ASK DPM THARMAN: The full transcript
Soh Yi Da
This is the full trancript of the interview with DPM Tharman Shanmugaratnam on April 12, 2013
The Straits Times: Singaporeans are asking how much more of a tightening will take place in terms of the foreign worker inflow, and how will the Government decide when the goal of restructuring has been achieved? Will it be by looking purely at productivity gains?
DPM Tharman: First, what's our objective? Our objective is to ensure that the proportion of foreigners in our workforce does not keep going up, year after year after year. We've got to keep it at a steady proportion. And we decided in 2010 to go for one-third, to try and cap it at about one-third the workforce. From year to year you may get some bumps especially when the construction sector is surging, for infrastructural needs, you might get it going a little beyond one-third. But over the long term let's try and keep it at about one-third.
Now, there are sectors and industries which can't do without foreign workers. Construction is a very good example. The marine sector to some extent. Even some services industries like health care will need foreigners, will need foreign workers. But it's important that even in those areas where you can't find enough Singaporeans to do the jobs, we reduce reliance on manpower. The raw fact of the matter is that the sectors which are most dependent on foreigners are also the sectors with the lowest levels of productivity compared to global leaders and which have the most scope to catch up, to upgrade, to restructure. And we have to do that, because that's the only way in which local wages will go up over time on a sustained basis. And in fact the same sectors - construction, F&B, some parts of the retail sector - are the ones with not only relatively low levels of productivity but sectors where local wages haven't moved up enough. In fact they have been quite stagnant at the lower end of the workforce. So we have to make this move. You won't find enough Singaporeans to come into construction and several other sectors, but you can reduce manpower reliance, upgrade productivity and then our whole economy moves up. That's our basic objective. But it's very important how we go about this. Make sure that at the end of the process we still have an SME sector. We must have an SME sector because it's not just for economic reasons but because they're part of the lifeblood of our society. So we're providing very strong support for our SMEs during this process. They take some of the pain because of foreign worker levies and dependency ratios being tightened. But we're providing very strong support for any SME that wants to upgrade, whether it's equipment or software or training of the workers, or even training of the management. Any form of support. And we have to find ways in which large companies can help small companies in this game.
ST: DPM, we've seen several rounds of the tightening of the foreign worker policy. Do you see that continuing in the next few years and when will we reach a point where we can say that it's time to stop?
A: Well, we don't plan to tighten further but it depends on whether the ratio of foreigners in the workforce starts rising beyond 33 per cent, beyond one-third, and is rising not just for short-term, cyclical reasons but rising for structural reasons. If it keeps going up, then we will have to tighten further. If we see that productivity is still languishing and that not enough effort is being made to reduce manpower reliance in the sectors where it is possible, then we will have to tighten further. So, we make our objectives very clear - reduce manpower reliance and raise productivity (so we) keep the ratio of foreigners in the workforce to about one-third over the long term. And if we achieve that, we won't need to tighten further.
ST: Why was the decision to take one-third, why was the percentage chosen?
A: We weren't deciding from scratch. This was decided as part of the economic strategies committee. And we recommended one-third because the starting point was that we were already getting close to one-third. We were at about 32 per cent. And our basic position is, let's not let it rise continuously beyond that level. This excludes the foreign maids. Let's not let it rise beyond that level significantly. So we wanted to basically cap it at where we were. If we can in the very long term reduce it below one-third, well, so much the better, but it's extremely difficult to achieve that in the economy we have because our SMEs, in particular, are significantly dependant on foreign workers in a whole range of sectors.
ST: On hindsight, do you think this process of restructuring should have begun earlier?
A: I think on hindsight it could have begun earlier. We have to understand what happened in the last decade. The bulk of the growth in the foreign workforce took place between 2005 and 2007. And during the period 2005 -2007, we were recovering from a very rough first half of the decade. Very rough not in terms of GDP growth, but very rough in terms of jobs and wage growth for Singaporeans, particularly at the lower end. So a lot of the policy thinking, a lot of the policy mindset was one of creating jobs, bringing unemployment down. It was close to 5 per cent. We wanted to bring it down and we wanted to get a lift in wages for the average worker and the low income worker. In fact, we achieved that. And we achieved that by allowing firms to get the labour they needed in order to be able to take on orders and thereby create demand for Singaporeans as well. So there was a complementarity when you look at the system. When you look at the economy as a whole, there was a complementarity between the foreign workers coming in and more jobs being created for Singaporeans. But there was a problem, because the ease with which labour was made available gave little incentive for firms to upgrade and improve productivity. That's the first problem. Second problem is that although jobs were being made available and unemployment was coming down - which was good for households because in a typical household more people were able to get some work, part-time or full-time, at the lower end - but wage levels at the low end, wage levels at the low end, stagnated. They stagnated in the first half of the decade especially. There was some lift in the 2nd half of the decade but not enough. So that is a concern. If we carry on with that strategy, productivity will remain weak or stagnant and it will be hard to lift wages at the bottom end. So we have to shift course. But there's always a context to policies and I think you can't ignore the context of what happened in the first half of the last decade where there was no significant foreign worker inflow - in fact there was a reduction - but conditions were tough for Singapore workers, especiallyecially our low income workers. And we wanted to improve the situation by creating jobs and that's why we went for allowing companies to grow. But there's a limit to that strategy and we now have to shift course.
