal the gravity of the economic situation facing the country and the need for wage restraint.
Salaries of other political-appointment holders and senior civil servants, as well as allowances of Members of Parliament were reduced by 10 per cent.
In light of the rising jobless rate - expected to hit 4.5 per cent at the end of the year - the government also set aside $809 million in the form of employment assistance schemes for workers and executives.
What if we rolled back the clock 30 years earlier to 1981? It was Mr Goh Chok Tong’s last budget as Finance Minister. Mr Tan Soo Khoon said it was “...difficult to throw brickbats at the Minister this time.”
The $9.6B budget included a reduction in the highest marginal tax rate for individuals from 55% to 45% (it’s hard for me to imagine people in the top bracket paying 45% taxes then, much less 55%!). The reason for the cut? “…to promote individual drive and enterprise.”
SM Goh said then, “It is our ability to enlarge the economy through intelligent hard work which allows us to reduce tax rates even as government expenditure increases. We must press on with economic restructuring. We must bring about a qualitative change in economic activities by the end of the decade.”
With your indulgence, Sir, let me just share some very interesting features of the Budget in 1971, forty years ago when Singapore was a fledgling nation. Finance Minister Hon Sui Sen was new to politics then and was delivering his first Budget, having taken over from Dr Goh Keng Swee.
Mr Hon outlined four “dark clouds” hanging over Singapore then – inflationary pressures, state of the US economy, accelerated withdrawal of the British military presence and shrinking entrepot trade. In particular, the British withdrawal could take some $350M out of the GDP. Nearly 17,000 civilians and 2,000 locally enlisted personnel would lose their jobs.
The SAF then also needed $300M to expand. Mr Hon was keen to develop our tourism. Plans were underway for the Jurong Bird Park, a zoo in Seletar, and a cable car system from Mount Faber to Sentosa. An American consultant estimated it would cost $300-400M to develop Sentosa.
That year, against all expectations, Mr Hon did not raise taxes. He counted on the record number of very large industrial projects and to raise tax revenues to fund our development. With the $17M in payroll taxes, he allowed reimbursements to industrialists for approved training or apprenticeship schemes in skills that where in short supply. But he also cautioned Singaporeans that the previous year’s 15% growth was not likely to be repeated.
What is the legacy of the Budgets in 10, 30, 40 years ago? There are very consistent themes in all these Budgets – don’t over-tax, use resources wisely, save for a rainy day, provide relief in tough times, keep investing in training and skills, build capabilities, capture growth opportunities, help workers and businesses stay competitive, keep growing the economic pie, always share pains and gains with the people.
It feels almost uncanny – you can change the Finance Minister and their Budget speeches still sound quite alike! But the real message for Singaporeans is this: each Budget on its own does not transform a country but consistent and tenacious management of our Budget over time help to make Singapore a much better home for all of us. It is a uniquely Singapore way that we can all be very proud of.
Sir, like his distinguished predecessors at various junctures in Singapore’s short history, Finance Minister Tharman has delivered an outstanding Budget. It is a Budget that carries on the good tradition of prudence and yet introduces innovative ways to help Singapore transform. It cares for and share with Singaporeans, and also invests in strategic areas like the economy, education and eldercare. It is a budget that is pro-worker and pro-future, one that’s smart but also has lots of heart.
I can say confidently that this Budget has the full and resounding support of the labour movement and all our unions.
Sir, I support the Budget.
