Hoon Hian Teck
Singapore
“How can we identify potential applications of AI to our local landscape to boost worker productivity? Mr Chairman, the arrival of robots produces threats when they simply replace human workers in a set of tasks and thus depresses workers wage earnings.”
“A talented individual who could potentially become a major contributor to creating new ideas that will lead to new products that can be marketed, might be born into a financially constrained family. What can be done to reach such individuals to help them achieve their potential to contribute to indigenous innovation?”
“Thank you. Living through the rapid economic transformation of Singapore leaves one with a deep sense of gratitude. The journey ahead, however, is likely to be more challenging as citizens' aspirations are now higher and the room for growth spurts diminishes in a mature economy.”
“So, painting with a broad brush, we have three economic objectives: maintaining medium-term price stability, achieving an underlying economy wide productivity growth and facilitating economic inclusion with an assignment of three policy instruments: an exchange rate centred monetary policy, structural policy and fiscal policy respectively…”
“Even as it now faces the challenges of a growth transition, a demographic transition, technological disruptions and higher worker aspirations, it will be the ability to develop political consensus and supporting social and economic institutions to continue to embrace economic openness, not only to goods and capital but also to people, tha…”
“Allow me, Mdm Deputy Speaker, to end with this quote, which ends Dr Goh Keng Swee's Budget speech. I quote: “When the British military withdrawal is completed in 1971, a new era will dawn on us. This event is likely to be no less significant than our departure in 1965 from the Federation of Malaysia.”
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“Absent such a mandate, more healthy residents would have an incentive to opt out of buying coverage at a premium that reflects the much higher healthcare costs of less healthy residents. Second, pre-existing medical conditions are covered, although there are additional premiums for serious pre-existing medical conditions that require intensive medical intervention to treat or require prolonged treatment. Third, the Government provides subsidies to low-income residents to help them make their premium payments. MediShield Life is administered by the CPF Board, which is a defined contribution social security system. In contrast to a defined benefit social security system where payroll taxes are collected from the working young to finance the benefits received by the retired old, CPF contributions form part of an individual's savings. In order for our national health insurance scheme to be financially sustainable, it is vital that the economy continues to generate good jobs. This is because the main source of financing the premium payments comes from an individual's MediSave Account. The Motion's call for a whole-of-Government approach is therefore very appropriate. The recent recommendation by the Advisory Committee on Platform Workers for platform companies to work with the Government to develop a mechanism for platform workers to make regular contributions to MediSave is also timely as it contributes to a financially sustainable national health insurance scheme. Mr Deputy Speaker, Sir, I therefore support the Motion standing in the names of my three hon fellow NMPs.”
“Mr Deputy Speaker, Sir, at a fundamental level, we all recognise that there are some negative events in an individual's life that are unforeseen, such as falling seriously ill. To provide protection to its citizens against such contingent events, one might think that we could rely solely on private insurance companies. The argument is that risk-averse individuals would find it in their self-interest to purchase insurance policies that are offered at actuarially fair prices. However, because of asymmetric information, one side of the market has private information not readily available to the other side, leading to adverse selection. Full insurance is generally not available. In a market that is characterised by adverse selection, more-costly-to-serve customers know who they are but sellers do not. The insurance company knows that among the potential pool of customers, some individuals are better risks than others but it does not know who the better risks are. The fact that insured individuals know their own risk level better than the insurer might cause those who are more likely to have an adverse health outcome to purchase an insurance policy, thus leading the insurer to lose money if it offers insurance. The result is that there is an inadequate provision of private insurance. Thus, in the presence of an adverse selection problem, there is a role for the Government to intervene by providing social insurance in the form of MediShield Life, which was introduced in November 2015. This national health insurance scheme has three important features. First, there is a public mandate so that all Singapore citizens and permanent residents are included in the scheme.”
“How can we identify potential applications of AI to our local landscape to boost worker productivity? Mr Chairman, the arrival of robots produces threats when they simply replace human workers in a set of tasks and thus depresses workers wage earnings. However, the arrival of robots can also provide opportunities for workers if AI can be harnessed to create new complementary tasks that raise labour productivity. It is likely that a society-wide approach is needed to maximise the opportunities of AI and to mitigate the threats to the workforce. Human Resource”
“What can be done to encourage the development and application of robots that perform tasks which are complementary to workers who are employed in the retail and food and beverage (F&B) sectors? Second, the arrival of robots sometimes stimulates investment in conventional machines, equipment and physical structures, which will then exert an upward pull on wage rates. This channel might confer benefits to both high-wage and lower-wage workers. In conventional growth theory, the law of diminishing returns operates so that in the absence of steady technical progress, capital accumulation gradually slows down as each additional unit of capital fetches a lower rate of return. In the labour-scarce economy, like Singapore, the adoption of robots can boost the return to capital and spur capital investment. This acts to pull up the wages of workers across the whole distribution of skills. In what specific industries might capital investment be stimulated as a result of the adoption of robots? Third, the arrival of robots by causing some workers in the economy to shift from participating in production to participating in innovative activity, might ultimately shift up the whole wage path because it stimulates innovation and thus the overall productivity of workers. There can be further research in the area of AI that can restructure the production process adopted in Singapore to create new high productivity tasks that can be performed by human workers. AI-enabled individualised teaching methods might raise the demand for educators who have the skills to apply these methods to meet the diverse needs of students. Augmented reality technology might also enable workers to work alongside machines to execute high-precision tasks in advanced manufacturing.”
“Mr Chairman, in the age, sometimes called the Fourth Industrial Revolution, a critical question is how the arrival of robots enabled by artificial intelligence (AI) and machine learning affects the pay and employment of workers. A stark case economists study is where a robot is a perfect substitute for a human worker, able to do exactly what the human worker is able to do. In this case, it is clear that the arrival of robots is like an influx of identical workers into the economy, with its given technology and stock of machines and land. The result is that while the return to conventional capital is raised and land fetches higher rent, the real wage earned by human workers will decline. Such technology which might be called automation technology has the feature that acts to replace humans in a range of tasks and does not boost labour productivity. This is, however, not likely to be the complete story, especially over the medium to long term. There are other channels that might deliver more positive results on wage growth and as a consequence of adopting robots. The question to be asked is how can we harness the opportunities and face head on the threats of AI in order to benefit our workers. First, there are robots that perform tasks that make them complementary to human effort and thus to augment the productivity of human labour. For example, with deep learning algorithms developed by scientists within the AI community machines are enabled to learn, to a certain extent, without human supervision. Workers doing medical research are able to take advantage of deep learning to sieve through and analyse large amounts of medical data. This might boost the productivity of workers and further raise their wage earnings.”
“A talented individual who could potentially become a major contributor to creating new ideas that will lead to new products that can be marketed, might be born into a financially constrained family. What can be done to reach such individuals to help them achieve their potential to contribute to indigenous innovation? Mr Chairman, an integration of all these efforts from the early stages of education to creating new ideas at the workplace will help to develop the country as an innovative global business hub to realise the vision of Manufacturing 2030. Industry Transformation and Emerging Sector”
“However, suppose that workers' job preferences shift for reasons that are unrelated to comparative advantage. Let us say a job in the financial services sector now becomes more attractive than the job in the manufacturing sector. In that case, the size of the economy's total GDP will be suboptimal as people without comparative advantage choose to work in the financial services sector. The employment share of the manufacturing sector will then be sub-optimally low, while the employment share of the financial services sector will be sub-optimally high. What might be done to facilitate the entry of more workers with the aptitude and skills to job tasks in the manufacturing sector? Second, what can be done to help increase the supply of innovators? Factors such as the family environment and exposure to inspiring role models affect the likelihood of an individual to become an innovator. There could also be intrinsic abilities to innovate that might not be distributed equally among individuals. From a policy point of view, what can be done to harness the intrinsic abilities of individuals to innovate from an early age and provide the opportunity for them to develop these talents. Can more scholarships, internships and exposure opportunities be given to students at the different stages of their education ladder to discover whether they have the passion for innovating? This must be done in conjunction with the different stages of innovation, from basic research to applied stages and on to the marketing of the new products or processes. Translating inventiveness into the actual flow of ideas requires not just intrinsic talent but also education and training. There is also an issue of access to financial resources that can inhibit innovation.”
