26 Mar 2012

Singapore, despite being developed, is one of the few places he believes “an upwardly mobile society” was possible, Deputy Prime Minister and Minister for Finance and Manpower Mr. Tharman Shanmugaratnam says.


Singapore, despite being developed, is one of the few places he believes “an upwardly mobile society” was possible, Deputy Prime Minister and Minister for Finance and Manpower Mr. Tharman Shanmugaratnam says. He states this case at a dialogue on “Governing for an inclusive society”, the closing session at the Singapore Perspectives 2012.

Upstream interventions, help for the elderly and efforts to arrest the development of “worrying micro-trends” will form the focus of the government’s strategy to improve opportunities and social mobility for Singaporeans, said Mr. Shanmugaratnam.

As Singaporeans face growing inequality, it is essential for the government to ensure redistribution but without undermining the basic ethic of a society focused on work and family. The key to this would be to keep a “progressive slant” in government policies, with those at the lower end receiving the bulk of transfers and those at the upper end paying the bulk of taxes.

Challenges of inequality in a global city

“An inclusive society starts with economic strategies,” Mr. Shanmugaratnam said, “competing in the global economy in a way that everyone gets pulled up”. As a small and open economy, Singapore inevitably had a higher Gini co-efficient than most large countries. The government had focused its efforts on avoiding the stagnation of median wages that have afflicted many other developed countries over the last decade by putting tremendous resources into “raising the quality of every job, the skills and expertise of every worker”. Mr. Shanmugaratnam acknowledged that this would become more difficult as workers in emerging countries exerted increasing pressure not just on low-skilled jobs but on middle- income workers as well. Amidst a global phenomenon of job polarisation, he remained confident about Singapore’s ability to remain globally competitive from low-end to high-grade jobs, as it had progressed over the years from competing with emerging markets to competing with advanced manufacturing industries in Japan and Germany.

At the same time, he said that the government’s approach to ameliorate the effects of inequality on society had to be centred on improving opportunities for those at the lower end of the social ladder and preserving social mobility. A fair degree of mobility existed in schools, he noted, with about half of children living in oneto three-room flats making it to university or polytechnic, an unchanged proportion from a decade ago. However, he acknowledged that sustaining mobility over time would get more difficult with “social backgrounds becoming more defined”.

“A spirit of inclusiveness” among Singaporeans and “a sense of obligation among those who are doing well to help others in their own society” were as important as the right policies in forging an inclusive society. Mr. Shanmugaratnam said that as a small city-state, with neither suburbs to which the rich could retreat nor inner-city neighbourhoods for the poor, there was a higher premium for retaining social cohesion and ensuring an upward momentum of social mobility. When Dean Kishore Mahbubani of the LKY School asked if the top 1 per cent in Singapore—with the most number of millionaires per capita in the world—was doing enough to help the other 99 per cent, Mr. Shanmugaratnam recognised that there was room for more engagement by well-off Singaporeans and philanthropic groups. Taken together with economic and social strategies, “crowding in” better-off Singaporeans was an important third pillar for social progress, he said.

Upstream interventions

As for social strategies, Mr. Shanmugaratnam said more aggressive upstream interventions were necessary to assist low-income families. “Worrying micro-trends” had emerged among families, including divorce and cases where one or more family members are incarcerated. Intensive interventions were needed to arrest such trends early especially where young children are involved. Some conference participants were also concerned about the under-representation of certain groups in higher education and asked what more the government could do. Mr. Shanmugaratnam said this would require close cooperation with voluntary welfare organisations and self-help groups, and a greater effort to keep teenagers in school with informal activities to keep them engaged outside of school hours, give them the satisfaction of staying in school and encouraging interest. This was more pro-active than to respond later to problems related to drugs and gangsterism, he said.

How do we maintain and strengthen our progressive slant, do more to support those at the lower end, while ensuring that we remain a society where at the core, people do have a deep sense of responsibility for their families, do want to work hard to improve themselves, and take pride in being part of a society where everyone moves up together that way?

Help for the elderly

Mr. Shanmugaratnam also drew attention to the unique plight of many older Singaporeans, who, having tolled for most of their lives on relatively low wages, now faced the struggle of meeting today’s higher costs on inadequate savings. More needs to be done to help them if they wish to stay employed, and help ease their fears over medical costs.