ST: So at what point do you say that the restructuring has succeeded and can stop? Is there a point?
A: Well, we're now an upper middle income country together with Hong Kong, to some extent Taiwan and South Korea although their income levels are a little lower. Most Singaporeans, if you ask Singaporeans, any broad-based survey, what they like, they'd like better jobs, they'd like their pay to go up over time more than inflation. We're not satisfied with our current standard of living and quality of life.
Making sure the average Singaporean is able to move up, a good job, paying well and with a good work-life balance. I think that's a very important objective. And we're not near that yet. In this decade we want to make a significant improvement, very significant improvement from productivity levels that are about 70 per cent that of the global leaders on average, in some sectors less than half of the global leaders. I don't think we can get to 100 per cent in 10 years. It takes a much longer time but we’ve got to get much closer.
ST: Managing the foreign worker inflow, it's also taken on a political edge. Can I ask you specifically on the banking sector, there is this perception there's a lot of foreign talent. And I think last year MAS also introduced a scheme to try and encourage banks to build their own local talent. In the financial sector, what kind of levels do you expect? Have we built up enough expertise in the locals to be able to take on senior management in the banks?
A: I think the financial sector and in fact more broadly in the economy, we've seen a bit too much of a bulge at the middle end of the workforce. In other words, not those with the sort of top expertise or specialised expertise but the lower end of Employment Pass holders as well as a significant growth in S-Pass holders. So that middle end has grown rapidly. And that's not satisfactory, which is why we've tightened policy for both S-Pass and Employment Pass holders - more discriminating in terms of their qualifications and their experience and they've also got to be paid well enough so as not to depress the pay of Singaporeans. That's basically the situation in the financial sector as well. At the top end - we're a global financial centre, that's the way in which we are relevant to the rest of Asia and the rest of the world, and you do need people with a very high degree of expertise, people who've cut their teeth in other financial centres and are able to be part of winning teams. That's very important for the Singaporeans in the financial sector. But we have to ensure a level playing field, a level playing field both at the middle end as well as the more senior levels, make sure that Singaporeans are fairly considered and more than just being considered for new hires and new appointments, that Singaporeans are getting the attention they need by way of career development. In other words, when you're a young Singaporean, be it in the financial sector or elsewhere, your employer must have their eye on you, to see what experience you need, what are the ways in which you can develop your career, what overseas postings would be in your interest. That should be the attitude. The Singapore core is not just a set of numbers. It's a Singapore core that has to be developed and has to be developed proactively.
ST: What are your thoughts on how we strike this balance between being fair and not, I guess, being perceived as protectionist? And are you looking at any other countries in particular as a model for us to adopt?
A: MOM (Ministry of Manpower) is studying this very seriously. We need some form of ‘labour market test’ (for employers), make sure it allows us to get the expertise we need, so that you have the right mix of expertise, local and foreign, in our teams. The real competition is not between Singaporeans and foreigners in Singapore. The much larger competition is the competition we're having with emerging cities and advanced cities, all of whom are in the same game. Even the Chinese cities who 15, 20 years ago were competing in a lower league are now increasingly in the same league in a range of white collar jobs. So that's the real competition. Very large numbers of qualified and aspiring workforces out there in other cities that we're competing with. So we've got to make sure that we’ve got strong teams in Singapore with the right mix of foreigners and Singaporeans, and that foreigners must be people with real expertise. I think it's possible. I think it's possible to find the right balance. Stay open but make sure Singaporeans are fairly considered, and very importantly, proactively developed in their careers. MAS is serious about it in the financial sector. MOM is serious about it economy-wide. I think we can find the right balance.
ST: In your view, what is the biggest economic challenge facing Singapore over the next 10 years? And what must Singapore and Singaporeans do to face that?
A: Well, the advanced economies are going through a rough period. The US is showing some improvement but the long-term challenges are very significant, particularly because of its fiscal problems. Europe is in much tougher condition and it's not going to get out of its current problems quickly. Japan is now trying a new approach but the situation is essentially quite similar to Europe - an ageing society, debts that have mounted up and a fiscal strategy that can't last for long because someone has to pay for the older generation and they're going to find it very difficult to raise taxes on the scale required. So these are advanced societies, still very rich markets for us, wealthy markets. We shouldn't take our eye off them as markets. So stay plugged in, stay plugged in to the US, Europe and Japan because they are very valuable markets for sophisticated products, especially, in manufacturing as well as in services. Sophisticated demand is very importantly generated by the most advanced markets.
But the growth isn't going to be very significant from that source. So we've got to increasingly look at the middle and even the bottom of the pyramid, the emerging countries where growth is still significant, a middle class is emerging, becoming more sophisticated. Tremendous opportunity for us. And it means that not just our large companies but our SMEs have to be outward-oriented. In fact, quite impressively, a significant proportion of our SMEs are now deriving more than half their revenue from abroad. Compared to 10 years ago, many more are now abroad in some way, exploiting opportunities in the markets around us. But it also means that our whole orientation starting from young through education and in the workforce has to be to look outward for opportunities, and not just in the advanced countries, or English-speaking countries, but the countries around us.