“Mr Chairman, the manufacturing share of total GDP increased from about 15% in 1965 to nearly 30% by the early 1980s, but it has been declining since the late 1980s to hover around 20% today. The vision of Manufacturing 2030 is to be a global business innovation and talent hub for Advanced Manufacturing. However, while the manufacturing sector share of total GDP has stayed around 20%, its share of total resident employment has been on a steady decline since around 1990 and now hovers around 12%. The question to be asked is what must be done to create the manpower to achieve the vision of Manufacturing 2030. As Singapore gets closer to the world technology frontier, the pace of technological diffusion slows down, thus moderating Singapore's per capita GDP growth. It will be the development of indigenous innovation such as the innovative activities and vision in Manufacturing 2030 that shall provide the additional growth to the Singapore economy in its mature phase. Central to achieving the vision, is the supply of both innovators and workers who make career choices to work in manufacturing. First, what can be done to increase the supply of workers who make career choices to work in manufacturing? As the standard of living and wealth increase and educational attainments are higher, workers' preferences tend to shift. There are job tasks that people willingly perform when they are relatively less well-off but which they shun when they are richer. An important idea from the assignment model of matching workers' skills and abilities to job tasks, is that a competitive labour market leads workers with different skill sets to be matched with job tasks of different complexities based upon their comparative advantage. Such a competitive equilibrium is socially efficient.”
“Is it possible to introduce time in school after formal lessons, so that outside-the-school trained personnel can be hired with government subsidy to supervise these children with their homework? Then, when the children return home from school, the parents can devote their time to bonding activities with them. With support from the Government, family day activities can also be organised during the weekends to further enrich family life. To be able to work regularly on certain days in a week from home and being relieved to some extent from the need to supervise their children's homework, will allow parents to adjust their parenting style and possibly, their decision about having another child. Mr Chairman, an unexpected consequence of COVID-19 is that at a societal level, we found digital means to perform work-from-home at a reasonably productive level. As husbands and wives find the employment landscape in the post COVID-19 world, potentially allowing them to spend more time at home, this could provide an opportunity to put in place policy measures to influence parenting styles and their decision on childbearing.”
“However, when workers schedule flexibility comes together with working long hours, this may lead to less job satisfaction and diminish ability to manage family life. It appears that doing part-time work has tended to be the primary means for workers, especially women, to achieve work-life balance. However, COVID-19 has quite unexpectedly enabled the business sector and public sector to conduct a natural experiment to test whether work can be productively done when most employees are working from home. There is some evidence that WFH, whereby employees work a mix of days at home and at the workplace each week, improves firms' retention rates and workers' job satisfaction and productivity. It is also striking that preferences for WFH arrangements are stronger among women with children. Thus, employers across the whole economy might find it profitable to introduce some form of WFH arrangement in the workplace, even post COVID-19. The organisation of work, as well as the promotion and compensation system, might be adjusted to enable workers who have a better control of their work schedule, while keeping their full-time employment status. While the slew of policy measures already in place to boost total fertility rate, including parental leave, childcare subsidy, child tax reliefs and the Baby Bonus remain important, what systems-wide approach can be taken to ride on the momentum of the aforementioned natural experiment to facilitate the achievement of our citizens' career goals and satisfying family life with children? The organisation of the school system affects the behaviour of parents. A perennial problem faced by parents is the amount of time that they feel they need to give to help their children with school homework.”
“Mr Chairman, Singapore's total fertility rate (TFR) declined from above five in 1960 to around replacement level by the mid-1970s and has remained below replacement level since. The decline in the TFR as a country becomes richer appears to be a fairly general phenomenon across countries, as people become richer, they choose to have fewer children, but make heavy investment in their children's education. Given the past trend of TFR, the growth of Singapore Citizen workforce will slow down and its size will be expected to shrink at some point. If innovation requires creative and talented people and if the probability of being a creative and talented person is independently distributed among people, then it follows that a greater number of creative and talented people would be found within a larger population. If it is people who create ideas, then a decline in TFR means a shrinking workforce, which is likely to reduce the flow of innovative ideas. Another point comes from recognising that, at any given moment in time, there coexists different generations of people within a given population. There is a certain number of young people who work and who have the capacity to pay taxes that fund items, such as health subsidies, that are predominantly received by a certain number of old and retired people. A decline in the population size thus reduces the tax base supporting each old and retired person, making it desirable to increase population growth. The question that can be asked is: what can be done to take advantage of work-from-home (WFH) arrangements to bolster family life and contribute to boosting the total fertility rate? Arrangements, such as flexible work schedule and telework, are sometimes said to be ways to improve work-life balance.”
“As we work along with colleagues to achieve common goals and contribute jointly to problem-solving, we develop a social bond and a sense of belonging that are important for our emotional health. When workers across the whole economy find their work meaningful and are ready to think constantly about how to do their work better in novel ways, the result can be higher job satisfaction and a boost to aggregate productivity growth. Budget 2023 affirms the centrality of job holding as it introduces measures to uplift the wage earnings of lower-wage workers and also provide support to reskill displaced workers and match them to new jobs. Mr Speaker, Sir, in conclusion, Dr Goh Keng Swee, ending the narrative of the decade in his 1970 Budget Statement, also said, "Throughout the decade, there was a persistent search for practical solutions – a patient building of institutions and infrastructure, a generous allocation of funds and an accumulated collection of talented staff. In the end, it paid off. It is imperative that we should never either through extravagance or carelessness, fritter away all that we had so laboriously built up. We must build on the foundation of the accumulated experience of the decade and ensure that progress and prosperity will continue to higher levels of consolidation." I believe that Budget 2023 is consonant with this wise counsel. I stand in support of the Budget.”
“What poses a challenge for Singapore at this stage of our economic development is that an economy where older age structure appears to generate slower productivity growth. One reason for that, is that the lower labour force participation rate among older workers limits the extent of knowledge transfer from older and more experienced workers to younger workers. Another reason is that the pace of innovation tends to slow down due to a decline in the supply of entrepreneurs as we have more people who are older in the population. So, to generate economic prosperity in the mature phase, Singapore, I believe, will have to adopt a two-pronged approach, both to boost total fertility but at the same time to manage a controlled flow of immigrants to keep the population size from shrinking. My final point, the centrality of job holding in a dynamic economy. A person's self-esteem tends to be very much tied up with the ability to tackle challenges that the workplace throws up. There is a sense of accomplishment that comes from being able to size up a problem at our workplace and to pull together the available resources to solve the problem. When one's contribution to solving a problem is acknowledged, even if only tacitly, it boosts our self-confidence and encourages greater initiative. Work also gives structure to one's life. Many goals that we set are work related and these serve to give us a sense of purpose as we begin each new day. When we are absorbed in our work, time flies. On the other hand, there is a certain listlessness that accompanies prolonged joblessness. Many meaningful relationships are also developed at our workplace. This is partly due to the fact that the production process in modern enterprises is a collaborative effort requiring teamwork.”
