(Delivered in Parliament on 27 Feb 2018)
Budget 2018: On Education, Fiscal Sustainability and Taxes
1. In his Budget debate, the Finance Minister spoke of three major shifts in the coming decade. The rise of Asia was observed some years ago, but the colossal scale of the change only became apparent to many with the conception of China’s global One Belt One Road (OBOR) initiative. Technological disruption is mind-boggling, if not downright terrifying for some. The sight of agile robots from Boston Dynamics on our Facebook news-feeds, driverless vehicles and news of medical initiatives in cloning, herald a world that was considered to be fictional only one generation ago. The prospect of an aging society however was not sudden. Successive governments have identified it with the second generation PAP leadership establishing the Inter-Ministerial Committee on Aging which published its report in 1999, and with at least four other high-level committees on aging since 1982 putting the issue squarely in the public imagination.
2. The Workers’ Party notes that this year’s Budget is one that seeks prepare Singapore and establish strong foundations for economic growth for the next 10 years. Singapore’s situation is unique. Economic growth is at the centre of our existence and an economy that exhibits a certain verve and vitality is critical to the well-being of our people. While the Government has got the headline issues right as it had with identifying aging almost 20 years ago, what will matter most is how its vision of looking after Singapore and Singaporeans is translated operationally and executed on the ground. My speech will cover education, fiscal sustainability and taxes.
Driving Educational Transformation
3. In his budget speech, the Finance Minister spoke of Industry 4.0, a reference to the technological shift from computer systems to integrated cyber, physical, biological and intelligent systems. Mr Speaker, as much as we seek to encourage workers of today to embrace the future economy through the Industry Transformation Programs, the Tech Skills Accelerator and the Go Digital Programme amongst other initiatives, there is another segment of our population for whom the new economy is one they must fit into seamlessly. They are our younger Singaporeans – many of whom are still in school today.
4. On 19 Feb 2018, the Straits Times carried a fictional article that sought to imagine what Singapore would be like in 2030 for one young Singaporean. It spoke of the story of Alex, whose life was transformed by the Committee of the Future Economy report of 2017. Alex interpreted the report to mean that entrepreneurship was the way of the future. By 2023, his fictitious company was awarded a contract to supply the Ministry of Health with mechanical parts for robot assisted surgery. With a local foothold, he expanded his business into Southeast Asia.
5. Alex’s story was fascinating to me particularly when I contrasted it against the speech of the former head of civil service Mr Lim Siong Guan, who gave a series of lectures as part of the IPS-SR Nathan Lecture Series on Singapore late last year. Most striking was Mr Lim’s observation of how we in Singapore pile accolades on those who reach the pinnacle of success, with others often remaining unnoticed and unmentioned. The call for innovation, a central pillar of this year’s budget requires – in Mr Lim’s view – for our people to try more and fail; and to be recognised not only for their success but their effort, and to be proud of the trying their best in exercising their talents and abilities.
6. In a second equally compelling and parallel anecdote, Mr Lim spoke about how Israeli mothers in the past wished their children to be doctors and lawyers. Fast forward 20 years and this scenario has apparently changed completely with Israeli mothers wishing their children to be CEOs of start-ups. The situation is similar in Estonia and Finland. In Mr Lim’s words, “Singapore has to get there and be exceptional in our own way.”
7. I have my doubts about whether Alex’s parents are ready for him to forget how they changed addresses to get him enrolled into a better school before he entered Primary 1 and how they spent thousands of dollars in tuition fees so that he would be streamed for the best outcomes to secure a stable and lucrative career. More pointedly, unless Alex comes from a rich family, I am not sure he would be in a position to give up an education in accountancy in favour of entrepreneurship, given our cultural biases to what qualifies as a good school, job, university or career.
8. Mr Speaker, ensuring the readiness of the education system to drive future economic growth is a critical strategy that we cannot afford to overlook. Only last month, the Minister of Education in charge of Higher Education shared that the Government is examining how it can better design the learning landscape so as to ensure that opportunities are available for Singaporeans to succeed in life. However, the Minister said that this endeavour may take a generation.
9. Without a doubt, the education system has progressively evolved for the better, but do we have the luxury of time to undertake its transformation for the new economy, a transformation that is arguably as urgent as the economic transformation we desire? With people as our only natural resource, we must begin from the starting point that each and every one of our students, regardless of race, language or religion, can not just succeed, but excel in the economy of tomorrow. The focus cannot be on acing examinations as a means of securing a child’s future as is overwhelmingly the case is today. Even as our education system has correctly made adjustments to allow for a minority of students to benefit from aptitude-based entry points across the eduction system, this is not enough.
