PM weighs in on trade-offs between welfare, prosperity

A COMMENTARY warning of the dangers of "please-all economics" in Singapore has sparked discussion about the growing demands on the government purse, with even Prime Minister Lee Hsien Loong weighing in on the trade-offs between welfare and prosperity.

Mr Lee's Facebook post was prompted by an article by Reuters columnist Andy Mukherjee published in The Straits Times last Saturday, entitled "The perils of please-all economics".

Mr Mukherjee said that with Singaporeans demanding a bigger retirement nest egg, more subsidised health care and housing, and yet being against admitting more foreigners or raising the 7 per cent consumption tax, the Government faced a long-term challenge of "squaring this fiscal circle".

He also said that while there were certain actions Singapore could take to boost its fiscal position, each had its challenges.

Mr Lee described the piece as "thoughtful" and said he hoped Singaporeans would understand that there were "hard choices" to be made. "If we just pretend that everything can be better, and no hard choices are necessary, we will get into trouble," he wrote.

His concern comes amid government plans to raise social spending significantly to help the lower- and middle-income, in the face of rising income inequality and an ageing population.

Indeed, the Government expects to record a $1.16 billion deficit this year after funding the entire $8 billion Pioneer Generation Package out of this year's Budget. But it still expects to balance the budget at the end of its five-year term, given the surpluses gained earlier.

It has increased housing and health-care subsidies for lowand middle-income families, and pledged to ensure premiums for the new MediShield Life insurance scheme are affordable.

Bank of America Merrill Lynch economist Chua Hak Bin said while Singapore comes from a strong fiscal position, the Government's growing number of commitments "are starting to make a bit of a dent, and fiscal revenue increases are probably not keeping pace".

He added: "We haven't reached that point of reckoning yet, but in two to three years' time, if we continue to expand social support and meet ever greater demands, then you will need tax measures of some sort. A lot of people don't realise that."

But some saw the issue differently, saying the current situation was about meeting changing needs and a greater desire for equity as opposed to efficiency.

Health economist Phua Khai Hong said: "The million-dollar question is what is the optimum trade-off? This is to be answered in the balance of social, economic and political dimensions as well as the roles of the public, private and people sectors."

Nominated MP Eugene Tan said some might see trade-offs as "a convenient device used by the Government to justify its policies and avoid higher government expenditures". He said there was a need for thorough and robust explanation of tough policy choices.

Some tough choices were highlighted by Mr Mukherjee. The first is for Singapore to continue growing its economy, and hence the tax base, to boost government revenues. But with foreign labour constrained, that means the local workforce has to raise its productivity, which he termed "a long shot".

Singapore could tax companies more but that would hurt firms as business costs were already quite high. It could invest its sovereign wealth in riskier assets, but "that could backfire, leaving less money for welfare".

The Government could also reduce the pace of its investments, but that could hurt the real estate market, making "Singapore's property-loving citizens less wealthy and more miserable", he said.

Still, Mr Mukherjee expressed confidence that "for all the grumbling, the majority of Singaporeans are too pragmatic to opt for unbridled welfarism at the next elections".

The Prime Minister, in his post, concluded: "We must make sure that he is right."

chanckr@sph.com.sg

Additional reporting by Nur Asyiqin Mohamad Salleh

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