“The Budget Statement notes that our deep relationships with both the US and China as well as the ASEAN economies, make us an increasingly important place for global and regional businesses. Setting aside $1 billion to boost the Singapore Global Enterprises Initiative in Budget 2023 adds further support to our internationalisation efforts. Demographic trends create headwinds for Singapore even as we move to develop indigenous innovation. As our wages increase from the 1960s, the opportunity cost of having another child has also increased. While higher incomes means that people can afford to have more children, it has been observed that the total fertility rate tends to decline as countries become richer. This suggests that the substitution effect dominates the income effect of higher wages. In other words, if my wages are higher, sure, I can afford to have more children. On the other hand, raising a child is a very time intensive activity and possibly having another child means having less time in the market workplace. And that means forgoing a higher wage. That is the substitution effect and it is quite general across many countries of different cultures. As countries become richer, the total fertility rate steadily declines. So, people invest more in raising the human capital of their children, even as the family size shrinks. That is how they spend their added income – investing in their children. So, in that regard, increasing the Government-paid paternity leave from Budget 2023 from two weeks to four weeks for eligible working fathers of Singaporean children serves to widen the opportunity for children to benefit from their father's investment time in them.”
“This is despite the fact that as the Budget Statement presented by the Minister has acknowledged the era of untrammelled globalisation is over and greater contestation and fragmentation of the global economy is likely. Still then, integrating into the global economy remains very important. Economic integration in the global flow of ideas, goods and services, capital and labour, I believe, remains necessary as this expands our GDP and provides the fiscal resources to strengthen economic inclusion. Integrating into the global economy boosts our GDP through several channels. As the industry expands through selling into the external market, each firm, even though small, experiences the productivity boost that allows it to expand output. For example, industry level trade missions into the regional economies gather useful information that each firm can take advantage of to expand sales. Another point, more productive firms also self-select into selling in export markets as they are better able to cover the fixed costs of establishing export platforms. You need to incur some fixed cost just to find out how the market looks like in an overseas economy. Export-oriented firms are therefore larger. Larger firms tend to devote more resources to screen workers and improve the quality of their work force. Consequently, larger firms pay observationally equivalent workers more. Empirical evidence suggests that neighbouring countries, after adjusting for country sizes, tend to trade more with each other. So, the regional market provides an opportunity for our domestic firms to gain experience of selling abroad and learn from exporting. The experience gained can later help this firm to achieve international competitiveness to sell beyond regional markets.”
“In this regard, the Enterprise Innovation Scheme introduced in Budget 2023 will help businesses press on with innovation. Established firms, the bigger firms, may be hesitant to launch new and higher quality products for fear that their existing product lines might be displaced as customers shift away their purchases. Small firms and new startups therefore have greater incentive to find new niches because they do not have the same problem as these established firms. They dare to venture into the dark and try something new. However, they are limited by the availability of financing. As new business startups drive innovation in the new economy, a central relationship that comes into focus is that of financiers and entrepreneurs. Angel investors provide financing for startups. As our education system invest in providing our students more and more, with the opportunity to venture into the unknown and increase the supply of entrepreneurs, the match between angel investors and people with good business ideas might improve. So, in this next stage of growth, as our students operate in a more innovative, exploratory, education system while learning all the basics, maybe we will see more of them daring to venture into the unknown, to try it out, being entrepreneurs. This will improve the expected returns to financiers and increase the number of startups that receive financing. More successful early stage business ventures might then stimulate the supply of financing from venture capitalists. Therefore, in Budget 2023, with the augmenting, the SME co-investment fund, that helps to strengthen our enterprise financing ecosystem. Second, the necessity of integrating into the global economy for sustaining economic prosperity.”
“First, the role of economic growth in creating fiscal capacity. Over the years, Singapore's tax revenue has grown in tandem with the expanding Gross Domestic Product (GDP), thus providing adequate resources to finance total Government spending. An analysis of the data shows the share of Singapore Government operating revenue as a share of GDP keeping pace with the Government spending as a share of GDP from 1965 onwards, except during the years of recessionary shocks, when we ran deficits. It is likely that Singapore's economic take-off that caused our economy to grow faster than the world's technology leaders in those years, expanded the size of the economic pie and raised tax revenue at given tax rates to help pay for our national expenditure. It is inevitable that with Singapore getting closer to the world technology frontier, growth must inevitably fall to a more moderate level that is typical among the advanced industrial economies. The more moderate growth rate is likely to be propelled by productivity growth. In the earlier years, the increase in investment rate, the increase in labour force participation, helped to boost growth. But in this stage of being a more mature economy, that moderate growth rate has to be propelled principally by productivity growth, which in turn will depend on technological diffusion from abroad as well as indigenous innovation. Indigenous innovation is partly driven by spending on research and development by the private sector as well as the higher education sector and public research institutes. However, indigenous innovation is importantly undertaken also by economic actors at the grassroots, conceiving new products to launch and better processes to churn out existing products.”
“Mr Speaker, Sir, the presentation of the Government Budget in Parliament by the Minister for Finance is an expression of hope for the country. The Budget Statement looks at the prospects for the country, taking into account both the current challenges as well as the opportunities. How did things look when the Minister for Finance presented Singapore's first Budget after gaining independence on 9 August 1965? How do things look in 2023? We can get a glimpse of how things look more than half a century ago from the 1970 Budget Statement presented by the then-Minister for Finance, Dr Goh Keng Swee, as he chose in that Budget Statement, to do a review of Singapore's economic performance during the preceding decade. He said: "On the morning of 9 August 1965, I was in Fullerton Building, brooding over the enormous problems facing the country and the Government. The problems of the future loom in awesome and intimidating proportions." Nevertheless, Dr Goh was able to say in his Budget Statement in December of 1967, that after two years of independent existence, the Republic of Singapore continued not only to survive, but also to flourish, to the surprise of many observers. Singapore's first Minister for Finance expressed hope when our country was still a newly emerging economy, while the present Minister for Finance expresses hope in presenting Budget 2023 when we are already a mature economy. Yet, in preparing the Government's Budget, I believe that there are enduring lessons from the past that are still applicable today which have to do with the role of economic growth in creating fiscal capacity, the necessity of integrating into the global economy for sustaining economic prosperity and the centrality of job holding in a dynamic economy.”
