S'pore's middle way: Growing economy, caring for its people
Media: The Straits Times
In his piece, "Singapore 50 years ago and now: An Asian middle way?" in last week's Insight, Professor Steve Kelman applauded Singapore's growth and alleviation of poverty but wondered if we had become "more corporation than cause".
He hoped Singapore could continue to show the world a middle way between the excesses of capitalism and an unsustainable welfare state.
It is heartening that we have international friends who have followed our progress through the years, and who wish us well. For that reason, I felt that I should assure Prof Kelman and other friends that the People's Action Party (PAP) Government remains true to its mission of a fair and just society, by creating opportunities for all, redistributing wealth according to need, and effective social spending.
We are doing this in a way unique to Singapore, through innovative policies evolved over the years. We have avoided ideological straitjackets, focusing instead on what really works, as encapsulated in the PAP founding leaders' 1970s essay collection titled: Socialism That Works... The Singapore Way.
Conventional Western orthodoxy is that social justice must necessarily be achieved through higher taxes. By that measure, the higher the tax rates, the more just and fair a society ought to be.
Yet Singapore bucks this - topping as it does global indices for key social outcomes such as education, healthcare and home ownership, ahead of countries with significantly higher tax rates than ours, as shown by the recent World Bank Human Capital Index.
And despite our generally low tax rates, our social ministries' expenditure has doubled between FY2009 and FY2018. How have we been able to manage this?
First, we do not solely rely on taxes. Our revenue is supplemented by the net investment returns contributions (NIRC), that is, income on our reserves, a feature unique to Singapore.
The NIRC has more than doubled from $7 billion in FY2009 to $16 billion in FY2018. Without this annual injection, we would have had to double our personal income tax or goods and services tax (GST) collection to raise the same amount of revenue.
Second, we maintain fiscal prudence and avoid high debt. Many governments in countries with tax rates higher than ours have to use part of those revenues to service debts they or predecessor governments have accumulated; it does not all go to public spending.
Third, it is not just how much you tax, but also how effectively you collect and use that tax.
We have a robust tax collection system to prevent leakage.
We insist on good governance to avoid wastage.
We crack down on corruption to prevent rot.
We push for efficiency, productivity, and value for money so that the public gets maximum return on its tax dollars.
All this is driven by our unwavering and unyielding determination to secure good outcomes for our people out of limited resources.
We are firmly committed to the redistribution of wealth. But we are acutely conscious that in order to redistribute wealth, you must first have wealth to redistribute.
Hence, our strong focus on growing the economy and making Singapore an attractive destination for companies and businesses. We are not preoccupied with growth for growth's sake, but because growth creates jobs and gives our people good incomes while generating the tax revenues necessary to help our elderly, the vulnerable and disadvantaged, and meet other vital public needs like defence and infrastructure.
We are a small country. We have to compete with countries far bigger and with greater resources. The stark reality is that if tax rates are pushed too high, it will also push people and businesses that can generate wealth not to stay here, with knock-on adverse consequences.
Reinstating our 1987 corporate tax rates of 40 per cent would be a crushing burden on our companies and render us uncompetitive, resulting in loss of investments, jobs and revenues.
Our ability to achieve social outcomes beyond that of other countries, despite generally low tax rates, is the result of a carefully calibrated combination of maintaining a broad tax base, diverse sources of revenue, viable economic strategies, sound governance, and fiscal prudence.
If our needs go up, and we have no choice but to raise taxes (such as GST), we will do so, but will keep it within a sustainable range - allowing us to meet needs, stay competitive, but not imposing an intolerable burden and cushioning the impact on those who feel it most.
We maintain a system that is fair and progressive. Half of our working population does not have to pay income tax. Of those who do, the ones who earn more, pay more.
On redistribution, we ensure that those who need more, get more.
• The lower-income get close to $4 in government benefits for every dollar paid in taxes, through social transfers such as GST Vouchers, Workfare, Silver Support, and high healthcare, housing and childcare subsidies. They do not incur personal income tax. They incur GST, but that is offset by vouchers, and so effectively, the impact of GST is reduced.
• The middle-income group receives more than $2 in government benefits for every dollar paid in taxes.
There are other features unique to Singapore that have enabled our pursuit of a better life for our people:
• Our commitment to develop our people. We spend over $130,000 on each Singaporean child for the first 10 years of school, and another $15,000 to $23,000 more for every year of post-secondary and tertiary education. Through SkillsFuture, we encourage and support lifelong learning so that Singaporeans can access good jobs despite disruption and change.
• Our Central Provident Fund system of national personal savings, topped up by contributions from employers and Government that can be used for education, housing, healthcare and retirement needs.
• Our provision of high-quality public housing and generous subsidies has enabled about 90 per cent home ownership. The value of the property appreciates as the country grows, and can be monetised for retirement needs. When HDB leases end, we have plans for new programmes to rebuild and rejuvenate precincts.
If we were truly an unbridled corporation, we would not put back revenue from land sales into past reserves, or refrain from using up all the income from our reserves. But we do, because we believe that we must keep something for our children and grandchildren.
For the PAP Government, Singaporeans and Singapore remain very much our cause.
Our means may be capitalist but our objectives and goals are caring and compassionate. Our economy is based on free market principles, but its fruits are harnessed to build a fair and inclusive society. We believe in effectiveness of approach but equity in outcomes.
Ours is a middle way uniquely our own.
• The writer is Minister in the Prime Minister's Office and Second Minister for Finance and Education.