10. In fact, we continue to have a tuition culture which is allegedly a billion-dollar industry in Singapore. There are no evident signs of this tuition culture abating. Even PAP MPs have raised questions in this House about stress and anxiety levels in our students. Parents naturally equate poor PSLE results with relatively poorer opportunities and outcomes for their children in secondary school. They fear that poor PSLE results will evince a bleak future, with their children condemned to schools dominated by problematic students who in their estimation essentially do not like to study or cannot communicate well, hence setting their own children up for mediocrity. Such fears, amongst others, drive the tuition industry and the stress both in parents and by extension, students.
11. Mr Speaker, it will take a radical move to energize the cultural shift needed to change mindsets about tuition and early streaming among all stakeholders, particularly parents. But there is another downside, and very important one that requires us to hasten educational transformation. Streaming and ranking only serve to reinforce the inequality the Finance Minister warned about in his Budget speech. This is particularly since our educational culture is weighted in favour of parents with means and those who can pile on enrichment classes and tuition and even consider paying educational professionals to work out strategies to game Direct School Admission exercises.
12. The Government has previously looked at board-based schemes like the Productivity and Innovation Credit (PIC) to drive productivity only to shift now to more targeted measures for specific industries through the ITMs. In similar vein, the Government should start identifying the specific policy changes needed to alter behaviour and drive cultural change in favour of learning. The time has come to look squarely at our tuition culture and ironically, how it may actually be holding us back rather than spurring and motivating our students in a healthy manner. The tuition industry is an important stakeholder in this undertaking. Rather than time and money spent on tuition, would our students not be better served by an education in various regional languages, more debates, better communication skills, financial literacy, problem-solving and negotiation, and on field trips rather than cramming model answers and methodologies for exam-based outcomes only for them to be forgotten shortly thereafter? How critical is streaming and even the PSLE examinations for success in life in the future economy? If it is not critical, are there persuasive arguments that remain for their continued existence?
13. The need of the hour today is different from that of the past. A radical cultural shift in direction needs to take place to set up our future generations of workers and employees for the future economy. Alex’s plans to become an successful entrepreneur with an appetite for risk – and for his story and Singapore’s economic future not to be a fictional one – depend on it.
Reframing Fiscal Prudence and Sustainability?
14. Mr Speaker, from a citizen perspective, making deeper enquiries of the Government’s budget is no less important than acquiring deep skills for the economy. Some very important and healthy conversations are taking place within our society about social protection and the size and use of our reserves, estimated in the Straits Times last week to be in excess of a trillion dollars – I will say that again, in excess of a trillion dollars. How much of it do we need to protect the Singapore dollar from currency speculators is a valid question given that yearly revenue from land sales alone ensures that our reserves continue to grow in size.
15. Some arguments have been made in public for Net Investment Returns Contribution (NIRC) to be increased to 60% to stave off a GST hike. Similarly, there have been calls to consider only a temporary increase in NIRC to fund non-recurrent, lumpy infrastructure investments such as the High Speed Rail, new MRT lines and the Changi T5 terminal. After such infrastructure has been completed, the NIRC can return to 50% and some portion of the revenue earned from such infrastructure can also be returned to the reserves. Such proposals leave more scope for the Government to hold back from increasing regressive taxes like the GST which also hit middle-income Singaporeans with young children and elderly parents the hardest mainly because offset packages announced by the Government inherently target the low-income and needy more.
16. In his Budget speech, the Finance Minister made a fundamental distinction to set out the Government’s thinking on recurrent spending which directly benefits current generations, and that the responsible way to pay for such expenditure is through taxation. However, it is no secret that Singapore’s approach to budgeting is highly conservative with land sales excluded from the Government’s income. Even as more resources are required to take care of our elderly population through to 2030 and beyond, reasonable Singaporeans take the view that there is scope to consider how elderly Singaporeans can be better protected in their twilight years with the burden of additional taxes like the GST held off for as long as possible. One novel, if not relatively radical approach in view of the current orthodoxy is to reconsider the role land sales can play in recurrent spending.
17. The Government is by far and away the largest landowner in Singapore. The majority of all land here comprises of 99-year or less than 99-year leasehold properties. Seen in this light, should not current generations be allowed to benefit from some percentage of today’s land sales with the knowledge that such land regenerates in value for future generations providing successive governments with a recurring source of income? Should Singaporeans who are now expected to live well into their eighties reap more benefit from land sales so as to justify better social protection for them?
18. Even as land is scarce in Singapore, it is also highly valued with land sales likely to be very healthy in the decades to come right until our HDB flats run down their leases well into the second half of this century. As much as the development of the port in Tuas will cost money, the move of port facilities from Tanjong Pagar will free up prime and valuable waterfront land adjacent to Shenton Way. After 2035, a massive tract of land where the current Paya Lebar airport sits – massive by Singapore standards at least – will be available for sale to the Government of the day. In between, the Government as the largest landowner has many sites open for development that will ensure a progressively steady growth of the reserves for the foreseeable future.