“Thank you. Living through the rapid economic transformation of Singapore leaves one with a deep sense of gratitude. The journey ahead, however, is likely to be more challenging as citizens' aspirations are now higher and the room for growth spurts diminishes in a mature economy. Nevertheless, keeping a focus on achieving economic inclusion through providing affordable and accessible housing while continuing to grow the economic pie through innovation and productivity increases to raise tax revenues to fund housing grants provides hope that the well-being of the current and future generations of Singaporeans can be further improved. I support the Motion standing in the name of the Minister for National Development. Thank you. [Applause]”
“So, augmenting our past reserves by channelling proceeds from land sales by HDB at market rates therefore serves to increase the country's resources for use during stormy days. In the Motion standing in the name of Mr Leong Mun Wai, a proposed scheme dubbed the Affordable Homes Scheme, if I understand it correctly, has the feature that have purchasers of BTO flats who subsequently live in their units until the end of their lease pay a price that does not factor in the land cost. In the absence of any housing grants that are financed through current tax revenues, HDB would not have the proceeds to plough back to past reserves as it currently does. Past reserves would therefore not accumulate at the same rate as under the current system. Under the proposed scheme, the purchasers of BTO flats who, for various reasons, choose to sell in the resale market would have to pay the apportioned land cost with accrued interest that will be added to past reserves. This, I think as noted by some Members as well already, may involve a huge financial outlay for the individual seller, especially if the recovery of total land cost is applied only to sellers after the minimum occupation period, which would deter resale. So, in sum total, under the proposed scheme, the size of past reserves that can be drawn upon during big storms that hit the Singapore economy will be smaller compared to the current system. Mdm Deputy Speaker, it is very moving to browse through the photos in the book "First Decade in Public Housing, 1960-69", still available if you hunt for it in the library. It details the before and the after of a typical living room and a kitchen. I am old enough to have seen how an attap hut looks like – a kitchen in the attap hut looks very different from a kitchen in the HDB flat —”
“I think point number two is that the success of meeting current aspirations, in part, will involve refinements – not a total change. My last point, looking at the future. I want to address here the issue of the value of land and placing it into the reserves and give a perspective on that. The proceeds, as is the current practice, from land purchases by HDB are ploughed back into the past reserves. Valuing land and market rates and paying into the past reserves generate resources to tackle negative external shocks and boost employment for current and future generations. Having stable employment is a pertinent precondition for achieving the Government's goal of keeping public housing affordable and accessible for future generations of Singaporeans because history matters and our achieving the high ownership of housing came along with a CPF system, which we pretty much also inherited from the colonial administration. This is because studies of how Singapore has managed to achieve such high rates of ownership of public housing by Singaporeans point to September 1968, when an amendment to the CPF Act introduced the public housing scheme to allow members' CPF savings to be used to purchase public housing. Yet, as we have seen recently from the COVID-19 pandemic shock as well as earlier episodes of recessionary shock such as the Global Financial Crisis, keeping a job is not guaranteed as a matter of course. Drawing down on our past reserves to fund the enhanced Jobs Support Scheme enabled the Singapore economy to avoid a massive loss of jobs to retrenchment during the pandemic. Avoiding long periods of unemployment enabled Singaporeans to continue contributing to their CPF accounts to finance their mortgages.”
“As a portion of the Workfare payments is given in the form of CPF top ups, this helps to build up retirement adequacy. In other words, there are national policies other than monetising assets, as long-term structural policies that boost retirement adequacy, almost surely, this will have to be a major form as we proceed in the decades ahead because the experience from developed countries has shown that in more recent decades, wage inequality has indeed widened. As has been noted, households at the lower end of the income distribution receive additional grants to purchase their HDB flats, enabling them to have access to public housing and thus become owners also of an important asset. The size of their enhanced CPF housing grant is graduated to give a higher amount to lower-income earners. This strengthens social equity. So, I think I have now made broadly two points. I think that it is fairly undeniable that if you look at a country like Singapore, certainly, its prospects and its independence, few would have figured that it could transit from about 20% of the US standard of living to having caught up. I think that a central part of that growth is associated with the increase in the value of housing. But to have a house, you have got to have a job, which makes CPF and employability, a point that I will conclude with, very crucial. It is Singapore's ability to generate both the jobs and, of course, along with that, reasonably good pay that force us now to widen the income inequality gap. I think the social consensus is to have special policies, especially to uplift the earnings of low-wage workers, and to have a policy where we have tiered external grants that are in their favour. That is point number one.”
“The supply of BTO flats has been disrupted due to COVID-19. I think many Members have recognised that among different factors, this was probably a major shock, increasing the waiting time to get one's first BTO flat. But the pace of construction has resumed and some time will be taken before the market adjusts to an equilibrium to match supply to demand. However, I think it is important to understand the nature of the market equilibrium under a BTO system. When demand is high relative to supply, as we are facing now, an unfettered price mechanism would allocate goods to final users basically by driving up the price. Since the Government seeks to make public housing affordable by achieving a certain price-to-income ratio, the allocation therefore is achieved through balloting. There are consequences to this. For example, this means that individual preferences for certain flat types might not be met, especially when there is a desire to have a BTO flat in a mature estate, say, for reasons of closer proximity to parents who can help to provide childcare for working couples. Since the physical capacity to build BTO flats in mature estates is much more limited, the Government might have to consider more childcare facilities in non-mature estates to shift housing preferences. Despite broadly equitable growth that very much characterised the Singapore experience through the second half of the 1960s, 1970s, 1980s, 1990s, from around the year 2000, while the real wage of high-skilled workers continued to rise, that of low-skilled workers remained fairly stagnant. In fact, it slightly declined from about year 2000. In response, in the 2000s, the Government made the Workfare Income Supplement scheme a permanent fixture of Singapore's social safety net.”
“Those with children, some of whom might be members of the Merdeka Generation who choose to purchase their own BTO or resale flat, have, as Members have noted, the following options. They can downsize to a smaller HDB flat as they age. They can move to a 2-room flexi flat or community care apartment with a shorter lease or join the Lease Buyback Scheme. These are means to monetise their housing asset and boost retirement adequacy. Second, the present. What are the challenges to providing affordable housing to the cross-section of the current generation? As has been noted, the Government has made clear that keeping public housing affordable to help Singaporeans own their homes is a key national priority. In that regard, two measures are regularly used in international studies. To determine housing affordability, the HDB looks at buyers' household incomes and selling prices on Built-To-Order (BTO) flats. The BTO flats are priced to maintain a certain price-to-income ratio (PIR), taking into account the different locational and individual attributes of BTO flats. Housing subsidies given to Singaporeans purchasing their first flat bring down the PIR compared to the higher PIR for resale flats in the same locality. Another measure of housing affordability is the mortgage servicing ratio (MSR), which is the ratio of monthly mortgage payment to gross monthly household income expressed in percentage. The MSR, as has been noted, has remained below 25% and has been lower than 25%, particularly for purchases of smaller flats with lower median household incomes. This makes it possible for most flat buyers, in the example just given, to service their loan without further cash outlays. They can simply draw down their CPF contributions.”
“Founding Prime Minister Lee Kuan Yew in his memoir entitled "From Third World to First: The Singapore Story: 1965-2000" told of a family – a couple of 12 children – moving from a hut to a new HDB flat at Old Airport Road, they brought a dozen chickens and ducks to rear in the kitchen. What a transformation. Members of the Pioneer Generation and their children, including members of the Merdeka Generation, also benefited, looking at the past generation, from the appreciation of the value of their flats as real income rose steadily during the period of what I like to call catch-up growth. It is very likely that economic growth itself, particularly equitable growth that distributed benefits to different segments of the resident population, which Singapore experienced, served to enhance the value of a home. In other words, the rise in the value of a home in general, broadly speaking, on average, occurred because of the great transition from a third world to a first, signifying a closing of the income gap between Singapore in 1965 to the world economic leader of the 20th century. In addition, the constant effort to refresh HDB estates, including mature estates, also helps in asset enhancement. Take the example of a member of the Pioneer Generation whose age was in the early forties during the late 1970s. That would have been about the time when the Pioneer Generation moved from the attap huts to their first HDB flats. When such a member in their early forties, during the late 1970s, purchased a HDB flat, he did that with a 99-year lease. In his eighties today, he can, through joint ownership, leave his HDB flat with a remaining lease of still over 50 years as a bequest to one of his children.”