We’ve got to have that cultural flexibility of being able to work and operate in these environments because there are plenty of opportunities for Singaporeans. We have to make it easier in terms of education, children's education, so that when they come back, they can fit into our system easily. We probably need, in my opinion, a couple of more schools offering the IB (International Baccalaureate), make it easier for them to fit back in, so the parents don't feel worried about what happens to the children when they come back. We have to provide support for the companies and for Singaporeans to get opportunities in the emerging markets around us. It's going to be an increasing source of prosperity for Singapore and for Singaporeans.
So if you take a broader view, I think there's more opportunity than challenge. There's much more opportunity than challenge for Singapore. And what we have to do is to upgrade our enterprises, train workers and move up productivity, move up skills and expertise so that incomes can go up.
Basically, our level of productivity - and that means also skills and expertise - is at about well below three-quarters of the most advanced countries, the global leaders. And we're not satisfied with that because it doesn't deliver as high a level of wages for the average Singaporean and the low-income Singaporean as they deserve. So we've got to up everything; up training, up equipment, up the way in which firms are being managed, how a restaurant is being managed for instance, in order to raise skills levels, raise responsibility levels, empower workers more and raise their pay. But very importantly, this is not just about pay. It has to be about values and how we treat each other. It has to be about whether we look down on people who do ordinary jobs and blue collar jobs, or whether we treat them with respect, treat them as equals and respect everyone who is improving in what they're doing.
ST: Singapore's economy seems to be entering an area of low growth and persistently high inflation even as we have full employment. I think the economists have called it “mini stagflation”. Where do you think the economy is headed in the next 3 to 5 years? What are our policy options in managing slow growth and high inflation?
A: Well, there are two parts to our inflation. One has to do with assets, especially houses and cars. Second, regular inflation, what MAS calls core inflation or what basically, you know, people think of in terms of regular shopping, what you buy in the supermarkets, what you pay for education, for health, the rest of the CPI basket.
Housing, we're still facing pressures on prices. It's slowing down. There's some stabilisation taking place in the market and we'll have to see how it goes, but we're determined to cool the housing market. Cars, we've taken a significant set of measures. They're not permanent, they're temporary. But I think it's having some effect and we'll have to see how COE prices and car prices evolve over the next several months. So (housing and cars) are 2 distinct problems and they alone have accounted for about half of our CPI inflation. The rest of CPI inflation I think we're getting under control. If you take the top 20 items in NTUC FairPrice, for instance, inflation is running at no more than 2 per cent. In fact a little below 2 per cent.
So, MAS will continue to have an exchange rate policy that's focused on the underlying inflation, a large part of which is imported inflation. Fiscal policy is important to help the poor and the middle income group because even with inflation being at manageable levels, excluding cars and houses, you still have problems for older folk and poorer folk, and we use fiscal policy, especially the GST voucher, but also other subsidies in health care and education to make sure that we can help the low and middle income group with the cost of living. But asset prices are not unimportant. They're not unimportant and we're determined to cool both housing prices and car prices.
ST: You said you're determined to cool the property and the car market. Can we expect more property cooling measures? There's been speculation that we could expect an 8th round.
A: Well, I never comment on speculation about further rounds of property measures. We’ve made our objective very clear. The prices have run up too quickly relative to incomes, particularly for younger families. And there are two ways of correcting that. One is you can stabilise prices while incomes gradually grow. But if prices in fact correct and soften, I think it's not a bad thing because there's nothing natural about the current level of prices. I think it ran up very quickly. There was a surge of demand when we came out of the crisis and we still haven't caughten up with demand, but over the next two years, there's a lot of supply coming on the market and I think there's bound to be some softening in prices.
ST: But are you satisfied with the slowdown that has taken place so far?
A: I think it's moving in the right direction. But prices are still at a very high level.
ST: What do you make of this recent debate about the need to reprice HDB flats and how does that relate to the government's management of the property market? What are your views?
A: That's a longer term issue. We shouldn't engineer a crash in the short term. You don't want to engineer a sharp correction in prices through policy changes. But over the longer term, I do think that we will be better off with housing prices being a smaller multiple of incomes for the average person especially. For the low income group, we've got very substantial grants and subsidies. But for the average family, average young family, including those who are in the upper middle income group, and those who go for private condos included, we'll be better off as a society and as an economy in having a more steady growth of property prices and the multiple of property prices to incomes being somewhat lower. Many cities are facing this problem. In fact, the multiple of prices or the ratio of prices to income is even higher in places like Seoul and Taipei and of course Tokyo and Hong Kong. But I think for Singapore because we're just one, we're not just a city in a larger country, we're just a one-city country, it's important for us to keep prices in check so that younger families feel that housing is affordable and don't have to put so much of their disposable income into servicing their loans. I think that's the right long-term objective.
ST: Considering how interlinked the public housing market is to the private housing market and how the public housing market provides that floor, how do you think you can actually work towards reducing the multiple at the middle or lower end without severely affecting the private property market?
A: Yes. Well, first, we would not want to make moves in haste. It's a longer term strategy.
ST: What sort of time frame are you looking at?
