Wednesday, 28 February 2007

Speech on the Budget Statement: 27 February 2007

I've been really busy for the past 1.5 weeks or so. First, of course, there was Chinese New Year. The usual CNY-busyness was compounded by the fact that CNY Eve coincided with my birthday, so there were more celebratory activity than usual.

And then there was the Budget. I never really realised just how much activity takes place around it. There was the Budget Statement on 15 February, after which I had prepare a set of "cuts" (technically, amendments to the Budget, which is really just the procedural method by which a MP gets to speak on the budget -- and the policies -- of a particular Ministry during the Committee of Supply debates) that I had to file by last Thursday.

I also had made my maiden speech today, and it was the toughest double-spaced 10 pages I ever had to write. It would have been easy to bang out something pedestrian, run-of-the-mill and without impact. Of course, I didn't want that. And there were so many things to say, so many things I could say.

In the end, I threw out a lot of stuff that I had written, to make the speech tighter and to create some sort of flow in it. Having said that, even after I thought I was done and printed out what I labelled the "final" version, I was actually making manual amendments right up to the last few minutes before my turn came up.

I thought I did a pretty good job, both in writing and in delivering it. At least, that's what I'm told. What I (only half-jokingly) told someone, was that he didn't see the shaking legs throughout the whole thing. It was much less nerve-wracking than the first time I spoke in Parliament (when I asked a supplemental question in Question Time), and once I had gotten started it was easier because I was focused on speaking. But the chamber was so cold and there was so much nervous energy running through me, that my legs really did shake quite a bit.

Anyway. Below is the prepared text of my speech -- the actual delivered speech would have been a little different. (For instance, the Deputy Speaker was presiding, so I actually said "Mr Deputy Speaker" not "Mr Speaker".)

Speech on the Budget Statement 2007

Mr Speaker, Sir, thank you for allowing me to participate in this debate.

Our economy is growing at a very healthy pace. Many Singaporeans have benefited and will continue to benefit from this growth, some more than others. But many others have not, and have instead been disadvantaged by the inexorable economic logic of globalization.

Sir, the result is an income gap that has, by measures like the Gini coefficient, widened over the years. Indeed, our income gap may now be bigger than that of the United States, which was one of the more troubling revelations in a recent paper published by the Department of Statistics. I think it is fair to say that the benefits of Singapore’s growth are being disproportionately concentrated at the very top of the population.

It is against this backdrop that this year’s Budget is being introduced and debated. Indeed, the Budget Statement contained two recurring themes: ensuring continued economic growth for Singapore in a globalised world, and helping the low-income cope with the onslaught of globalization.

Key measures announced

Sir, there were four key announcements in the Budget Statement: the corporate income tax cut, the GST, the increase in the employer’s CPF contribution rate, and the Workfare Income Supplement. Many other measures were announced, but these four clearly grabbed the headlines.

Cut in corporate income tax rate

While it seems intuitively right to lower taxes so as to maintain our attractiveness to investors, I cannot help but wonder whether we are engaged in some sort of race to the bottom in cutting taxes. Is that what globalization is about: an unending race to keep up with the Joneses of Hong Kong, Ireland and Eastern Europe, in meeting the incessant demands of globally mobile capital for ever lower taxes and costs?

Sir, this cannot be healthy or sustainable in the long run. For instance, we may never be able to match Hong Kong’s tax rates, if only because they do not have to fund a defence budget. Let us also not forget that the US, with its federal corporate tax rate of 35 per cent, attracts massive amounts of foreign direct investment. So the headline tax rate is just one of many relevant factors considered, when investors decide where to channel their funds.

Just as we have long ago decided that our economy cannot compete on the basis of low costs, we also cannot keep competing on the basis of low tax rates. A low tax rate may help to attract investments, but it will not be sufficient in and of itself. So we will need to sell Singapore on our other strengths as well: quality of life, relative lack of pollution, greenery, safety, stability and reliability. And we need to continuously strive to maintain, and improve upon, these qualities.

Increase in GST

Sir, to ensure fiscal sustainability, we will be increasing GST by 2 per cent. This will inevitably increase the cost of living in Singapore. The Government’s response is the GST offset package.

The offsets are skewed in favour of the poor and the elderly, and I think rightly so. If we accept that we have limited financial resources, which surely we have to, then we must also accept that they should be deployed towards the areas of greatest need. Our focus must be to help the low-income survive and get by, and not so much to help the middle-class meet their aspirational goals.

