Cost-of-living reports, such as the Economist Intelligence Unit one that has just ranked Singapore the priciest city in the world, are aimed at comparing costs of living for expatriates and thus do not reflect the cost of living for a local resident, Finance Minister Tharman Shanmugaratnam said in his wrap-up speech on the Budget debate on Wednesday.
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Here is an exerpt from a transcript of Mr Shanmugaratnam's round-up speech on Mar 5:
"Before we go into the first main theme - the economic challenge of restructuring - let me first deal with the issue of costs, which many MPs have rightly raised. First, the issue of cost of living. Second, the issue of business costs, particularly for our SME sector. I will speak about each of these in turn.
First, cost of living. Mr Nicholas Fang and Assoc Prof Eugene Tan, have mentioned the latest EIU report, which ranks Singapore the most expensive city in the world.
"I do not particularly want to focus on this report in its own right, but to explain a couple of very basic things about such reports that come out from time to time, whether it is the Economist Intelligence Unit (EIU) or Mercer ones, which are really aimed at measuring expatriates' cost of living in different parts of the world.
They are useful tools for HR managers and corporate HQs as they decide where to place their people. When they are placing them in a particular place, they need to know how to compensate them adequately based on the cost of living. It is a useful tool.
"They are basically aimed at comparing cost of living for expatriates in different cities or countries. Hence, there are two things that make these surveys quite different from the factors that affect the cost of living for Singaporeans.
"First, exchange rates. An important reason why we have become an expensive place for expatriates is that the Singapore dollar has strengthened. Indeed, the EIU report points this out.
"The Singapore dollar has strengthened over the years, including in recent years and this means that it is a more expensive place for someone who is paid in a foreign currency, or for a corporate HQ abroad whose earnings are in foreign currency. As the Singapore dollar strengthens, it becomes more expensive.
"But the reverse is true for Singaporeans.
"The stronger Singapore dollar improves purchasing power for Singaporeans - in Singapore because imported goods become cheaper (and for us, food and everyday items are all largely imported).
"And it also improves purchasing power when Singaporeans go abroad - you can see that from the latest travel fair last week. The stronger Singapore dollar, through steady appreciation, has been good for Singaporeans but it does mean that Singapore becomes a more expensive place for expatriates on foreign currency earnings.