subpage banner

Media Articles

The Straits Times (31 Oct 2022): Is the $1.5 billion support package enough?

31 Oct 2022
By Grace Ho

ST's Insight Editor

One big announcement by Deputy Prime Minister and Finance Minister Lawrence Wong in October was the $1.5 billion support package to counter inflation in Singapore, including a Cost of Living (COL) Special Payment where around 2.5 million eligible adult Singaporeans will receive up to $500 in cash.

Much has been written about the individual measures, so I won't describe them in detail. But it's worth repeating three things that they will do:

These are important because they lessen the burden of inflation, especially higher food and energy bills, on two groups which are the hardest-hit: the lower-income, and retirees who don't draw a salary. At the same time, the middle-income still get a substantial amount of help.

If you stack this on top of the $560 million Household Support Package announced in Budget 2022 -- and the $1.5 billion support package in June to provide targeted relief especially for the lower-income and more vulnerable groups -- that's $3.56 billion so far to cushion cost-of-living pressures.

But questions have been raised about how the Government decided on the amount of help given. While it was explained in the Ministry of Finance's technical report, most Singaporeans wouldn't have had time to digest it.

First, how is the COL Special Payment different from the GST Voucher (GSTV) -- Cash Special Payment of up to $300 announced in June, which itself comes on top of the regular GSTV -- Cash?

The assessable income threshold for the COL Special Payment is set at $100,000 and below. The threshold for GSTV -- Cash is lower, at $34,000.

Hence, while both schemes support cost-of-living increases, the COL Special Payment -- recognising persistent inflation and how it's hitting the middle-income too -- is given to a broader group of Singaporeans.

Second, how many Singaporeans are eligible for each of the payouts?

The COL Special Payment, which has an income threshold of $100,000, is expected to benefit about 2.5 million adult Singaporeans. By comparison, GSTV -- Cash, which has an income threshold of $34,000, covers about 1.5 million adult Singaporeans. Retirees would naturally qualify for both types of payouts.

So the majority of Singaporeans are covered, but help is tilted more towards the lower-income and retirees.

How were the benefits from cost-of-living support measures in 2022 estimated? MOF used data on the characteristics of retiree households and households in the different income quintiles, to simulate the average level of support that each group will get from these measures on a per-member basis.

As for how the projected increase in annual household expenditure in 2022 was arrived at, the ministry obtained data on expenditure for retiree households, and households in the different income quintiles, from the Household Expenditure Survey in 2017/18.

It then applied internal inflation forecasts for 2022 for the different groups to their estimated household expenditure in 2021.

These internal inflation forecasts are consistent with the Monetary Authority of Singapore's October forecast of around 6 per cent inflation in the consumer price index (CPI)-All Items in 2022.

Why help needs to be calibrated

The bigger point I'm making is that Singapore's calibrated and seemingly commonsensical moves are, well, not so common.

Take emergency pandemic aid in the United States, for example. The US$1.9 trillion (S$2.7 trillion) American Rescue Plan Act of 2021 -- a key feature being US$1,400 stimulus payments to those making US$75,000 or less a year -- came on the heels of the US$900 billion stimulus in the Consolidated Appropriations Act the same year, and the US$2 trillion Coronavirus Aid, Relief, and Economic Security (Cares) Act in 2020.

The US government threw open the fiscal floodgates. After multiple rounds of stimulus, many Americans' nominal incomes ended up higher than they were pre-pandemic. Excess savings -- which enable rapid growth in consumer spending and thereby inflation -- were concentrated on the more well-off who, ironically, were less likely to lose their jobs and less in need of help.

In spite of several rounds of tightening since, aggregate demand remained strong and difficult to predict on an industry-by-industry, good-by-good basis, which further complicated the constrained supply chain picture.

Consumption has only recently begun to lose steam, in part because Americans were spending down their lagged pandemic payments.

In hindsight, it would have been more effective to spread the US$1,400 and other relief over a longer period of time to smooth out spending, while sharpening the means-tested categories.

On the other side of the Atlantic, Britain earlier announced plans to cap annual average household energy bills at GBP2,500 (S$4,100) for the next two winters, which would cost taxpayers GBP150 billion at a time when the public coffers aren't in great shape. It has since walked back on its price guarantee after a series of political ructions.

Britain is not the only country struggling to find the right balance. Spain and Portugal have placed a cap on the wholesale price of gas, while France capped increases in the retail cost of gas and electricity.

Like these countries, Singapore has rolled out cost-of-living help. But this help is spread out through the year and more finely means-tested. There have been assurances that more will be given if needed.

On the energy front, households get tiered relief for utilities bills, which is cheaper than a universal price cap and preserves incentives to save energy.

For businesses, to protect electricity buyers such as coffee shops and shopping malls from volatile electricity prices, the authorities are now looking to restrict the wholesale electricity price market to those who can withstand its fluctuations.

Taking the long view

Let's be clear: I'm not dissing politicians elsewhere. But I do think that the populist pressures they face, as well as endless leadership fights, sometimes lead them down policy paths whose maths don't add up.

Politically, for example, it would have been hard for US President Joe Biden to climb down from coronavirus relief cheques, especially after he had promised that they would be issued "immediately" if Democrats were voted in during the 2021 Georgia Senate run-offs.

This political short-termism also means that there's little incentive to plan for more permanent programmes.

Here, we have the opposite problem: People say the Government is nagging when it goes on and on about the need for mindset shifts and longer-term restructuring.

Recently at the Singapore Economic Policy Forum, Mr Wong spoke of the growing pay gap based on education levels, the need to respect those who do "hands-on and heart work", such as technical, service and community care roles, and giving them opportunities to advance in their respective fields. That's one big mindset shift right there.

He also spoke of the need to fundamentally upgrade the SkillsFuture ecosystem. This could mean providing more SkillsFuture credits, time off from work to allow employees to focus on skills upgrading, and income support for workers who pursue full-time training.

At a dialogue with social service practitioners, he said the country will refresh support for lower-income groups, seniors, and young families amid signs that society is becoming more stratified. Moves in the works include reducing fee caps at government-supported pre-schools in 2023, reviewing leave measures, and developing better senior living options in housing estates that can be scaled up nationwide.

And in his most recent speech at the Singapore International Energy Week, he outlined Singapore's path to net zero, including shorter timelines for reducing greenhouse gas emissions, a national hydrogen strategy and scaling up green finance.

These three major speeches are not a bunch of isolated, feel-good talking points; they signpost the kinds of changes that will come from the Forward Singapore engagement exercise. Instead of relying on what the sociologist Zygmunt Bauman called individualised solutions to social problems, the country is reviewing the very foundations of its social compact.

To some, these signposts seem too far away, and government aid appears to be needlessly means-tested and drip-fed. Their concerns must be acknowledged and will continue to be debated in the House, but I would say this: We've seen elsewhere what happens when the taps are turned on and left to run dry.

We've also seen how politicians say what they think will get them the most public support -- even if it means regurgitating economic theories and popular attack lines that ignore the trade-offs needed, or that bear a loose affiliation to numbers and logic.

This dynamic may be more common elsewhere, but some of it can already be seen in Singapore. Given what is likely to be a packed Parliament agenda in November, including the debate on the Goods and Services Tax Bill, it's something to be mindful of as we follow the proceedings.