Having said that, perhaps more could be done to help the so-called “sandwiched class”, that is, the households caught between the twin demands of raising children and supporting parents. A Baby Bonus top-up would have been welcome, as would expanded parent relief.

Furthermore, while the GST hike affects everyone, many of the GST offsets will benefit only homeowners. This leaves out those who rent, and those who still live with their families, which I must admit includes myself. [SKH: At this point, pretty much the whole House was laughing -- including myself.] I hope that, if and when the next GST increase comes around, the Government will remember to provide some relief for this group.

Increase in employer’s CPF contribution rate

Sir, the employer’s CPF contribution rate has been increased by 1.5 per cent. This is a recognition by the Government that the economy is good, and has been good for the past few years, and so it is time to restore part of the CPF that was cut during the tough years.

I fully support the Government’s decision to increase the employer’s CPF contribution rate. It sends the right message to workers, that the Government has not forgotten the sacrifices made when times were tough, and will reward workers now that times are better.

Perhaps more importantly, it compels employers who would otherwise not have increased salaries to do so, albeit through CPF contributions. This ensures that the benefits of the growing economy are more evenly spread across the workforce.

But Sir, I would urge the Government to reconsider using CPF contribution rates as a counter-cyclical tool to manage the economy. The Government has stated that it will keep overall CPF contribution rates at between 30 and 36 per cent, and will adjust it depending on economic circumstances.

As others have pointed out, and probably much more articulately than I ever could, there is an inevitable lag between the start of a slowdown or recovery and the time when the Government decides to adjust the CPF rate. This time-lag means that the adjustment may end up being counter-productive.

It can also wreak havoc with people’s financial planning. The CPF’s primary objective is to help people plan for their retirement. Along the way, it has acquired a secondary purpose of funding housing needs. These objectives require people to make long-term plans, which can be upset by sudden changes in the CPF structure or contribution rates.

I would therefore ask the Government to consider setting a fixed CPF contribution rate, and then allowing people to do their long-term retirement and housing planning based on this rate. This will provide the certainty that is so essential for this sort of planning.

Workfare Income Supplement

Sir, the single-most striking policy announced this year is the Workfare Income Supplement. It is not a new concept. The US introduced the Earned Income Tax Credit in 1975, and the UK introduced a similar scheme in 1986.

Sir, I will be blunt. In my view, the WIS is one of the most important programmes to help the low-income in Singapore’s history, and I applaud the Government for introducing it. As the Second Minister for Finance said, and I quote: "For the first time, the state will be supplementing the market wages that low-wage workers receive."

The most immediate difficulty facing the low-income is self-evident. As Jack Neo might say, “Money No Enough”. The WIS directly addresses this, by putting cash into people’s hands. It also increases their CPF contributions, which will be helpful in the longer term.

But Sir, it seems to me that the WIS does not adequately address the difficulties faced by informal workers and the self-employed. To qualify for the WIS, they must contribute cash. This will be very difficult for them. To compound matters, they will only receive contributions to their Medisave accounts.

There are sound economic reasons for taking this approach. We have to avoid creating an incentive for those on the CPF system to drop out.

But let’s go back to why the WIS is necessary in the first place. It is because the low-income are finding it difficult, if not impossible, to make ends meet. So how will asking them to make upfront cash contributions to their Medisave accounts address this problem?

Sir, it seems possible that many, if not most, of those in this group will not sign up for the WIS. Even though the amount of contribution required is low, even if they recognise that the Government is giving them a good deal, even if it will benefit them in the long run, I fear that the prospect of giving up much-needed cash will deter them from signing up. To be honest, it is not hard to understand why.

In a way, it is tantamount to penalizing this already-struggling group: the ones that possibly need help the most are denied the full benefits of the WIS, and even have to reduce their disposable incomes to qualify. In our attempts to prevent wastage and abuse, are we inadvertently sabotaging the scheme and hindering it from achieving its objectives?

Be that as it may, we will have to work around this problem. To ensure that this group receives the help it needs, every effort must be made to educate them on the benefits of the WIS, and the procedure to sign up must be kept simple and fuss-free.

Sir, I also think that there is room for expanding the scope of the WIS, to cover more people.