“While the Singapore Improvement Trust established by the colonial administration started to build houses to meet the challenges described in the 1947 report, the take-off began only with the establishment of the HDB after Singapore achieved self-government in 1959. In the book titled "First decade in public housing, 1960 to 1969", the then-Minister for Law and National Development, EW Barker, said in his foreword, and I quote: "One of the more glaring problems that the government inherited when it was elected to office in 1959 was the acute shortage of housing. A large proportion of the population was then living in squalid dwellings, concentrated mainly in the city. Whatever little accommodation that was available on the market with a modicum of comfort and modern conveniences was beyond the reach of the majority of the people. Within five years of its establishment, the Housing Development Board was able to relieve the acute housing shortage in Singapore. Now, 10 years after its formation is completed, more than 100,000 units of flats which provide homes for about 30% of the population, indeed a record of which Singapore can be proud." Today, as Members have cited, about 80% of Singapore's resident population live in public housing, of which about 90% own their flats. A key pillar of the Government's record in providing affordable public housing to its citizens is the Central Provident Fund (CPF). This makes keeping a job that pays reasonably well a prerequisite to owning a home. The unemployment rate steadily declined, from close to 9% while real income saw a steady rise after Singapore became independent in 1965. Members of the Pioneer Generation made difficult adjustments as they transited from living in attap huts to living in HDB flats.”
“Mdm Deputy Speaker. A debate on the Motion on providing affordable and accessible public housing for Singaporeans must look at the past, the present and the future, keeping in focus members of the older generation, current generation and future generations. The provision of public housing has to be seen in the historical context of both tackling the challenges of providing good jobs for a newly independent country suffering high unemployment as well as forming a nation. Having a place called home produces a sense of belonging. The setting up of HDB in February 1960 was an expression of a commitment to provide affordable housing to the citizen population. What has been the record of the Government in achieving this goal over the past few decades? As the standard of living has risen and citizens' aspirations have evolved, what are the challenges to the Government commitment to provide affordable and accessible housing to the cross section of the current generation? If we attach a positive weight to the social welfare of future generations, how should we view and seek to meet the housing needs? First, the past. In the report of Singapore Housing Committee 1947, it was noted that the lack of proper housing posed a serious problem. I quote: "These people live in huts made of atap, old boxes, rusty corrugated iron, etc., with no sanitation, water or any of the elementary health requirements. It is a literal and physical impossibility to eject these people as they have at present nowhere else to go and cannot be cramped back into the slums from which they have escaped." The report expressed an aspiration to build permanent housing over a period of 25 years.”
“" A strategy to redefine what constitutes a family from what the Government has reaffirmed as marriage between a man and woman and their parenthood, involves taking sequential steps to progressively bring about change. In many historical cases around the world, where the structure of the family has been changed from the norm that the Government has reaffirmed, legislative changes have indeed taken place sequentially. Beginning with the decriminalisation, similar to the repeal of the law we are discussing today, to subsequently defining the family in a very different way from the basic structure of the family just mentioned. These legislative changes make the definition of the institution of marriage, both contingent and subject to change. I believe that not repealing the law acts to bolster the achieving of the aims of the Government to keep the family form out of a marriage between a man and a woman, as a cornerstone of our social fabric for as long as possible, in the face of the many challenges to such an understanding of the family as the unit that forms the basic structure of society. I believe that keeping the current law serves to provide an important marker to preserve the present structure of the family and its supporting institution. I believe that it is best not to repeal the law.”
“Society can, then, uplift the quality of life for future generations of citizens by supporting the husband and wife in their child-rearing activities. Singapore has made a transition from an economy built around factories that produce standard labour-intensive goods for sale into the world market, to one that is more service-oriented and where the fourth industrial revolution will require workers to exercise a wide range of both cognitive and non-cognitive skills. In such an economy, I believe the family remains the bedrock of society, where children learn complementary lessons from their fathers and their mothers, so that they develop the skills needed to become well-functioning future workers. We take for granted that as our parents have invested in our lives, it is our responsibility to provide care for them when they become old. That responsibility is shared among siblings. Even when there are failures in particular cases, we hold as examples those who inspire us with their devotion to duty, to the care of their ageing parents. While the Government, through its public programmes provides assistance in various forms, much of the glue that holds a society together, comes from the constituent members within the family. We should, in instituting our laws, convey through all means possible, the gratitude we feel for the complementary roles that our fathers and mothers play in raising us to become well-functioning adults. Departing from this norm, or what constitutes a family, I believe, leaves us in uncharted waters. Mr Speaker, Sir, the Government has reiterated that it has no intention to change the tone of society. It also affirms: "the family as the cornerstone of our social fabric, and marriage between a man and a woman.”
“Mr Speaker, Sir. Each individual functions within a society, so there is a place for public debate about the laws and institutions which we would want to have in order to regulate life within that society. At one level, I believe that this debate is about whether the family, defined as a marriage between a heterosexual couple, and their parenthood is the unit that forms the basic structure of a well-ordered society. Children are born into families and develop their complete lives, with the investment of their parents, who gave birth to them. If we view the family, as just defined, as part of the basic structure of society, then we would want to have laws and institutions that support that family. We would want to strengthen this social norm and support the public commitment made by a man and a woman to be married to each other and to raise their children within the safety of their wedding vows. Playing their complementary roles, fathers and mothers raise their children, who contribute to the orderly formation and further reproduction of society, over many generations. Research shows that the cognitive and the socio-emotional skills that are acquired in early childhood and their development is very much shaped by the family environment. While it has to be acknowledged that there are major challenges that couples will have got to tackle, in order to keep their marriages healthy and to provide the best environment to raise their children, our laws and institutions must help to strengthen the culture, where husbands and wives give priority to building strong families, even when couples are economically disadvantaged, public policy, through early interventions in their children's lives can help to improve social mobility.”
“Our own experience – the Singapore experience – suggests that when political and economic institutions are set up that support an integration with the global economy to facilitate the transfer of technology, we achieve a growth take-off. Along the growth path, the extension of external loans to finance infrastructural projects enables the country to overcome capital market constraints, especially when the investment is lumpy. Singapore's subscription to IDA as a donor country allows us to contribute to a global fund that can potentially enable other countries to get onto a path of economic development, just as Singapore did. There is a wide gap in the standard of living between poor and rich countries. Some economists have argued that geography plays a big part in explaining why some countries remain poor despite the availability of frontier technology that can be tapped for growth. Unfavourable soil conditions may make it hard to develop agriculture, for example, and many countries tend to have to develop their agriculture first before manufacturing can become an increasing share of the GDP. For such countries, a lack of navigable rivers and poor access to sea transport may make it difficult for them to effectively make use of their factors of production. Communities might also be disadvantaged economically when climatic conditions lead to widespread diseases, such as malaria and dengue fever, that affect a large proportion of the labour force. For them, therefore, concessional loans can be made available, through IDA, to finance large-scale investments in transport infrastructure and disease eradication to partially overcome these geographical disadvantages. I think that Singapore can make a meaningful contribution to this global effort.”
