Keynote Address By Mrs Josephine Teo, Senior Minister of State for Finance and Transport, At CPA Congress 2013 - A World of Opportunity09 Oct 2013
Stewardship Mindset Important For Development of New Policies
Good morning and thank you for inviting me to the CPA Congress 2013.
Singapore’s fiscal discipline
1. The news that has been hogging the headlines over the past week is the United States (US) Government shutdown. By the middle of the month, the US Congress will have to decide whether to raise the country’s debt ceiling, so that the US does not default on its financial obligations. The US national debt stands at over $16 trillion, which is above 70% of the country’s GDP and is the largest in the world for a single country.
2. Singapore’s reported public debt level is also high relative to our GDP, but the nature of public debt in Singapore is fundamentally different from that in the US and most other countries. The Singapore Government does not borrow to spend, nor do we have any external debt. The reported public debt in fact comprises securities issued for two main purposes – to meet the investment needs of the Central Provident Fund, which is Singapore’s mandatory defined contribution social security scheme, and to develop the domestic debt market. Under the reserves protection framework in our Constitution, the Government cannot spend any monies raised from its borrowings. Instead, all the proceeds are invested and the investment returns are more than sufficient to cover the debt servicing costs.
3. For a country that does not borrow to meet its spending needs, gross debt figures alone do not accurately reflect its fiscal strength. Our assets substantially exceed these debts. In addition, our net assets generate significant investment returns which the Government is allowed, under the Constitution, to take into the Budget for spending each year. The Net Investment Returns Contribution is now a significant component of our annual Budget, adding around $8 billion to the Government’s revenues each year. It has helped us to fund important projects that bring benefits to many Singaporeans while helping to keep our taxes low.
Opportunities to further strengthen Singapore
4. We took many years to get to this healthy position. We have been disciplined in ensuring a balanced budget and the accumulated surpluses in good years have built up our reserves. Today, we have the opportunity and fiscal resources to put in place programmes that will strengthen Singapore for the future.
5. This opportunity to further strengthen Singapore is very much aligned to the theme of today’s conference - “A World of Opportunity”. We will need sound policies to sustain economic dynamism and build a society that brings ample opportunities for Singaporeans to do better for themselves and their families. At the same time, we have the opportunity to prepare for an ageing population, to upkeep social mobility and to enhance the liveability of our very small city, all of which are important priorities for the Government.
6. To prepare for an ageing population, we will need to invest in new healthcare infrastructure such as hospitals, nursing homes, day care centres, and healthcare manpower. But we are also encouraging seniors to lead active lives, either by working longer or through participating in a range of programmes in the community. Of course, we need employers to do their part, for example, to keep job opportunities open to seniors and to support younger staff who are care-givers to their elders.
7. To upkeep social mobility, we have to intervene earlier and give children of less-advantaged backgrounds every opportunity to do well in school. This is why the Government made the decision to boost pre-school education significantly; to raise quality while keeping fees affordable.
8. To enhance liveability, we are investing heavily in our public transport system. Over-reliance on private transport can be harmful to the environment. Consider also the fact that roads take up 12% of Singapore’s land, almost as much as housing, which takes up 14%. Building a new road, or widening an existing one, means that we may have to pack housing blocks more densely together and to make do with fewer parks, less greenery and less open space for families. It may mean that roads are built closer to residential buildings, and the living environment becomes noisier and less comfortable.
9. As much as we should pursue these opportunities to better the lives of Singaporeans, we must also be mindful of potential pitfalls. For example, committing to expensive programmes that are difficult to unwind when they are found to be ineffective. A key condition to be able to avoid the pitfalls will be how we engage with Singaporeans so that we develop a collective understanding of the issues to a deep enough level. ‘Our Singapore Conversation’ was one initiative that supported this purpose. It brought many Singaporeans together and to understand that almost all of the issues that we would like to see addressed are quite complex with no easy solutions that satisfy everyone.
10. More importantly, as we develop new policies and programmes, we will have to develop a stewardship mindset. In the context of our discussion, I am thinking of a steward principally as “a person who manages another’s property or financial affairs”. Put another way, as decision-makers, we are deciding on behalf of a lot of people and organisations who are stakeholders, and we are in that sense, their “stewards”. How should we behave as stewards? Let me share some suggestions.
A stewardship mindset to guide us
11. First, a stewardship mindset requires us to give careful consideration to the long-term implications of our actions. We need to consider what they mean for Singaporeans 10, 20 and 30 years down the road. Take for example, the design of MediShield Life, which aims to provide hospitalisation coverage to all Singaporeans for as long as we live.
12. Premiums for hospitalisation insurance typically increase with age along with increased incidence of hospitalisation. An insurance programme that has no pre-funding at all would offer very attractive premiums to a person in his 20s or 30s, because very few in his age group are hospitalised. But 30, 40 or even 50 years down the road, the premiums will escalate as the odds of a hospitalisation episode increases. This is often a strain to retired persons and some drop out of insurance coverage at a time when they most need it.