The Minister for Manpower has stated that the WIS is intended to help the bottom 15 per cent of the population, and that helping more people will reduce the quantum of benefits available to each person.

But let us put the figures in perspective. The WIS will cost the Government $400 million per year. This is half of the $800 million per year in lost revenues from the cut in corporate income tax; less than half of the $1 billion per year spent on HDB upgrading; a quarter of the $1.5 billion per year expected from the GST increase; and less than 4 per cent of the $10.6 billion allocated to Mindef this year.

So there is room for the WIS to expand to more workers, after the Government’s review in 2010. There must be. I also hope that the Government will consider introducing additional credits for workers with children or parents living with them, as many of them will not benefit from child or parent relief.

Sir, after the Budget Statement, The Straits Times profiled a lady named Jenny Ong. I understand that she works as a waitress. With the WIS and the CPF changes, Miss Ong is expected to receive $52 more in take-home pay and $30 more in CPF every month. That represents an 8.8 per cent increase over her current monthly salary of $930.

But she owes $9,000 in rental arrears and $300 in utilities. That represents 113 months, or 9½ years, of this increment from the WIS. While the WIS will help, it will not make much of a dent in her huge arrears.

That is the enormity of the problem that we face. And so, the WIS as announced is only the starting point, and certainly not the finished product. Other measures, like training and upgrading, remain vital in helping the low-income.

Housewives, homemakers and househusbands, and the unemployed

Sir, finally, I will touch on a couple of things that this year’s Budget did not.

Firstly, and here I echo several other Members here, it did not have anything for housewives, homemakers and househusbands. They do not work, so obviously they will not qualify for the WIS and will not benefit from the CPF rate increase. This could send the message that society does not value what they do.

Sir, I do not think that that is right. Even though more and more women are joining the workforce, housewives and homemakers continue to play an important role in today’s society. Househusbands play an equally important role. We should not ignore their contributions simply because they are difficult to quantify in financial terms.

I would therefore ask the Government to consider some form of tax credit or grant for unemployed parents, especially those without maids, whereby they will receive cash, or CPF, or a combination of both. Eligibility could be tied to the household income level and the annual value of the home. This will alleviate the burden on the sole breadwinner, while recognising the invaluable contributions made by stay-at-home spouses.

Secondly, the Budget had a lot for the low-income, but it had nothing for the “no-income”.

Sir, there was nothing in the Budget Statement on the unemployed, not even those who, for whatever reasons, are simply unable, and not unwilling, to obtain employment.

With rising costs, the unemployed require more assistance than ever. The impending GST hike exacerbates this, even with the offset package that has been announced. This House was recently told that the Public Assistance Scheme is being reviewed, and that an increase in the amounts payable is likely. This is good. But it is not likely to be enough.

While there are many existing assistance schemes, I had hoped to see something more. Given that this problem has persisted in Singapore despite the growing economy and despite the existing help schemes, the logical inference must be that the status quo is not enough.

Sir, at this point, I will just recall the incident last year where a gentleman committed suicide at a MRT station by jumping before a train. I do not think anyone in this House can imagine the kind of pressure and the sort of desperation that will drive a man to do this. He was unemployed, he had no money, I believe he had $16 in his wallet. He was saddled with a mountain of debt and that was his way out. I think, as a society, we have failed if we cannot help these people, if we cannot stop them in time before they take such desperate measures. I was therefore disappointed to see nothing in the Budget for this group. We can do more. We need to do more.

I was therefore disappointed to see nothing in the Budget for this group. We can do more. We need to do more.


Sir, this year’s Budget represents this Government’s vision of how Singapore can continue to ride the globalization wave to ever greater prosperity, while helping those who are unable to benefit from this growth.

Even as many have praised the Budget, others have found fault with it. Individuals have criticized the GST hike and the lack of a personal income tax cut. Employers have complained about increased costs from the increase in the CPF contribution rate.

I do not think that all of the criticisms are unjustified. But it is in the nature of people to focus not on what they have, but what they do not have. There is no perfect Budget that will please everyone, and I believe that this Government is trying its level best to help those Singaporeans who need help the most.

It shows in the introduction of the WIS, a drastic break with the conservative past and a brave step into the exciting future. It is a baby step, but it is in the right direction in how it addresses the problems of the low-income head on. This can only bode well for Singaporeans.

Sir, with that, I support the Budget.

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