“Mr Speaker, Sir, this Bill seeks to make an amendment that would exclude any payment made to the International Development Association (IDA) that is not in the nature of a subscription. Furthermore, a new subsection is added to make provision for the maximum amount of any additional subscription to be specified and to be authorised by a separate resolution of Parliament. As has been pointed out in this House by Second Minister for Finance, Ms Indranee Rajah, in November 2019, since Singapore joined the International Bank for Reconstruction and Development, a major institution of the World Bank Group that makes loans to developing countries, in 1966, it has received 12 loans to support various infrastructure projects. The last loan was signed in 1975. This means that for a decade after Singapore became fully independent, our country benefited from external loans that supported our journey on the path of economic development. Economists have grappled with the question of what it takes to make a poor country become rich. They do not have a fully satisfactory answer. While alleviating the problem of poverty in developing countries is such an important task, the approach to achieving it is still not so well understood. While we know the proximate causes of economic growth in the sense that a higher standard of living can be explained by a higher level of applied technology and a higher level of human capital and physical capital per worker, less is known about the fundamental causes of economic growth. What are the underlying reasons why some countries are unable or unwilling to invest in capital and technology? Despite our limited knowledge, we do have many examples of countries that have experienced growth take-offs that raise the quality of life of their citizens.”
“By promoting competition with the domestic financial sector, it can also improve the allocation of capital to productive uses. In addition, firms that serve overseas customers and investors reap the benefits of economies of scale. Establishing a good reputation shapes the expectations of market participants and increases their confidence in making financial transactions across international borders. With the end of what is called the first Age of Globalisation that coincided with World War I, there followed a period of disruption to international capital flows and global trade in goods and services. However, there soon emerged a second Age of Globalisation that started roughly in 1960 and has continued to the present. While the emerging geopolitical tensions may, ultimately, lead to a new international economic order, it seems fair to say that our existing law and institutions should still be structured to harness the advantages that financial globalisation can deliver. The provision in the FSM Bill to regulate all virtual asset service providers created in Singapore that provide virtual asset services outside of Singapore helps us to maintain a strong international reputation as a financial centre. Mdm Deputy Speaker, financial institutions connect savers to borrowers and are essential to a well-functioning economy. For people to be willing to participate in a financial market, they must perceive it to be safe and secure. Regulators of the financial system must, therefore, make and enforce the rules to protect both customers and investors. The FSM Bill seeks to ensure this through maintaining the integrity of institutions and the personnel supporting these institutions in the face of technological disruptions and extensive cross-border capital flows.”
“The facilitation of financial intermediation that will benefit both customers and investors in the modern economy requires a system of secure property rights that remains appropriate under different circumstances. In the current era, digital transformation has the potential to disrupt the way businesses are conducted even while it provides new opportunities for customers. While there exist incentives for private enforcement when parties that are engaged in financial transactions have repeated interactions over time, the new digital world of more anonymous transactions may require public enforcement, such as through financial sector-wide regulation encapsulated in the FSM Bill, to protect the rights of parties to a financial contract. Investments, typically, carry a degree of uncertainty. In order to attract funds to risky ventures, individuals or firms undertaking them have to promise their investors a risk premium. The FSM Bill, in seeking to develop an appropriate financial system to suit current circumstances, enables financiers operating from Singapore to reduce the risk premium required of a borrower by spreading the risk across a larger number of investors. The problems of adverse selection and moral hazard inherent in financing can be mitigated by the wider availability of information that investors have about borrowers, leading to the wider availability of credit at lower risk premiums. To achieve this, it is necessary that managers and personnel working in the financial industry be trustworthy. Second, with extensive cross-border capital flows, maintaining a good international reputation delivers important benefits. Having foreign capital and financial institutions in Singapore can help to lower the cost of capital.”
“Mdm Deputy Speaker, through their role in financing new ideas, the development of sound financial markets plays a central role in supporting a dynamic economy that is capable of delivering good jobs with good pay. However, fundamental to the development of sound financial markets is the maintenance of integrity of institutions and the personnel supporting these institutions in the face of technological disruptions and extensive cross-border capital flows. Concerning personnel, the Financial Services and Markets (FSM) Bill introduces a harmonised and expanded power to bar persons from holding key roles and conducting certain activities in financial institutions for a period of time in cases of serious misconduct. Concerning cross-border activities, the FSM Bill will regulate all virtual asset service providers created in Singapore that provide virtual asset services outside of Singapore. Concerning technology risk management, the FSM Bill sets a maximum penalty amount for breaches to IT systems that lead to disruptions in the provision of financial services. Finally, the FSM Bill provides statutory protection to mediators, adjudicators and employees of an approved dispute resolution operator in the execution of its duties. The question is: why does it matter that we have a fit-for-purpose regulatory framework that supports integrity of personnel and financial institutions and is resilient to technological disruptions and increased cross-border activities? I suggest that there are two reasons that it matters. First, a regulatory framework that supports the integrity of personnel and financial institutions leads to trust.”
“Inter-generational distributive justice provides a basis for the Significant Infrastructure Government Loan Act (SINGA) passed in Parliament last year. Mr Speaker, Sir, we each function as an individual within a society. The emphasis in that last statement is on the words "individual" and "society". Much of real life is not well represented by the story of Robinson Crusoe, a story that we tend to use in teaching international trade in the classroom. He was, of course, a castaway who lived alone on a deserted island for many years. As entertaining as the novel by Daniel Defoe is, Budget 2022 is built on the premise that we can build a dynamic economy, although more mature now, we have transited from third world to first world, the challenges are bigger and we need now to generate our own indigenous innovation to propel the productivity growth that we will continue to need in order to grow the economy, in order that our citizens will flourish. But such an economy with social collaboration results in creating a surplus. So, the economy is not an individual living on an island trading with another, although that helps. But within the society, we each have different capacities, we each have different strengths. A society enables that social collaboration so that we create this social surplus. And that social surplus can be utilised through the fiscal system to leave everyone better off than if we had each functioned in isolation. I stand in support of the Budget.”
“But in order to have a steady contribution to growth of the economy, our firms will have to be integrated into the global economy, selling not only domestically but into the region and into the world as well. But remaining integrated with the global economy will come at a cost of sometimes sharp recessionary shocks. Responding to the global financial crisis from 2007 to 2009 and currently in the last two years, the COVID-19 health shock, if we were to respond to these negative shocks by raising taxes to finance the national efforts to save jobs, that would be tantamount to incurring huge excess burden on taxpayers – recall that the excess burden rises more than proportionately by every unit increase in the tax rate. So, being able to draw down our reserves to fund these schemes to save jobs and especially in coping the global financial crisis for the Government to share some financial risk, allows us to smoothen the tax rate across business cycles. When the economy has recovered, it would be necessary to tax finance recurrent spending in order to keep our reserves for rainy days. The fact that our social security system, the Central Provident Fund (CPF), is a fully funded rather than a pay-as-you-go old age retirement scheme contributes to our national savings and thus, adds to the stock of reserves. Even as the share of the ageing population increases and life expectancy rises, I note that Budget 2022, in increasing the employer and employee CPF contribution rates of workers aged 55 to 70, will boost their retirement adequacy. One context in which there is justification for the Government to borrow rather than tax finance is raising taxes for infrastructure investment which serves to mitigate the adverse effects of climate change, such as sea walls and dykes.”