A: We haven't actually decided on the actual level of prices relative to incomes. We've indicated the direction we'd like to see the housing market move over the long term. And we have to think through our strategies - supply strategies, how much of a buffer above demand we'd like to have. We'd have to think through our tax strategies - stamp duties and so on. So it involves many policy levers. But we wouldn't want to make a sharp adjustment in the public housing market. I think it's better to go for an evolution, go for an evolution in our housing market.
ST: In the short-term, what else is in the government's toolkit to cool the property market? Would you consider raising mortgage spreads?
A: We don't directly control mortgage spreads but obviously MAS's prudential requirements of banks would influence that. Not just the spreads, but the criteria they use in giving loans. We've a range of tools. Supply is the main policy measure - increasing supply, both HDB as well as private. We've got some fiscal tools - the stamp duties in particular. And we've had both the seller's stamp duty as well as the buyer's stamp duty being enhanced. We've got loan-to-value ratios on the part of the MAS which have been tightened very significantly. Whether we do anything more on the MAS front, on the fiscal front or on supply measures depends on market conditions. We don't rule out any measure. So we're not planning another round of measures but it depends on market conditions, but we're determined to achieve our objective of having prices come down relative to incomes. And that can be achieved both through income growth as well as through some stabilisation or even cooling of prices.
ST: When you first entered politics in 2001, and you were one of the super seven, you said that the biggest challenge for the PAP is to win the hearts of young people. How do you think the PAP has performed in that regard? And how great is the challenge today and going forward?
A: Well, I think the first challenge the PAP faces is the fact that it's the incumbent. People want a check on the PAP. And that's natural. It's just human psychology. So that's the first disadvantage you face in terms of human psychology. And you have to accept that. Second, and this is an important point, all over the world the (economies) that are more advanced, and that includes in the Asian context, Taiwan, Hong Kong, Singapore, South Korea, they're finding it more difficult to get the improvements in the quality of life that was seen in the past. First, because of course in Asia we've caughten up and we're at a higher level of, higher standard of living. Second, global competition has changed. The pressures at the middle end of the workforce have increased internationally. So you find that in the US, for instance, the median American, has a lower real income now than 10 years ago, in fact 15 years ago. You find that in Europe as well. The average person has not seen their life improve. You find it in places like Taiwan. Average person has not seen their life improve. In Singapore we've at least been able to achieve a significant improvement in the standard of living of the average person. Any young person can find a job very quickly, in fact faster than anywhere else in Asia. Find a good job very quickly. ITE (Intstitute of Technical Education) grad, polytechnic grad, university grad. Any person can see improvement on the job and over time see their pay going up. That's something which we've got to work very hard to preserve. Very hard to preserve. So economic policy is not irrelevant to the type of society we want because we are a society that still has aspirations to move up. People do want to move up, basically. Families want to move up. They want their children to do better than the parents. And economic strategy is not irrelevant to that.
But capturing the hearts of the young is also about catering to diversity. Very importantly the PAP can play the role of galvanising views or being a generator of views, encouraging people to come up with ideas, alternative ideas on a whole range of strategies - our social strategies, how we can help the elderly, our transport strategies, our housing strategies. Bring up views from all quarters of society. Take them seriously. Help the thinking process take place on the part of citizens. That's a very important role that we can play as well. And you can see that the PAP today is quite different from five years ago, and almost unrecognisable compared to 20 years ago. A very different party. Still a lot of work to do. So I think getting the hearts of the young and being close to the young is about, first, never ignore the fact that policies are important, and making sure we're an economy that provides good jobs for the young and that they will be able to see improvement in the course of their working lives. It's important. But, secondly, it's also about not just tolerance of diversity but being welcoming of diversity and going out there to get it, to actually generate alternative views.
ST: You do not see the two objectives as potentially contradictory - one of people's desire to have a check on the PAP and on the other hand, the PAP wanting to offer choice, as it were, in terms of diversity of views? The bottom line, people want to check on the PAP. What is that going to mean for the PAP?
A: You know, if we think we can remain a completely dominant player, dominating all discussions. That's a very risky situation. It's a very risky situation and it's also not what people want. I believe we can play a dominant role, retain a dominant position without wanting to completely dominate. It's in Singapore's interest that you do have a dominant party, but it's got to be one that's open to diversity, welcoming of a responsible opposition. And I think that's a state of affairs that we can achieve - the PAP is changing, and if it doesn't change and if it's not welcoming of diverse opinions, including critical opinions, then we're in trouble. So achieving stability depends partly on how we respond to the situation and we are in fact responding in a way that, I think, allows for a lot more varied views, including very critical views, to surface and to be taken seriously.
ST: What do you think is the tolerable threshold of opposition that the PAP can live with?
A: I don't have a number in my mind but we have to accept that part of a healthy political system is one with a decent opposition presence in Parliament and outside, and a responsible opposition will, I think, be able to contribute to Singapore.
ST: Do you think you'll be able to persuade the vast majority of voters, especially young voters that the PAP can be dominant without being dominating, if I paraphrase you correctly?
A: Yes. If we continue along the path that we've taken in recent years and which you can see our younger ministers very actively pursuing, creating new fora, new ways in which people can be part of the thinking process for Singapore, can express their preferences particularly on values, on identity and also on policy. If we continue along that path and if we can continue to involve people and to help them to take responsibility collectively for making a better Singapore, I think we can retain our anchor role in Singapore society.