19. On the Government’s Factually website, the argument against including land sales for budgetary spending is two-pronged, apart from Constitutional restrictions.
20. Firstly, excluding land sales prevents the Government from unnecessarily selling land to meet expenditure needs. However, this argument that can potentially be addressed with a cap on spending revenue from land sales – for example, not more than 20% of the value of average land sales over 20 years, or 20% of land sales for that year, whichever is lower. This would give no good reason for an ill-advised Government to ramp up land sales when in Government to increase its own income.
21. The second argument on the Factually website posits that income from land sales are invested and already available to the Government for spending through the NIRC. While this is a stronger argument and certainly true, not co-mingling the income from land sales with other reserves for investment also brings with it the prospect of greater transparency to the public and of mitigating the consequences of poor investment decisions, most dramatically highlighted by the GIC’s partial divestment of its stake in UBS and losing billions in the process as reported last year.
22. Mr Speaker, the Workers’ Party is open-minded about looking at different modalities of funding future Budgets with a view to strengthening social protection frameworks. This also promotes a healthier discussion of fiscal issues amongst our population. Of course, the money has to come from somewhere. But there are two ways of framing this conversation. One is to say proposals to seek to improve and suggest better social protection for Singaporeans is tantamount to raiding the reserves. The other is to take a strategic perspective of our reserves position – something only the Government can holistically do in view of the significant information asymmetries, look at the how quickly the world is changing and always assess how Singaporeans can be better protected ahead of time.
23. To reiterate, allowing a portion of the revenue for land sales will also not stop the reserves from growing. They will continue to grow and disproportionately benefit future generations. But looking at using land sales also gives the Government of the day more flexibility to ensure that current generations of elderly Singaporeans’ healthcare needs for example, are adequately budgeted for, leaving more scope for the Government to strengthen social protection for a current generation of Singaporeans. Inter-generational equity is a subject that deserves greater discussion. The importance and willingness to prepare for the future cannot underestimated especially since the very technological disruption the Finance Minister spoke of will – like globalisation in the past – host the discontented. Those who cannot be readily re-trained to assume higher value-added jobs. Those who may not be able to build new capabilities. Those who for example, cannot stand for too long and for whom job redesign is only catchphrase. And those who may not adapt to what they fear is a brave new world.
24. GST may well have to rise but Singaporeans could be more likely to accept it if the Government considers the pros and cons of moving from the established orthodoxy and consider new approaches that improve social protection thresholds for all, and elderly Singaporeans in particular.
WP Position on the Government’s plan to raise GST
25. As expected, the Budget drew much attention on the Government’s plan to raise GST from 7% to 9% sometime in the future. However, there was an inconsistency in the treatment of some additional taxes that will no doubt add to the Government’s coffers before that. For example, the Government was able to confirm that the imposition of the carbon tax would bring an additional $1b a year of revenue after implementation. However, no estimates were provided on the likely additional revenue that would be be added to the Government’s income with the inclusion of GST on imported services.
26. In addition, the journey to become a smart nation – another plank of this year’s budget – is likely to make Singapore more efficient in tax collection. There is also the question on the move to become a cashless society and the impact this will have on sectors which have traditionally been thought to under-declare their income such as the self-employed, hawkers and taxi drivers. This prospect will become less probable with the advent of more electronic transactions and in turn, is likely to have a positive impact on tax revenues. Furthermore, with borrowing backed by a Government guarantees proposed for large infrastructure projects, more spending for such projects can potentially be allocated elsewhere for recurrent spending.
27. In view of the absence of such details, the Workers’ Party is unable to support the announcement of a GST hike at this moment in time. This is because of the lack of clarity surrounding projected expenditure when the Government raises GST in future and the relative lack of information on whether there is scope for the reserves to better support Singaporeans. In addition, as the Prime Minister told the media some years ago when the GST was raised from 3% in response to initial objections from the Workers’ Party, we would also need some understanding of the Government’s offset package for the low-income and middle-income should the GST be raised – information which the Government has not revealed thus far.
28. In conclusion Mr Speaker, the Government has made significant investments in placing Singapore to take advantage of initiatives like OBOR and tapping on the potential of the ASEAN region. These are necessary investments to keep the Singapore economy humming along. However, the people who keep it humming must be equipped to succeed in tomorrow’s economy. Some sacred cows may have to be slain forthwith. Equally, the security of elderly Singaporeans, each generation a pioneer generation of an improbable country in its own right, should not be made to feel insecure in their old age, particularly when it is comes to healthcare. Instead, they should be respected for what they have done for Singapore and looked after in their golden years.
29. Mr Speaker, we must never be done making Singapore an even better home for all Singaporeans. Thank you.