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.

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?