Tag Archives: Budget

Why Singapore has no minimum wage

Why does Singapore not have a minimum wage? This may be a million dollar question, but it has a one hundred billion dollar answer.

Most developed countries have one – either in law or negotiated through unions. But oddly this is one feature of first world life that the PAP stubbornly refuses to even consider. It is something that many locals would like to see for many reasons. It would help to level the employment landscape which is currently tilted in favour of cheaper foreign workers who can more easily support a family in their lower cost of living home country. A minimum wage would also encourage employers to work towards more productive economic growth rather than pumping up the wealth of the nation by importing cheap labour inputs of increasingly marginal economic benefit in ever greater numbers.

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A few questions on the Singapore budget 2013

Singapore’s 2013 budget was lauded by some as a “Robin Hood” budget, but the arguments are unconvincing. Who will benefit the most? It appears that through a range politically convenient and populist policies, the government itself will stand to benefit significantly from this budget. I have a few questions to ask on some of the headline initiatives. What do you think?

Is the Wage Subsidy Scheme a populist policy?

The government needs to do more to help the less well off in Singapore who have been left behind by the pursuit of economic growth. The bottom 20% earn less than 1.5k monthly, 50% of citizens earn less than 3k. Low wage earners have seen no real growth in income over the last decade. But the wage subsidy will be available to anyone earning up to 4k, meaning more than half of working citizens will benefit from government-funded cash in hand. So while this policy obviously has significant scope to make the government popular, the question is whether or not it represents money well spent on helping the needy who most require it. Should the government not allocate the same total outlay – 3.6 billion dollars – to do more for those earning less than 2k instead? And what is the long-term plan? The wage subsidy is curiously set to end in the same year the next general election will be due. How do employers plan to make up the shortfall if the subsidy is not extended beyond that time? Will this lack of planning be another example of a lack of 20/20 vision on the part of the government come 2016?

Will the Wage Subsidy Scheme give free cash to company bosses?
Will the Wage Subsidy Scheme give cash back to the government?

Last year I understand that Singtel made approximately 4 billion in profit. Does Singtel need government help to give a pay rise to their staff? It appears that any employer who had already planned to give an increment to eligible employees will now receive free cash merely for implementing an existing plan. Are there any steps in place to prevent subsidies being given to companies that had already planned to implement pay rises? If Singtel for example had already planned pay rises for the year ahead, will this injection of government money not effectively represent a free handout of cash to the business? And if this free cash increases the profitability of the company, will some of that money ultimately be paid to shareholders in the form of a dividend? In the case of Singtel, the government is the largest shareholder (54%) so any dividend funded somewhat from Wage Subsidy Scheme payments will presumably flow, in part, back to the government. Is there a risk that an unintended outcome of the scheme will be that the government gives money to the government, via a company that is owned by the government (Temasek)?

Are car loan restrictions a gift from middle-income earners to the wealthy?
Is this gift politically convenient for the government?

Regarding loan restrictions on car purchases, many see this as a response to sky rocketing COE prices. The most obvious outcome from this policy is that many of the “squeezed middle” will be squeezed out of the market for buying a car. Reduced demand will cause the COE price to come down, but this will only really benefit cash rich individuals who are not affected by the new loan restrictions. So middle-income earners will suffer and the rich will benefit. Lower COE prices are also politically convenient for the ruling party, and this outcome is likely to suit them in the sense of falling COE prices being a counterpoint to the never-ending increases in cost of living in Singapore. The government says these changes are needed to prevent reckless borrowing, but this is not convincing. The changes seem to make no attempt to differentiate between those who have good credit and can afford to borrow to buy a car, and those with bad credit who cannot. Surely the job of assessing credit worthiness or loan eligibility is a job for banks to take care of, and can be regulated through that mechanism, rather than a government policy to kick many interested buyers with good credit out of the market.

It would be interesting to see some of these questions answered by the government or debated in parliament, but our lack of opposition MPs and lack of a free media to hold the government to account means they will most likely go unasked. To see the government claiming this as a progressive and inclusive budget when it suffers from a number of structural flaws is troubling. It is particularly worrying to see the government embracing expensive, short-sighted populist policies in the light of increasing political discontent. Have we not been told, for decades, that this is what a strong and capable government should avoid? The fact that the budget also appears to pour money into already profitable government linked companies, some of which will inevitably return to the government at the end of the year, is also concerning. Why is it that government spending so often results in putting very little cash into the hands of those who need it most?

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PAP Policies Unproductive on Productivity

Looking back on 2012, what do we think has been one of the government’s primary economic concerns for Singapore in the past year? I would like to suggest productivity. Although Singapore has high GDP per person, this has been achieved – especially in recent years – in a very inefficient manner. One only has to look at our crowded trains and sky-high property prices to know that a large part of our growth has been based on pumping the economy full of imported workers. But obviously this cannot continue for ever as Singapore doesn’t have limitless room for foreigners, and therefore the government has made a lot of noise recently about growing the economy not by increasing the inflow of workers but instead by increasing the productivity of those we already have.

