On not passing the buck — speech by Jamus Lim

Mr Speaker, the amendments proposed to the Economic Expansion Incentives (Relief from Income Tax) Act currently tabled are almost entirely of an operational nature. The bulk of the amendments concern two elements: Clause 2 inserts a new section that will allow the Minister to vest, unto a public body, functions or powers afforded by the Act to the Minister. Clauses 3 and 4 introduce new definitions of greenhouse gas into the Act’s tax incentive schemes, which aligns with this Government’s Green Plan as well as the amendments to the Environmental Protection and Management Act, passed last year in this House.

I do not oppose the Bill, but will offer two additional points for consideration, consistent with these two points.

Tax relief for green projects

The Workers’ Party sees little that is objectionable to providing stronger incentives to businesses for to incorporate emissions-reducing projects into their capital expenditure plans. Indeed, in my speech for the motion on the Transition to a Low Carbon Society last month, I had suggested that government agencies could look for opportunities to weave green elements into their capital expenditure projects. Providing analogous tax breaks for the private sector when they do so is entirely consistent with such a whole-of-society effort to address the climate emergency, and I am heartened that such efforts are being weaved into our legislation.

But we should not only look to the tax instrument to effect favorable shifts in corporate behavior. Subsidies must play a part too, and the effects of such positive incentives are even further amplified when they are simultaneously financed by taxes to discourage emissions-generating activity. In their contributions to the motion last month, my friends in this House spoke about various ways subsidies can be applied to enhance both the economic and political palatability of the green transition.

The Member from Aljunied, Gerald Giam, spoke about putting in place incentives for households to install solar generation capacity in their private homes—by subsidizing such installation—before recovering the cost of the subsidies from the excess electricity produced by these homes. In a similar spirit, the Member from Hougang, Dennis Tan, reiterated how carbon taxes could be channeled to ensure a just transition, especially among lower income households and workers who may be displaced by moves toward a more environmentally-sustainable economy.

In the context of moving beyond tax breaks, I therefore wish to ask how the government plans to continue its financing of economic incentives for firms that adopt environmentally sustainable initiatives. Will these follow the model for existing programs—such as the NEA’s Energy Efficiency Fund or the BCA’s Green Mark Incentive Scheme—via budget line items, or will there be more dedicated development funds established for this purpose?

Avoiding the Nixon-Eichmann defense

Sir, the second point I wish to touch on is how delegation could give rise to a loss of ownership and responsibility. More specifically, the danger I perceive is that, after roles are transferred, the sense of responsibility fails to follow. This gives rise to the risk—common among even large private-sector organizations, what’s more between different public agencies and functionaries—of a loss of ownership and control.

Of course, I understand that the Minister retains full and final de jure responsibility over any vested powers. Even so, as humans, it is often too easy for this buck to be passed. The last thing we want is a situation where one party appeals to the Richard Nixon defense—that they didn’t do anything, since it was executed by an underling and they were unaware—while the other claims the Nuremberg defense, famously presented by by Adolf Eichmann and his collaborators in justifying their actions during World War II: that they were ordered, and they didn’t have any agency.

Moreover, it will not surprise anyone in this House that politicians and bureaucrats are held accountable differently: the former by voters during election time, and the latter by their peers and colleagues, or the public at large. As a consequence, the two face different incentives. Politicians are motivated by their service to the voters they represent, which in turn influence their reelection prospects. Bureaucrats, in contrast, are guided more by careerist considerations; if they excel, they improve their chances for professional advancement, or prospects in the private sector after they exit public service.

This divergence between accountability structures and, in turn, behavioral outcomes, means that policy may actually be more optimally executed by one group or the other, depending on the nature of the task at hand. In particular, research has suggested that complex tasks—premised on ability rather than effort—are better performed when delegated to bureaucrats.[1] Politicians, conversely, are preferable if flexibility over our understanding of society’s preferences is important, and especially when there is a need to compensate potential losers arising from policy reform.[2]

Let me put this into more concrete terms, using two examples. The first has to do with monetary policy, which is rather topical, in light of our nation’s recent challenges with high inflation. The simple framework I have described suggests that the inflation target—say, keeping core inflation just under 2 percent per annum[3]—should be chosen by politicians, while the more technically challenging task of choosing the appropriate interest rate, size of balance sheet, and specific exchange rate level would fall under the ambit of our central bankers in the Monetary Authority of Singapore.

As another example, consider efforts to address income and wealth inequality. Here, my argument is that it should fall on elected representatives to determine how much inequality society can tolerate, which redistributive goals would be fair and just, and what types of taxes we should accommodate. The technicalities of getting us there—adjusting specific marginal tax rates, executing efficient expenditures, and ensuring a balanced budget—should then fall on professionals in the Ministry of Finance.

Turning back to the Bill in question, I am left to wonder whether there are specific conditions that should be fulfilled—such as when the matter is explicitly technical in nature, and when normative decisionmaking would not be asked for or required—before the Minister would then allow for such delegation? And what mechanisms are there in place to ensure that both de facto as well as de jure ownership of decisions remain with the respective Minister?

[1] Alesina, A. & G. Tabellini (2007), “Bureaucrats or Politicians? Part I: A Single Policy Task,” American Economic Review 97(1): 169–79.

[2] Alesina, A. & G. Tabellini (2008), “Bureaucrats or Politicians? Part II: Multiple Policy Tasks,” Journal of Public Economics 92: 426–47.

[3] While the MAS does not maintain an explicit inflation target, the informal target of just under 2 percent—close historical mean inflation—is generally accepted as consistent with the institution’s price stability goals. See MAS (2018), “What is the Objective of the Monetary Authority of Singapore?” FAQs on Singapore’s Monetary Policy Framework, Singapore: Monetary Authority of Singapore.