ST: In 20 years' time your children will be aged between 37 and 42, if I am correct, what kind of Singapore do you hope for them?
A: Well, I hope it'll be a Singapore where we treat each other as equals, which is I think a different type of meritocracy. We've had a working meritocracy, it has brought us quite far, it's allowed for a tremendous amount of social mobility in our first 40 years, but I think it has to evolve. It starts from young. I think we have students who go through our education system, those who are doing well, who are very aware of their strengths and achievements but not sufficiently aware of their weaknesses and not sufficiently aware of the strengths of others. That's one group. We have another group that goes through the system very aware of their weaknesses so that, you know, they got into a certain stream or didn't get into a school of choice, they're very aware of what they didn't achieve, but not enough of them have discovered their strengths. And I believe very strongly that everyone has a strength. Very few people are strong in everything and very few people are weak in everything, everyone has a strength. So how do we evolve our system to keep it meritocratic, but broaden it, make it more flexible and very importantly allow for more mixing? There's nothing like mixing, there's nothing like mixing where as part of your day-to-day activity, what you go through from primary school through to Sec 4, you interact with people who are different from you. That's the only way in which, over time, quietly, without realising it, you recognise the strengths of others and you also know your weaknesses. So I think that's a society I would like to see.
We are moving in that direction, we've made significant changes in the last decade but I think there are still more changes required. It's not just education, it's the way we treat blue collar workers generally, ordinary workers whether it's in restaurants or when you're taking transport or everywhere. We are still a little too much of a hierarchy based on what happened to you at age 18, what scores you had, what qualifications you had, which course you could go to. So we are a meritocracy that's still a bit too much defined by what happened in your school years or your post-secondary years. There are some societies which are not meritocratic enough in the school system. I mean the US is a good example, public schools in very bad shape, giving a very bad deal to ordinary kids and then they've got private schools that are very well endowed, providing a very high quality of education, not meritocratic and they have bad outcomes for average folk. But there's something about their workplace culture that I think we can learn from both in the US and in Europe where they are very respecting of people in different vocations. They treat each other a little more as equals and I think that's a very important culture to have and they rarely look at what happened to you 20 years ago. It's always about continual improvement or what I call a continuous meritocracy. So we've got to be a broader meritocracy recognising different strengths in different individuals, but also a continuous meritocracy where it doesn't matter so much what happened when you were in Sec 4 or JC 2 or when you finished your Poly or ITE, but what happens after that. Are you continually improving, are you developing mastery? Regardless of where you start we have to recognise what you have achieved to develop mastery in what you are doing.
ST: DPM, why do you think we are the way we are?
A: Well, we inherited the British system, which is quite academically biased and in Britain, of course, quite an elitist system. We also inherited a Chinese education culture, which is also quite academically oriented, a strong emphasis on values and character education but quite academically oriented and quite test-oriented. And I think the combination of a British and East Asian educational ethos has created a particular form of meritocracy which achieved a lot in 40 years. But as we go forward and we think about the type of inclusive society we want, it's not just about wages, which we are working on, it's about how you view yourself and others at the workplace, wherever you live, how we view fellow Singaporeans, do you view them as equals, do you do things together. That has to start from young and it has to continue through life.
ST: How widely shared is this aspiration among your colleagues, your peers, whether in Government or outside of Government, those in the upper echelons of society?
A: I think it is. There's some sense that our previous approaches have worked well, but will not be able to deliver the same going forward, and you do need new approaches. So it's very important, for instance, in education that we're now starting much earlier in children's lives, preschool. In fact even earlier than preschool through community initiatives. We are intervening to help those who don't have the advantage of parents with higher educational qualifications or better incomes, intervening to help them, help them catch up, give them the most nourishing environment.
ST: Do you think there is a sense of entitlement among the successful in Singapore when you talk about how there's this category of people who only recognise their strengths and are less aware of their weaknesses? Is that something that you worry about?
A: It is, it is, and you can't correct it simply through tax policy and fiscal policy. It's about changing the way we think about responsibility to society. And it's not just a matter of being patronising, you know - I want to help someone who's less advantaged. It's also recognising the role that everyone plays in keeping the society going. Every job counts and improving on every job is what this is about. Respect mastery in every job, respect hard work in every job - that has to be our culture.
ST: Budget 2013 was significant for its increase in taxes. As the Government shifts towards more progressive taxes, and we've seen significant moves with property and cars, what's the threshold for raising taxes and increasing the progressive nature of Singapore's fiscal system?
A: First of all, we have to expect that our social spending will continue to grow. It's been growing significantly in the last few years and it'll continue to grow particularly as Singaporeans become older because healthcare needs will grow. One way or another we have to spend more as a percentage of GDP. We need revenues for that. The question is how you obtain the revenues. One big advantage is we have revenues from our reserves. It's about more than 2 per cent of GDP - big advantage compared to other countries which are in fact doing the reverse, they are having to service debts and having to raise revenues in order to service debts. In our case basically we've got income from reserves that adds to the budget.
We do need over time, over the long term, to think of best sources of revenues and we've got to make sure that what we do is fair and equitable, but also keeps Singapore competitive, because that's what provides jobs for lower and middle income Singaporeans. It's a competitive economy and finding the right balance is important.
