Budget Debate 2017 – Speech by Leon Perera

(Delivered in Parliament on 28 February 2017)

The Economy and the CFE: Missed Opportunities

Madam Speaker, Singapore’s economy is at a crossroads. In the past, there was an economy driven by foreign direct investment, state initiatives and capital and labour inputs. In the future lies an economy driven more by productivity and innovation, local enterprises and private initiative.

The Committee on the Future Economy or CFE outlined a few broad strategies. Some have criticised these for being too broad. But I do acknowledge that there are details contained in the Industry Transformation Maps and other governmental statements outside the CFE report.

There was also not a great deal that was new in the CFE report. A few new ideas – like the Global Innovation Alliance – but not many. For the most part the CFE referred to and affirmed existing initiatives.

I do acknowledge that we should not value novelty for novelty’s sake. If indeed what we are doing now has little room for improvement because it is delivering results, then so be it.

But is what we are doing now delivering the results we need?

Madam, our economic growth in 2015 and 2016 was about 2%, the slowest since the financial crisis year of 2009. As at December 2016, job seekers continue to outnumber job vacancies in Singapore for the first time since 2012. Low headline unemployment belies deepening insecurity in the job market, with rising redundancies, reports of under-employment and more people taking up jobs in the less secure, gig economy, not all from choice. As is well known, productivity performance in recent times has been poor and far below our target. And according to one city level study cited by the Prime Minister in 2012, our per capita GDP is not even among the top 20 cities worldwide.

Let us take another indicator – net births of companies. That refers to the formation minus cessation of companies, companies generally being larger and more economically weighty entities than proprietorships.

In the last 3 months of 2016 the net births of companies have plunged. Since December 2015 this indicator has registered negative net births of companies four times – in four months out of thirteen. The total net births figure for 2016 was about 6,000. For the previous four years it ranged between 12,000 and 21,000. In fact in the last 10 years this figure has fallen below 10,000 only twice – in 2009, during the worst global financial crisis the world had seen since the Great Depression of the 1930s, and last year, 2016. Madam our SME sector employs two thirds of Singaporeans. The SME sector situation is serious.

We all want Singapore to be exceptional, to be a shining red dot. But how can we make sure that the red dot does not dim for our children and our grand-children?

What was lacking in the CFE report was deep self-examination about why we are producing these kinds of results. From deep self-examination and even self-criticism could come fresh thinking.

Our drive towards high productivity is not new, it began decades ago. Yet we have produced weak results. The USA, Korea, Hong Kong and Australia have better real productivity growth from 2004 to 2014, according to an analysis published in the Straits Times on 24 April 2016.

We recognised the problem with our Total Fertility Rate or TFR in the 1980s. Yet we have not succeeded in reversing the decline so much so that our TFR is among the very lowest in the developed world today. Yet other developed countries have reversed their TFR decline, such as Japan, France and some Scandinavian countries.

To take a micro example, Budget 2017 announced a new SkillsFuture leadership initiative to groom corporate leaders. Yet an initiative to groom Singaporeans to become leaders in global companies had already been announced several years back. What lessons were learnt from that?


Budget 2017

Turning now to Budget 2017, is this a Budget that deals with the economic situation we are in?

The Finance Minister has said that 2016 was an expansionary budget, meaning to say, in crude terms and at the risk of some oversimplification, that the state was pumping in more money than it is taking out, because the basic deficit was $5.6 billion. In 2017 the basic deficit is projected to be $8.2 billion or about 2% of GDP, which would imply an expansionary budget again, even if the deficit turns out to be smaller by a few billion due to conservative budgeting, as it almost certainly will be.

But what if we properly reflect the cash going out of the economy to the state in the form of land sales, projected to be $8.2 billion for 2017 net of other elements that may not be reflected such as the actual cash spending of endowments and funds? Once all these items are accounted for, is the Budget as expansionary as the basic deficit of $8.2 billion would suggest?

I would like to ask the government if it can include a section in future Budget books that presents our national Budget and quantifies the surplus or deficit according to the methodology prescribed by the IMF.

Such transparency is important to enable Singaporeans to make up their own minds as to whether future Budgets are indeed an effective response to current economic realities.

The recent Budgets from the PAP government have tended to follow a pattern – racking up a surplus in the early part of the Parliamentary term and then incurring deficit spending towards the end of the term close to the General Election. So much so that some economists now openly predict that Budgets in certain years will be election year Budgets that spend off the accumulated surpluses from the preceding term of Parliament.

Has the government held back on fiscal stimulus in 2017 so as to keep ammunition in reserve for closer to the election? And if so, is this the right thing to do for Singapore?

$700m in construction projects have been brought forward. Has the government considered bringing forward projects in other areas of expenditure than construction – ICT projects for example? This would provide a greater and more sectorally balanced stimulus.

My colleagues will comment in detail on the water price hike and other price hikes and taxes. But let me make a few observations now. The timing of these price hikes seem more synchronised to the political cycle than to the economic cycle.

The economy is facing numerous problem and net births of companies are plunging. Is this the right time to raise the electricity tariff? The gas price? Parking fees? Diesel usage costs? And last but not least, to raise the water price? All within the space of a few months?

What is the justification for these price hikes and their timing? Hitting the economy with these multiple price hikes within the space of a few months may make good political sense, because people have three years to forget them before the next General Election.