“Being engaged in work confers non-pecuniary, that is non-monetary benefits that go beyond receiving wages. From that perspective, the use of wage subsidies or wage credits extended to firms as in the Progressive Wage Credit Scheme (PWCS) announced in Budget 2022 to co-fund wage increases for certain lower-wage workers, as well as the wage income supplements extended to workers through the Workfare Income Supplement (WIS) Scheme boost workers' take-home wage earnings without discouraging work. For me, it is significant that the WIS Scheme will be extended to younger workers aged 30 to 34. Another point, investment in children from low-income families facilitates upward social mobility and, in that way, boosts future fiscal capacity when these children, having received help to overcome the initial disadvantages, take up good careers and pay taxes when they become adults. Health spending, as a share of total Government expenditure, is expected to rise with the demographic transition. Enabling our senior citizens to live healthily adds to the country stock of social capital. It can be argued that even the younger segment of the current population may want the Government to raise taxes to pay for health spending going to the elderly so as to lighten the financial burden of providing care to their parents. Third, and my final point, prioritising use of national reserves to manage external shocks, particularly negative external shocks. Remaining integrated with a global economy presents Singapore with the opportunity to grow. It is undeniable that much of our catchup from third world to first world was facilitated by international integration, but the earliest stage was very much about technology transfer. In the next stage, we will have to generate innovative activities.”
“In designing an optimal tax policy, the Government has to take into account the fact that raising the tax rate has consequences for the tax base because if the income tax on income earners goes up, as an example, they work less, the tax base shrinks, so there is an efficiency loss. Nevertheless, despite the loss in efficiency, every society has still got to choose a point on the equity efficiency frontier, sacrificing some efficiency in order to attain a desired level of equity. Since the excess burden of a given tax rate increase rises more than proportionately, it is optimal to broaden the tax mix from this perspective, such as relying also on other tax instruments, like raising consumption taxes and wealth taxes to pay for higher social spending. That argument calls for some diversification of tax instruments rather than a dependence on a very narrow particular tax. Budget 2022 seeks to avoid the regressive nature of the increase in consumption tax rate with the Assurance Package and by boosting the permanent GST Vouchers (GSTV). Since the beginning of the 20th century and especially in the post-war period, in international cross-sections of countries there has not been a clear negative relationship between the level or growth of tax-based social spending and GDP per capita. In other words, looking historically – particularly over the last century and across countries as a whole, broadly, the message is that the social cost of financing higher social spending through taxes does not appear to be especially high, although obviously, to achieve a certain point on the equity efficiency frontier, there is an efficiency loss and society has to make its own calculation.”
“With a bigger share of the population becoming economically inactive, the tax base becomes relatively smaller. That is a fact well recognised by many. Another factor that can reduce our fiscal capacity comes from the harm that is caused by climate change, a point that many Members have alluded to. The proposed schedule of increases in carbon taxes introduced in Budget 2022 can be justified on the basis of helping businesses internalise the negative externalities caused by emission of greenhouse gases. Unlike a tax on labour income, as an example, which reduces economic efficiency because people respond by working fewer hours when their take-home pay is reduced. A carbon tax, nevertheless, increases efficiency because it reduces activities that society wants to reduce. Roughly speaking, an efficient outcome is for the carbon tax on firms to be set equal to the amount of external damage caused by the greenhouse gas emission. Another point is that a carbon tax also has the effect of giving incentives for upstream firms to develop green technology by discouraging downstream firms from using devices that embody environmentally unfriendly technology. Second, achieving economic inclusion. There is a classic trade-off between equity and efficiency when we use fiscal tools to achieve economic inclusion. Budget 2022 raises the marginal tax rate of the highest income earners, among other measures. While this narrows the income gap, there are microeconomic distortions caused by such tax increases, also called excess burden. It is a standard concept in public finance. The idea is that the quantity of an economic activity, such as labour supply decreases when there is an increase in income tax rate.”
“In Singapore, when we became a newly independent country in 1965, customs and excise duties made up more than 50% of the share of total tax revenue. It steadily declined through the decades and now make up less than 5% of tax revenue. Consumption taxes were introduced in Singapore only later in 1994. There is a sense in which the way the tax revenues are spent, notably on education which has been a priority in the very early Budgets. It is a form of investment in building fiscal capacity. Spending on public schooling generates a virtuous cycle. As the human capital base is expanded, the size of the economic pie grows so the tax base correspondingly increases. At this stage of our development, boosting innovative activities will play a bigger role in growing the economy and thus, the tax base in the post-COVID-19 world. The support given in Budget 2022 to further strengthen the collaboration in engaging in R&D projects between SMEs and our Polytechnics and ITEs ultimately expands our fiscal capacity. The initiative dubbed "Singapore Global Enterprises" provides fiscal support for our large local enterprises (LLEs) to break into overseas markets. As our LLEs expand into overseas markets and become bigger and more productive, they become more profitable and can afford to pay their workers more. It is a statistical and practical fact that larger firms doing the same business, tend to pay their workers more, because they are more productive and they tend to break into overseas markets. The tax base is accordingly expanded. However, there are there are also factors acting to contract our fiscal capacity. One is the demographic transition and increased life expectancy.”
“Mr Speaker, Sir, giving his Budget Statement the title "Charting Our New Way Forward Together", the Minister for Finance devoted much space in his Budget speech to talk about the need for revenue to bring all the plans that he had laid out to fruition. That prompts the question: "why raise taxes?" This is a fundamental question in political economy. I think that we can offer three answers. First, we raise taxes to create the fiscal capacity to support a well-functioning society. Second, we raise taxes to achieve economic inclusion. Third, and particularly relevant in the Singapore context, we raise taxes to pay for recurrent spending so that we can prioritise the use of our national reserves to manage external shocks as we remain integrated with the global economy. First, building fiscal capacity. We can take a cross-country perspective and an intertemporal perspective. When a country's income per capita is low, the need to raise taxes is great so that the country has the resources to provide public goods like national defence, law and order as well as relief for the poor. Yet, the viable tax base is small because the tax administration and enforcement ability is low at this stage of economic development. Historically, countries that are starting on the path of development turn to trade taxes in order to generate government revenue to pay for their expenditure. Trade taxes have tended to make up a larger share of total revenue at the early stages of economic development because it is relatively easy to keep track of the flow of goods at major shipping ports. These countries then shifted to greater reliance on direct taxation of income which happened late in the 19th century and broad-based consumption taxes which happened from the middle of the 20th century.”
“So, painting with a broad brush, we have three economic objectives: maintaining medium-term price stability, achieving an underlying economy wide productivity growth and facilitating economic inclusion with an assignment of three policy instruments: an exchange rate centred monetary policy, structural policy and fiscal policy respectively. With this policy mix, we can continue to exercise fiscal prudence, ensuring that we have the fiscal resources to pay for our recurrent spending and thus free MAS to focus on its function of maintaining medium-term price stability without facing the pressure of monetary financing. Sir, I support the amendment Bill.”
“The safeguards in the MAS (Amendment) Bill will complement the existing safeguard in the Government Security Act under which the Government proceeds from borrowing, can only be used for investment and market development purposes. Mr Speaker, Sir, the theory of economic policy suggests that there should be as many policy instruments as there are economic objectives and the application of the policy instruments to achieve these objectives should be based on their comparative advantage. Our being a small, open economy means that the management of the nominal exchange rate – I think that was very much in the thought of Dr Goh Keng Swee – serves well the purpose of achieving medium term price stability. And we have the record to show for it, because other than the spike of inflation in 1973 and a smaller spike in 1979 during the oil crisis, we largely have maintained very stable inflation rate, below 2% per annum. Structural policy, such as the implementation of Industry Transformation Maps, helps to raise the economy's underlying rate of productivity growth. This in turn, contributes to growth of national income as a mature economy, because as a mature economy, it is not going to be capital deepening that will raise the standard of living. A large part of what would contribute to our steady growth of income will have to come from productivity growth. But with the growth of national income, we have an expansion of the tax base. Fiscal policy in setting the tax subsidy structure contributes to economic inclusion.”