Philosophically, I have nothing against raising income taxes. But we have to be practical about how far we can go, and when we can move. The raw fact of the matter is that Hong Kong has a cap of 15 per cent at the top end. People sometimes look at the top marginal rate, but the top marginal rate of Hong Kong is not relevant because they actually cap the effective tax paid at 15 per cent. In our case for the very high income earners it's 19 to 20 per cent. So that's already a gap and we have to be practical about whether it's possible to widen that gap without impairing our competitiveness as a key business hub in Asia, which is very important for not just the individuals and firms who are involved in that activity, it's important for our whole economy.
Remember our income tax schedule is actually maximum marginal tax rate of 20 per cent and then at the other end we've got minus 30 per cent for our older lower income workers. So it's minus 30 per cent of income tax, a negative income tax by paying Workfare to low income workers, and plus 20 per cent at the top end - already quite a progressive income tax schedule. I wouldn't rule out income tax moves in the long term, but let's go about it pragmatically. I do favour, however, besides income taxes, when you look at our whole tax system, I do favour further moves towards progressivity over time and that means that, if you don't have too much scope to do it through income taxes, that we have to look at other ways, and especially at asset taxes, property taxes being the most practical way of going about it. We made two moves in the last three years and this year, especially, we raised, we steepened the property tax schedule. It used to be flat and two years ago we moved to a progressive schedule for property taxes. This year we made it even more progressive. I don't think that's the final step. We have to study this carefully. It depends also on what happens in terms of our current measures to cool the market because we had introduced all sorts of new taxes and once those taxes are no longer necessary for cyclical reasons, we'll have to see what replaces them for the long term.
That's basically the strategy for progressivity - be careful and make sure that we don't undermine the competitiveness of our economy in a way that will lose our ability to create good jobs for lower and middle income Singaporeans.
Spending is also very important. How we spend is as important as how much we spend. We do need to provide greater support for older Singaporeans, particularly in healthcare and for their retirement needs. That's something which we want to do. And we have to go about it in a way that doesn't lead us to the problems we see in Europe and the United States or Japan, go about it in a way that's sustainable. And it means that subsidies do have to be targeted, they can't be across the board, including for the upper middle income group or upper income individuals, they have to be targeted at the middle and lower end of our retirees. It does mean that some co-payment is necessary because that leads to individual responsibility. But, very importantly, it means also shifting the balance of our spending in healthcare so that over time, we place greater priority on preventive care and primary care and not just on what happens in the acute hospitals. So it's not just what happens when you end up in hospital but it's about managing diseases well and preventing diseases from growing. So that's a very important strategy long-term as well.
So we'll make some shifts because we want to do more for older Singaporeans, particularly that generation of older Singaporeans that has had low pay for much of their lives, and you have to remember that their pay was very low 20 to 30 years ago, they haven't accumulated much savings and they deserve more help. So we'll go about it in a way that doesn't lead to permanent entitlements for the broad base of the population but targets support in those who need it most and, in particular, we have to do something special for the current generation of our older poor.
ST: When you talk about raising income taxes in the long term, do you have a sense of is it in the next 10 years that might occur?
A: Whether we raise income taxes is something we have not decided. All I'm saying is that philosophically I've nothing against it. It's a practical issue that we have to study carefully, but improving the progressivity of our system further - it's already a very progressive system - but improving it further is I think a desirable objective and will have to be chiefly by way of asset taxes, and what we do on Workfare.
ST: There’s been a Wall Street Journal article going around depicting Singapore as a playground for the wealthy where they talked of very rich people here. Is this perception of Singapore being a playground for the wealthy something that you're worried, concerned about?
A: Well, I don't think it describes the way our society functions as a whole, including the way in which better-off people conduct themselves generally. But there is a risk over time of that old culture of being low key and not ostentatious getting weakened. There's a risk. That culture could change, it could become a lot more flashy and I don't think that will be good for Singapore society. Now, you know, to paraphrase Deng Xiaoping, if we leave our windows open, you get insects flying in. Some would have a lot of bling and colour, but, you know, that's what happens when your windows are open. I think we'll have to maintain a balance in our society as a whole and try our best to keep a culture that is not one based on excesses but is one based on responsibility. I would not, however, shape policy based on magazine articles or occasional articles, because articles make the best reading when they talk about what's really at the edge rather than what describes the society as a whole.
ST: Actually part of this is because Singapore has decided to be a wealth management hub as well and won't that in a way when you talk about raising income taxes and asset taxes, doesn't that sort of go against each other?
A: So you have to accept some of the colour and the bling but I think that should be a fringe and it should not define how people in Singapore behave and so far it does not. Not all wealth management centres are, you know, prone to excesses and ostentation, they're not.
ST: Any move to increase taxes will always be viewed with some resistance, that Government is passing the buck to Singaporeans when actually it can afford to dip into the reserves. How do you address that question and is there room for any sort of modification to the NIR framework so that we can get more out of our reserves?
A: We shouldn't rule out modifications over time, particularly when it comes to the point when we need more revenues. But, first of all, in fact it's not widely recognised, that we are drawing on our reserves each year for our budget through the framework of drawing on the income from reserves. We made a major adjustment in 2008 to be able to draw more income from our reserves and it's quite substantial - 2 per cent of GDP, or in fact more than 2 per cent of GDP each year, as revenue from reserves.