13. Pre-funding allows for higher premiums to be paid when a person is younger and likely to be working, so that the benefit he expects to receive in his senior years have been paid for to some extent. As a result of pre-funding, his premiums can level-off in his senior years and be kept more affordable. This helps him to stay covered.
14. There is little doubt that pre-funding will lighten the premium burden of Singaporeans in our old age. In contrast, while the lower premiums of a programme with little or no pre-funding are attractive, we will effectively store up troubles for the future. Although the benefits of pre-funding are not realised until many years later, a stewardship mindset requires that we consider its benefits in the design of Medi shield Life and not avoid the challenge of explaining the need for higher premiums during our working years.
15. A second feature of the stewardship mindset is the willingness to tilt the balance in favour of those who are disadvantaged. Most people will not disagree that the vulnerable groups in society need more help. However, not everyone accepts that they themselves should be outside the coverage of schemes that target the less well-off. This includes schemes to provide healthcare subsidies or education bursaries.
16. Most Members of Parliament have encountered residents who can be quite upset that they fall outside a particular scheme’s coverage. Sometimes, even very wealthy people can be upset, such as when they feel that their children “lost out” to those who got into a special programme at school, or they have to pay higher property taxes.
17. While we should refine our schemes to address feedback, a stewardship mindset requires that we have the courage to keep tilting the balance in favour of those who have less, even in the face of some unhappiness. We should, at the same time, recognise those who are generous in spirit and provide more opportunities for them to step forward to help the community, so that we are collectively a better and more gracious society.
18. A third feature of the stewardship mindset is to favour holistic solutions over stop-gap quick fixes. One on-going challenge, and not just for Singapore, is helping our citizens cope with the costs of living. Relief measures, such as through the GST Voucher, are always helpful, and the GST Voucher in its various forms reaches about 80% of all households in Singapore. However, the more lasting solution lies not in increasing the relief but in helping Singaporeans stay in employment and improving their ability to earn higher incomes.
19. This is why the Government has made major moves to restructure the economy and shift towards productivity-driven growth, to ensure that the economy is able to continue generating better-paying jobs. At the same time, we are building significant capacity in continuing education and training to help Singaporeans stay relevant. In Budget 2013, we also introduced the Wage Credit Scheme (WCS) to encourage employers to share productivity gains through wage increases.
20. To provide support for low-wage workers and boost their CPF savings, the Workfare Income Supplement (WIS) is reviewed regularly and has been enhanced several times since its inception. To boost the employment prospects of seniors, the Government enacted re-employment legislation and introduced the Seniors Employment Credit.
21. A stewardship mindset compels us to do not only what is expedient but to focus squarely on addressing fundamental issues. It also emboldens us to pursue deep transformations that a stop-gap quick-fix mindset is not interested to attempt.
Relevance to the accounting profession
22. The stewardship mindset is equally important for the accounting profession if it is to capture new opportunities and grow in the long-term. To transform Singapore into an accountancy hub for the Asia-Pacific region, we also need a holistic approach.
23. First, the profession needs to invest in capability development and specialisation, such as in internal audit or business valuation. These investments will help accounting firms and professionals stay relevant and grow your businesses.
24. Earlier this year, the Singapore Accountancy Commission (SAC) launched the Singapore Qualification Programme to strengthen the pipeline of quality accountancy talent. The Singapore QP will not only help to enlarge the talent pool by providing a pathway for non-accountancy graduates to enter the profession, it will also strengthen the competencies of aspiring professional accountants. In addition, SAC has set up the Singapore CFO Institute to better support CFOs and aspiring CFOs. And I am glad to hear that the SAC is organising joint events with CPA Australia.
25. At the same time, the industry needs to come together to share their resources so that smaller firms with limited resources will be able to expand their range of services and tap into growing regional markets. So, the initiative of the SAC alliance is a good example of how the industry is coming together. Larger firms can assist with knowledge sharing. Finally, the Government must ensure that these developments are supported by a robust, relevant and updated regulatory environment.
26. The accountancy profession is fortunate that many of your leaders have been willing to step up to the plate and steward its development. Whether through professional bodies such as CPA Australia or ISCA, or through SAC, we have seen changes that bode well for the profession.
27. In closing, I wish to acknowledge the important stewardship roles that we each play in our organisations and in our communities. The stewardship mindset came quite naturally to the pioneer generation of Singaporeans, to whom we are grateful. Aversion to wasteful spending and the willingness to save for a rainy day provided strong support for the Government’s prudent approach to fiscal management. This has helped us to avoid the problem of public debt which beset many Governments today.
28. Fiscal prudence has also enabled us to build up a healthy pool of reserves. The net investment returns from our reserves now funds around 16% of our annual expenditure, and this gives more latitude to invest in a range of social and economic programmes that will keep Singaporeans at all levels plugged into the world of opportunity.
29. As we contemplate major policy moves and programmes for the future, I am hopeful that we can gain Singaporean’s understanding and support to keep to the discipline of fiscal prudence. In doing so, we have the opportunity to further embed the stewardship mindset in our national DNA, and build up our country in ways that, hopefully, younger and even yet-to-be-born Singaporeans will be grateful for.
30. On this note, I wish you a fruitful and engaging discussion at today’s conference. Thank you.