“Nevertheless, despite these forces that I have just mentioned that can cause real exchange rate appreciation or depreciation, with Singapore experiencing steady capital inflows, alluded to by Minister for Finance, including short-term capital inflows, has meant that the nominal effective exchange rate of the Singapore dollar has faced upward pressure to appreciate beyond the equilibrium real effective exchange rate. In other words, in the absence of the MAS intervention in the foreign exchange market, the Singapore dollar would tend to become overvalued. In accordance with the MAS exchange rate monetary policy framework, its intervention in the foreign exchange market to dampen these pressures and keep the nominal effective exchange rate of the Singapore dollar within the policy band and conceptually that means trying to aim for what you think is the equilibrium real exchange rate, has led to a steady accumulation of OFR. On to the second question. The explanatory brief put up by MAS at the First Reading of the amendment Bill has been at pains to make clear that there are safeguards to ensure that the new mechanism to be put in place does not lead to de facto money finance fiscal policy, that is, to let the central bank lend money to the Government to finance its spending and fiscal deficits. First, the amendment Bill requires that MAS can subscribe to RMGS solely for the purpose of facilitating the transfer of OFR and that its subscription does not compromise MAS' ability to achieve medium-term price stability. Second, MAS will only be able to use its foreign currency asset to subscribe to RMGS. In other words, the RMGS cannot be used as a tool to print money to pay for Government spending.”
“So, if you have the manufacturing sector able to robotise and so on, and its productivity goes up, whereas the non-traded sector, apart of the retail sector, which largely will be selling to only domestic customers and their productivity is not growing as much, then the fact that the manufacturing sector is experiencing higher productivity growth will push up the wage rate, but workers are free to move in the job between the factory and in the retail sector. So, there is an upward pressure in the retail sector, that is non-traded, also to pay as high a wage, whereas productivity has not gone up, so if unit labour costs goes up and therefore the non-traded good price tends to go up. And for that reason, this channel leads to a real exchange rate appreciation. Another channel that can cause a real exchange rate appreciation is the rise of domestic investment, because a part of investment such as building infrastructure, tends to be non-tradable. And that rise in domestic investment also tends to raise the real effective exchange rate. That is a real appreciation. So, there are all these factors that can cause the real exchange rate to go up or to go down. Broadly speaking, a statistical analysis done with data quarterly from 1983 to 2018 has shown that, largely speaking, around about 1985, which was when Singapore experienced its recession, the real exchange rate was high. In other words, high appreciation. It somewhat declined down to the early 1990s and then began to rise again until the Asian Financial Crisis, came down again around to about 2005, and since then, has been rising.”
“When the Government does run a budget surplus over its term of office, which it has, the public saving augments the stock of reserves and boosts the country's net foreign assets. Net foreign assets denominated in foreign currency, such as the US dollar, has higher real purchasing power when measured in terms of domestic GDP because some of the goods and services consumed by Singaporeans are non-traded. And in the classroom, we give the favourite example of haircuts. Transport costs are too high to make it worthwhile to travel to another country to get a haircut, so haircuts become a non-tradable activity. Through this channel, an increase in net foreign assets tends to be associated in statistical analysis with a depreciation of the real effective exchange rate. So, there is the nominal effective exchange rate of the Singapore dollar, that is, how many Singapore dollars to buy a US dollar in the foreign exchange market; and then, there is the real effective exchange rate, which really measures Singapore's general price level relative to the general price level of its trading partners when measured in the same currency. So, when Singapore's cost of living goes up, we have a real exchange rate appreciation. Correspondingly, when things are cheaper in Singapore, because haircuts are not tradable, we have a real exchange rate depreciation. The channel I just refer to suggests that what you might call the valuation effect, tends to be negatively associated with our net foreign assets. Other channels, such as more rapid productivity growth in the manufacturing sector compared to the productivity growth in the non-traded goods sector, might exert pressures for a real exchange rate appreciation.”
“Mr Speaker, Sir, at one level, this Bill simply seeks to address a technical issue: to provide an alternative mechanism for the MAS to transfer to the Government the excess of Official Foreign Reserves (OFR) above the level that is required for it to perform its function of carrying out an exchange rate centred monetary policy to achieve price stability over the medium term. The OFR that are transferred to the Government is for long-term management by the GIC. Currently, transfers of MAS OFR are mediated through a corresponding reduction in the Government's cash deposits held at MAS. However, with smaller fiscal balances in recent years, leading to a situation where the Government's cash deposits are not growing as rapidly as the MAS' accumulation of OFR, the current mechanism for transfer faces a constraint. The new mechanism proposed under the amendment Bill overcomes this constraint by providing for the transfer of the MAS OFR through a subscription to the Reserves Management Government Securities (RMGS) issued by the Government. Two questions arise. What has caused MAS to systematically accumulate OFR over these decades? How do we prevent the perception that the new mechanism offers the Government the means to conduct money finance fiscal policy? On the first question, Singapore's high private savings rate alongside the constitutional requirement that the Government must achieve at least budget balance over its term of office has meant that the country's holdings of net foreign assets – that is the excess of our gross assets over our gross liabilities – have steadily increased over the years.”
“By the early 1980s, there was a relentless, steady increase in labour force participation rate among women. This rise in labour force participation among women may have the effect of causing higher labour force participation among men if the couples agree to retire at the same time – the so-called "working wife effect". However, if women bear the additional responsibility of providing care to their much older parents, this may discourage them from working in their late 50s to their mid-60s. So, on the whole, there are factors that clearly had been at work, not just in Singapore but in many developed countries, tending since the 1990s, to raise the labour force participation rate. The main point, though, is that people now have an ability to choose how to divide the additional years of their life between retirement and work. Finally, apart from the supply-side factors, which I have described, demand-side factors will also contribute to the ability of the economy to create good jobs for older workers that will boost their job satisfaction and their participation rate. So, Singapore's continued growth as a mature economy will be important in order to generate the demand for the skills of our older workers. Mr Speaker, Sir, as our life expectancy has increased, people have the ability to choose how to divide the added years of their lives between work and retirement. This is a very good thing, however, people finally make their choices. It is likely that the prescribed retirement age and re-employment age encapsulated in our legislation will need to change to reflect people's preferences. I support this Bill.”
“The question: what factors account for the rise in labour force participation rate of older workers in recent decades? First, improved health, by itself, does not explain the rise in labour force participation. This is because data of today's developed economies shows that while the mortality rates at older ages have steadily declined during the past several decades, the labour force participation rate, especially for men, exhibited a U-shaped curve, declining before steadily rising since the mid-1990s. Instead, changes in the eligibility ages for retirement benefits and rules on disability insurance in the social security system in these countries seem to better explain variations in the labour force participation rate. As health has improved, along with the increased life expectancy, people might choose either to work or to engage in meaningful activities that do not necessarily generate an income. Second, across education groups, those with more years of education have higher labour force participation among older workers. Those with a more rewarding career in the earlier phase of their life cycle are more likely to choose to work when they are older. As the share of our older population with tertiary education increases, this is likely to lead to higher labour force participation. Third, various factors, including labour-saving technological improvements in the household sector, such as household appliances, and more years of education have led to a steady rise in labour force participation among women. The rise in labour force participation rate for women in many of these developed countries occurred earlier, earlier almost by a decade, in many of these developed countries.”