Is it too conservative? Not clearly so. Think about it in terms of what we spend today versus what we leave for future spending. How do we ensure that future generations of Singaporeans get the same benefit from the reserves, in other words that they benefit from the same income and not find that it comes down over time and taxes have to go up so that the same amount can be spent? It’s a significant sum – the income we spend from reserves is only slightly less than the revenues from a 7 per cent GST.
What this means is that we have to leave enough of the income to accumulate in the reserves, and not spend it all. The typical global portfolio of equities and bonds earned about 4 per cent in real terms annually over the last 20 years. Let’s assume the same for the future. Some observers think it will be difficult to achieve that in the new investment climate, but let's say 4 per cent in real terms. Our rules allow us to spend 50 per cent of that on the budget each year. So we're left with 2 per cent real growth in the reserves. Now compare that to GDP growth, because our budgetary needs will grow in proportion to the economy at minimum; in fact social spending will grow faster than the economy. So if GDP grows by, say, 2 per cent per year over the long term, that means our reserves are not growing relative to GDP, and relative to our long term spending needs. So it is not at all as conservative as meets the eye.
The reason why we don't want to simply draw down our reserves is because then this whole approach of being able to give Singaporeans benefit by drawing income from the reserves perpetually will be weakened. We'd be able to do it for some time but for future generations they will not have this advantage. It's of benefit to the average Singaporean because it's how we've been able to keep income taxes very low for the broad majority, in fact the majority don't pay income taxes and even the upper middle income group pays very little income taxes; keep GST at 7 per cent for as long as we can; and not have to raise other new taxes for the majority. We'll have to raise some taxes for the top end but for the majority we're able to keep it relatively low by international standards with this advantage of getting 2 per cent of GDP from reserves. So try and keep that going for as long as we can. So I don't want to rule out modifications at some point in time. We'll have to keep revisiting this but it's not something you do casually.
ST: Would you ever consider maybe looking at land sales, maybe take a percentage of what it can contribute directly to the Budget?
A: The reason why we don't spend all our revenues from selling land or the gains from selling land is actually the land is already part of our reserves and selling the land is just converting it from one form to another. It enters into our financial reserves but it's already part of our reserves. So all we're doing is we are keeping the proceeds in our reserves. They were part of our reserves, you sell it, it takes a financial form, you keep it in part of our reserves and then we spend the income from our reserves. So it's the same basic discipline - preserve the size of the reserves, draw income each year within a disciplined framework so as to support the budget, and the real question is: Are we drawing enough with this 50 per cent rule? And that's something we can relook over time.
ST: In an interview in 2011 you said that a strong opposition is good for the PAP and for Singapore as well, and so having witnessed the change in the political landscape since the 2011 GE, do you think Singapore is now better off?
A: I think Singapore is better off because people are much more engaged now. Many more people are thinking about Singapore, expressing their views and also more people who are getting involved through their own initiatives, getting together with friends and people who feel the same way as them and doing something whether it's about heritage or environment or doing something with the poor, with the elderly, a lot more people are involved. So civil society is more active and people are just a lot more aware of issues and I think that's been a positive. I think, too, that the PAP has changed and continues to change. It's a very open party when it comes to listening to views and trying to gather views from people who don't necessarily agree with you. There's been a fair bit of shift in that regard, a fair bit of shift in that regard. You can't just go with the whims of the day, but in deciding on our basic policy objectives and our preferences for the long-term we've got to listen to people but also involve them in the thinking process because when you involve people in the thinking process, they become very aware of the trade-offs, they become very aware of why policymaking is not about going for the best of everything but to get our fundamentals right and then do the best we can for, especially, our low income folk and our elderly folk.
ST: When you talk about listening to people, hear critical views, is there a risk that the PAP becomes populist as a result?
A: There is that risk, and we're aware of it and we will guard against it. I think if you look at our last two budgets where there's been a significant increase in social spending and we've also given a clear signal of the direction we're going, but it's not an unguarded view, it's not about unconditional social spending. Basically our whole approach is different from the type of populism which we saw grow from the 1970s until the 2000s in many of the Western countries.
Our whole approach rests on a paradox of providing Government support for individual effort and initiative, providing Government support for individuals and families who are taking responsibility. So it's not about unconditional entitlements nor is it about leaving people to the whims of the market, letting them fend for themselves. It's not simply an approach of assuming that self-reliance creates a strong society, it's about as best as we can providing Government support for individual effort and responsibility. And that's why we focus first on education and social mobility. Second, focus on work. The culture of work must still be at the heart of our society. And if you work, we will support you. Your incomes may be low, we'll give you Workfare. We help you upgrade, we subsidise your training. So rewarding people through work is a very important second plank. Third, housing. There is something to owning a home even if you're lower income. And the fact that eight out of 10 of low income folk in Singapore own a home, way above any other country, is really a plus for our society.
And that's why we have something very unique, our additional and our special housing grants. We introduced a special housing grant two years ago to enable even low income folk, low income young and middle-aged couples to buy a home. So if you have less than $1,500, a two-room flat, new two-room flat is available. And since we introduced that scheme two years ago, about 1,100 low income families have purchased their homes. For those below $1,500, in fact a large proportion of them had even $1,000 and less purchasing a two-room flat.