He also explained that the elderly could be helped to “unlock the savings in their homes”, a unique feature of the Singapore social model. This may require a change in attitudes about changing residences in retirement years, but he noted the encouraging trend of rising demand from the elderly for studio apartments, defined as smaller units with 30-year leases.

Minimising the middle class burden

It was important that Singapore had managed to maintain a progressive system of social support despite relatively low tax rates, Mr. Shanmugaratnam said. Despite lowered income taxes and raised goods and services tax (GST), he reminded critics to view Singapore’s fiscal policies holistically over the last decade, as they had enabled the government to redistribute more net benefits to lower-income Singaporeans compared to ten years ago. Yet, this had been achieved with only a minimal increase in net taxes paid by the middle class. Mr. Shanmugaratnam said a low middle class tax burden should be an essential feature of Singapore’s “progressive fiscal system”.

Responding to a question about whether Singapore had the fiscal capacity to raise the income limits for those who can enjoy targeted subsidies in healthcare, Mr. Shanmugaratnam said that targeted policies like means-tested subsidies were important to a progressive regime that “gives more to those who start out with less”. Systems that granted subsidies more liberally to higher income residents might create a sense of inclusivity, but higher taxes were consequently borne by a broader mass in the middle, he warned. Singapore had an even more progressive tax system than Britain, where the middle class paid more taxes than benefits received, he argued. However, he agreed with some participants that more riskpooling in healthcare was necessary to help families facing “catastrophic illnesses and catastrophic costs”. This would require planning for sustainable higher spending on healthcare, while rules concerning the use of Medifund (an endowment fund to help needy Singaporeans with healthcare expenses) were being gradually liberalised across healthcare institutions, the minister said.

Keeping the right perspective

“No policies are sacrosanct,” Mr. Shanmugaratnam said. The government would refine them and make shifts where necessary, “instructed by empirical evidence” of policy efficacy.

In his personal reflection on the issue of labour inflows, Mr. Shanmugaratnam noted that inherent to maintaining Singapore’s diversified economy on a limited local workforce was a need to employ some foreigners in every sector. A whole range of enterprises had given feedback that their ability to hire a certain number of foreign workers with the right skills and aptitudes was crucial to their capacity to be internationally competitive, and thereby able to upgrade the skills and wages of their local workforce. As Singapore decreased its dependence on foreign workers, this tightening of the labour market would inevitably result in higher costs, affecting working and middle class consumers. Ultimately, the businesses most vulnerable to a labour crunch were local small and medium-sized enterprises (SMEs). At the end of Singapore’s economic restructuring, “we don’t want an economy with a denuded SME sector”, he cautioned.

Mr. Shanmugaratnam said that it was important to keep a sense of perspective towards Singapore’s achievements vis-à-vis countries in the region: it had preserved very low rates of unemployment, and achieved a median income in Singapore about 20 per cent higher than Hong Kong, and 30 per cent higher than Korea and Taiwan in purchasing power parity terms, a gauge of spending power. Having achieved these goals within a fiscally sustainable system, one had to conclude that “we are not doing too badly for the average Singaporean”, he said.

“Why then are so many Singaporeans unhappy?” asked IPS Special Adviser Prof. Tommy Koh. Mr. Shanmugaratnam attributed it to a new set of economic circumstances facing Singapore, with increasing prices and decreasing social mobility compared to the first 30 years of Singapore’s development. Singapore was also going through a political transition from governance by a strong incumbent party towards more plurality. Adjusting to a new social compact was now necessary, he said. More government interventions would be needed in an increasingly competitive global environment, “but most importantly, let’s keep this as a place where people feel there is a realistic chance for their families and children, to improve over time”. Singapore, despite being developed, was one of the few places he believed an upwardly mobile society was possible.

Short political horizons are never helpful. It is how most of the developed countries have built up public spending in excess of revenues even during their youthful and rapid growth years, and now find themselves with unsustainable debts just as their societies age… We have to preserve a system of sustainable finances, so that we keep this position of strength as we address our challenges of helping the elderly live well, and keeping social mobility alive. It will allow us to invest in an inclusive society not just for two or three terms of Government, but for our children’s generation.

Rachel Hui () and Danielle Hong () are Research Assistants at the Institute of Policy Studies. The edited excerpt of Mr. Shanmugaratnam’s remarks is available on the Singapore Ministry of Finance website.

Book Launch
Time: 07:30 pm - 09:15 pm (SGT)
Location: Singapore