But do they make good economic sense?

Why introduce all these price hikes now at a time of economic fragility, when they could tip some SMEs at the margins over the edge, when they increase the hardships faced by Singaporeans beset by job market insecurities? Why not introduce some of them later when there is an upswing in external demand?


Local enterprise

Next I will speak about local enterprises. Budget 2017 has not made a decisive shift towards building local enterprises as an engine of value creation alongside MNCs and GLCs. This is a huge missed opportunity.

There are some initiatives to address SME funding and there are some new measures announced in this Budget, for example tweaks to the IFS scheme and the new globalization fund. These are welcome moves. But is this enough to uncage our local firms?

Commercial and industrial rents and land costs are still very high relative to the region. When this was debated in COS 2016, the reply was that we do not need more measures because the retail and industrial space market was already softening due to market forces.

However, the government should understand that for entrepreneurs it is not all about the cost today but what will be the cost tomorrow.

An entrepreneur will not invest blood, sweat and tears to build a business only to see commercial rentals surge due to wipe out commercial viability in 5 or 10 years time. They will think about the long-term future outlook. A larger share of JTC in commercial and industrial space and a smaller share held by REITS – as was the case in the past – would help underscore that longer-term assurance.

Madam, we also need to step up education about entrepreneurship to our students, and I have raised this in past PQs. Time does not permit me to delve too deeply here but we can and should do more to enable our students to understand how entrepreneurship is both a viable and a socially meaningful calling. Right now I fear that most aspiring students dream of becoming civil servants or working in an MNC.

And on funding, in New Zealand for example, an SME can obtain bank loans for M&A projects overseas based on a certain PE ratio. In countries like Switzerland, Germany and Japan, local banks have close ties to local firms in particular states or prefectures and both parties see a commonality of interests. Is such funding easy to obtain in Singapore?

Of course not all ideas and companies are fundable. But that is precisely the point. Should we not make our support to companies more selective – with much more generous support at higher caps given to companies who truly have a track record of results and the acumen and ambition to succeed globally? With that support being scaled down if the results are not delivered or do not benefit Singapore? Should we not move decisively away from a schemes administration mindset to a results-driven mindset in SME development?

It is this kind of tough-minded, results-driven approach which enabled Japan and Korea to groom world-leading companies in the 1960s and 70s, companies that to this day employ many people in their home countries both directly and indirectly, in the form of extremely complex chains of suppliers and sub-contractors.


Risk taking

Madam, one of the opportunities missed by the CFE and Budget 2017 is about fostering risk taking.

It is no coincidence that the countries with the most innovative companies and disruptors are also the countries that have a larger role for social safety nets and risk pooling.

There are two aspects that stand out – one is managing the risk of redundancy from ever shortening product life cycles and continuous disruption. Here Ms Sylvia Lim has proposed a redundancy insurance scheme during the Budget 2016 debate.

The second is retirement adequacy. Most Singaporeans do not have enough in their CPF to live on when they retire, as the Prime Minister discussed in his NDR speech in 2013, necessitating some kind of monetisation of their HDB flat, which is not always an easy or happy process, or continuing to work till much older. This is due to high property prices which deplete the CPF OA.

Manging these risks are important if a globalized, open economy and society are to thrive. We must create enough security and confidence for Singaporeans to become the disruptors and not the disrupted.

There have been some measures announced to address these issues. But the basic structural issues remain.

Most households are exposed to cyclical economic risks without robust safety nets and risk pooling, reinforcing a tendency to focus on short-term cash flow. This makes it less likely that they will set up companies, take risks to innovate and take time off work for education, reskilling or training – because they cannot afford to.



Lastly, Madam our education system excels at training literacy and numeracy to a high standard. The government takes pride in our PISA scores.

But equally important to competitive success in the 21th century are “skills” like lateral thinking, creative problem-solving, leadership, communication and self-confidence, as I spoke about during COS 2016.

Can we sustain the current high academic content workload and add the cultivation of these softer attributes on top, like the icing on a cake? Will our students be able to cope with all these demands?

Some recent research suggests that there is generally an inverse correlation between a country’s PISA score and its GEM score which measures entrepreneurial qualities. An overemphasis on high stakes academic testing may hold back the cultivation of these elusive entrepreneurial qualities.

I am not arguing that we should reduce our PISA scores in the hope that our GEM score will go up. Nor am I saying that having both a high PISA and GEM score is impossible. In fact Finland is one such outlier country which has high scores for both.

But in striving for very high academic standards we must always measure, publish and debate the impact of that academic workload on the cultivation of other qualities in our young people to ensure the right balance.

My colleague Mr Png Eng Huat has spoken about the need to study the reasons behind the vast tuition industry in Singapore. Raw academic performance can always be inflated upwards with enough academic pressure, tuition, model answers, 10 year series and discipline. But to what end? Are we helping our children compete in the world of disruption that they will live in when they grow up?

Madam, while we do recognise the positive moves in Budget 2017, we question the timing of some of the measures that will raise costs as well as their necessity and justification.

We question whether more can be done to support a beleaguered economy.

And above all we question the missed opportunities to make decisive, bold moves in local enterprise development, risk-pooling and education to pivot Singapore towards truly finding its place in the sun in the 21st century.