In April PM Lee was quoted by Yahoo News [1] as saying that “Raising productivity is more important than ever in Singapore’s maturing economy”. Further, in his May Day message the PM mentioned productivity no less than 21 times [2]. In recent years the government has set up various plans and schemes to try to increase productivity. For example the Productivity and Innovation Credit which was budgeted to cost 480 million dollars per year [3] and the Productivity Fund into which 1 billion was injected in 2010 [3, ibid] and a further 2 billion was injected in 2012 [4].

So the question is what results have we seen for these billions spent? The government hasn’t made any large public announcements about productivity recently, so I guessed the answer might not be very flattering, but acting Manpower Minister Tan Chuan-Jin let the truth slip out in a recent blog posting [5]:

“Our year-on-year rate of growth in employment level has exceeded the rate of GDP growth in the past four quarters. This has resulted in negative productivity growth. This means that with every additional worker employed, our economy became less productive on average.”

Oh dear, what a sorry outcome. For all those billions spent and all that talk, isn’t it a bit disappointing that our million dollar ministers couldn’t deliver on this? I wonder if PM Lee or Tan Chuan-Jin will come out and explain how this can have occurred despite receiving so much focus over the course not just of this year but previous years too?

I don’t want to bore everyone with a long discussion on the economics of productivity – but I will say a this. Productivity depends on the cost of labour – that means wages. If wages are low and there is a large supply of workers, productivity tends to be low too – this is because for any given employer at any given time, it is generally cheaper and easier to hire one extra cheap worker to grind out a bit more GDP than it is to invest in training or better tools or spending the time on process optimisation to generate productivity driven GDP gains. I probably don’t need to tell you that Singapore, with no minimum wage and an open door to foreign workers, has exactly those policies that we should expect to lead to low productivity. So as long as the PAP are in denial about the need for a minimum wage and a real (not imaginary [6]) tightening of the flow of foreign labour, we are likely to see low productivity in Singapore for the forseeable future. Until some time just after 2016 I expect.

[1] http://sg.news.yahoo.com/raise-productivity-to-raise-wages–pm-lee.html
[2] http://www.pmo.gov.sg/content/pmosite/mediacentre/speechesninterviews/primeminister/2012/May/speech_by_prime_ministerleehsienloongatntucmaydayrally1may2012.html
[3] http://www.mom.gov.sg/skills-training-and-development/productivity/Pages/resources.aspx
[4] http://www.enterpriseone.gov.sg/Home/News/2012/Feb/120217%20Singapore%202012%20Budget%20An%20Inclusive%20Society%20A%20Stronger%20Singapore.aspx
[5] http://momsingapore.blogspot.sg/2012/12/taking-stock-looking-forward_28.html
[6] http://www.tremeritus.com/2012/11/12/imaginary-labour-shortage-in-singapore/

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Why I am donating to support Kenneth Jeyaretnam

First they came for the communists,
and I didn’t speak out because I wasn’t a communist.

Then they came for the socialists,
and I didn’t speak out because I wasn’t a socialist.

Then they came for the trade unionists,
and I didn’t speak out because I wasn’t a trade unionist.

Then they came for me,
and there was no one left to speak for me.

I read with interest the judgement in Kenneth Jeyaretnam’s IMF loan case [1]. Whilst there are many aspects of the ruling that trouble me, for now I would like to speak on just one point. The ruling brought to mind a famous poem by Martin Niemöller [2] titled “First they came … “, which speaks eloquently of the need not just to speak up for our own rights, but also for the rights of all members of our society. You have just read it above. If we do not do something to protect others in our society, we will have no reason to expect ourselves to be protected in the future.

The relevant section of the judgement in Kenneth’s case is paragraph 47, it is about “locus standi” and who, if anyone, has the right to challenge the government if they pass an unconstitutional law. It quotes a previous case and includes the follow argument:

Every citizen has constitutional rights, but not every citizen’s constitutional rights will be affected by an unconstitutional law in the same way. For example, if there is a law which provides that it is an offence for any person of a particular race to take public buses, this law would clearly violate Art 12. […] However, the mere holding of a constitutional right is insufficient to found standing to challenge an unconstitutional law; there must also be a violation of the constitutional right. In this fictitious scenario, the only persons who will have standing to bring a constitutional challenge against the unconstitutional law for inconsistency with Art 12 will be citizens who belong to the race that has been singled out as only their Art 12 rights will have been violated. Persons of other races will not have suffered violations of their Art 12 rights and will thus have no standing to bring a constitutional challenge in this scenario.

I find this argument highly insulting and hugely dangerous. The reasoning is that I, as a member of one race, cannot speak up to protect the rights of my friends of another race. But are we not all Singaporeans? Do we not have national service to protect all Singaporeans, regardless of race? If a Chinese lady, married to an Indian gentlemen for example, cannot speak up to protect the rights of her husband, then what have we become? But the argument in this case is not really about race, it applies equally to any way to identify and categorise those people who may, verses those who may not suffer some loss in the face of an unconstitutional law. To paraphrase the poem that I begun with.

First they came for the newspaper men,

and I didn’t speak out because the high court of Singapore ruled that only newspaper men can speak out for other newspaper men, and I as an accountant do not have locus standi to speak out on this topic. But my husband is a newspaper man, imprisoned without trail for seventeen years, and I fear I will never speak to him again.

I am not a lawyer, but from reading what has been published, I understand that this argument regarding locus standi is what Kenneth (at least in part) seeks to overturn in appeal. I will donate to his cause not only because I think this is an extremely important legal principle, but also because I feel strongly in protecting the rights of all people in our society, not just any one particular group.

[1] google “jeyaretnam attorney general singapore law watch”
[2] http://en.wikipedia.org/wiki/First_they_came…


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How the Singapore reserves might get spent … and you would never know about it.

How would you feel if I told you, there’s a 100% legal way that the PAP government have set up to enable government spending of Singapore’s accumulated reserves?  You think any draw down on historical reserves requires presidential approval?  Actually not!  “Draw down” has a specific legal meaning, and guess what, when you’re in charge of making the laws, you can work around that! You thought reserves can only be spent in an emergency with Presidential sign off? Wrong again, this is a mechanism that the PAP uses every year to bring billions of dollars from Tamesek & GIC into the government budget.  Unfortunately the question of whether or not these billions cause our historical reserves to be reduced is considered too secret to tell anyone.

Let’s get to the point.  This mechanism by which the reserves can get spent is called “Net Investment Returns Contribution”.  In 2012 it was used to pull 7.3 billion dollars into the annual budget. In 2011 the figure was 7.8 billion.  How does it work?

This framework allows the Government to take into the Budget, up to 50% of the long-term expected real returns on the funds managed by GIC and MAS, after deducting Government liabilities.

The expected long-term real rate of return refers to the investment rate of return that can be expected to be earned on the funds managed by GIC and MAS over the next 20 years, after netting off inflation.

[Emphasis Added][1]

There you have it.  The key word obviously is “expected”, as opposed to “actual” or “real”.  A prudent government might only pull funds from the reserves based on actual returns achieved in the previous year or two, but not the PAP.  How can the government have any idea what the expected returns of GIC and MAS will be over the next 20 years?  Remember that assets can be transfered from Temasek to GIC without any oversight from anyone, so all of Singapore’s investment funds are in play here.

So how does this really work?  Well, the government picks a number to represent the “expected” returns from investing the reserves over the next 20 years.  This might not be a problem if the number chosen was very conservative.  Unfortunately, as has been pointed out by Christopher Balding [2] and Kenneth Jeyaretnam [3] there is an immediate problem here, in that various indicators point to the returns of GIC (and Tamesek) being overstated.  So we have to at least suppose the government may chose an optomistic / inflated / excessively high value for the expected rate of returns.  Then, let us suppose through the course of the year, the actual returns of GIC, MAS and Tamesek are quite a bit lower than “expected”.  The government will still bring funds out of the reserves in line with “expected” returns, and if that is greater than actual returns then so be it.  There is no further safeguard to protect the reserves if returns are less than “expected”.  So by this mechanism, every year, the government could end up reducing the value of Singapore’s reserves.

But, there is one safeguard – the value chosen for the “expected” returns of GIC and MAS has to be approved by the president.  However, given that the President was previously the Deputy Chairman of GIC while they were busy losing many billions in toxic investments, I am not convinced he is best placed to provide a safeguard on these funds.  Further, Dr Tan was also for many years a senior member of the PAP government, including a ten year stint as Deputy PM, so again it could be argued that he is not an independent observer, but actually has an interest in supporting the PAP and thus maintaining the legend of the “Men in White” of whom he was in fact one.  One look at the President’s silence over the illegal world bank loan [4] which was made without his permission reveals that he clearly has no interest in protecting the finances of Singapore.

[1] http://app.mof.gov.sg/reserves_sectiontwo.aspx

[2] https://mostlyeconomics.wordpress.com/2012/04/18/temasek-and-singapore-puzzle-is-it-another-madoff-crisis-in-making/

[3] http://sonofadud.com/2012/09/07/where-have-our-reserves-gone/

[4] http://sonofadud.com/2012/08/30/auditor-general-mof-breached-constitution-article-144-in-january-2012/


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Questions for Josephine Teo on government borrowing

Hi Josephine, I noticed recently your statement in parliament from earlier in the year, that the government plans to increase the borrowing limit to support an extra 195 Billion dollars of debt issuance over the next few years. 20% of this borrowing, that is 39 Billion dollars, is allocated “to increase the efficiency and liquidity of Singapore’s debt market”.
I would like to respectfully ask how you can justify this? 39 Billion dollars is such a huge amount, ten times what we spent on healthcare last year. To borrow this much for such an intangible reason is very hard to accept. How much will this 39 Billion dollars of debt cost us in the long run, including interest payments and issuance fees? Do we really need to borrow this much because our debt market is not currently efficient or liquid enough? How efficient or liquid would you like it to be? How will greater liquidity in our debt market enhance the lives of ordinary Singaporeans? How do you plan to measure and quantify this liquidity to ensure that Singaporean’s get value for money on the 39 Billion dollars borrowed? Will the debt issued be callable / cancellable in the case that the liquidity of the market increases faster than expected?

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