Why do we do it? We want to raise their incomes first and foremost, $1,000 is too low if you have a family. But allowing them to own a home firstly means they have more disposable income because they use their CPF to service the loan entirely, more disposable income. Secondly, there's something to a home owning culture, all over the world. All over the world you find that those who own homes first will stay at work, they'll make sure they have a job because they want to service the loan and they want to make sure they don't lose the home. It's just a more positive culture: where even low income people can share in prosperity because the value of your home goes up over time. And it's important not to have a society where it's only the rich or the upper middle income group that sees asset appreciation over the long term, even poor people when they retire will have an asset, not through asset bubbles but simply because our economy as a whole has done well and they're able to share in prosperity not just through their wages but because they've got an asset that they retire with.
ST: Do you think there's more pressure to respond to shorter term electoral cycles now and when we talk about analysis by perhaps observers and investors do you think they see Singapore now as perhaps more uncertain in terms of the political and policy areas?
A: I think there is some degree of uncertainty but the fundamentals of our strategy: economic strategies and our strategy of building an inclusive society are quite broadly supported. They're broadly supported by Singaporeans and I think the analysts and observers can see that. There is a political contest, a desire for a check but the basic strategies of this Government are quite widely supported.
ST: GE 2011 was also significant because it was the first time that a GRC had fallen. Do you think the GRC can be tweaked whilst still preserving minority representation in Parliament?
A: I think the last time around we moved towards somewhat smaller GRCs. My view is we can move a little further in that same direction. It'll make things more contestable, it'll provide for more competition and you can do it in a way that still ensures minority representation. It's not a bad way of ensuring minority representation in Parliament, better than more artificial ways, you know, where someone gets in only because they're a minority through a special vote. This way basically you're part of the team and often you'll find that the minorities in the team are leading members of the team.
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ST: What do you make of the harsh views of the Government and on its policies on so-called anti-Government websites and Facebook pages? Do you take them seriously?
A: Well, it cannot be ignored and I think so far, on balance, the fact that you've got an active social media is a plus. It'll go through phases. I think it's still evolving. We're still in a phase where it is overwhelmingly critical of Government, not all, but overwhelmingly, and that I think it is understandable. You know, that's the way it starts. And I think there are now more serious bloggers and some very thoughtful bloggers who have views of their own that are not just motivated by wanting to hit at the Government but they want to express their thoughts and they're worth reading and listening to. Over time, hopefully, there will be a bit more of a debate, an even debate in the online media. We don't have it yet but you can see it gradually emerging and that's a situation that I think we want to come to. It is a plus that you have social media because a lot more people are involved in commenting and thinking about issues but it's got to evolve further, so that it matures and you've got a more even-handed disposition.
We also have to evolve to a situation where absurd or speculative claims do not propagate so easily and get bought into and circulated so breezily, even by the intelligentsia. The social media can be critical of government and probably always will be. It's a useful check. But people have to be a lot more sceptical about what's put out there as well.
ST: This has to do with what Ambassador Chan Heng Chee said. In a recent interview she talked about what the PAP needed to do to win back votes and she said that it needs more politicians and fewer technocrats. Do you agree with her analysis and how do you think the PAP can win back the seats it has lost?
A: Well, Heng Chee's view was a historical one. She had earlier on written about how Singapore was going through a period of depoliticisation in the earlier years and become an ‘administrative state’. Now, it is going through a period of re-politicisation. That's her phrase and I agree with her, and I don't think it's a bad thing. And it requires new political ways on the part of the PAP, as well as everyone.
We should never think that Singapore's ability to think through policies for the long term and that are in the interest of the average Singaporean should be compromised, and I think if we weaken that ability, weaken the premium Singapore has, then it will not improve our politics and it's not going to, more importantly, it's not going to improve the quality of life for ordinary Singaporeans. So what we’ve got to do is to improve our politics so that we can keep to that discipline of thinking long-term and doing what's in the best interest of Singaporeans. If we don't improve our politics, we will be prone over time to becoming a little bit more short term, a little more populist just to win the vote, and then things get into the wrong type of cycle where, because you're more short-term, you have more problems cropping up and you get a greater degree of disparity in society developing over time. That's in the nature of things. You look at the Western societies, people never think more than one electoral term ahead, but divisions have widened, envy has widened, dissatisfaction has increased. So it doesn't work the way you think it works. Becoming more short-term just worsens the position.
And it means making sure that while we retain a long-term orientation, always think about what's over the horizon in the interest of Singaporeans, we’ve got to make sure that we communicate policies well, and make sure that we're serving with a heart. Which is not just about policies, but about how you conduct yourself on the ground. What you do on the ground, and whether people feel you're serving with a heart, is critical in politics. And I'd say, even there, I'd say PAP MPs work very hard at it. They don't always get credit for it but I know so many of my colleagues in the PAP who work very hard on the ground, unsung work, you know, no attention at all, helping people, thinking of new initiatives on the ground, getting the resources for it, bringing together volunteers. They work with a heart. That's very important at the end of the day.
ST: What do you think can imperil this ability to think long-term, think in terms of Singapore's interests? You've talked about the short-term pressures. What makes you think that Singapore can be different in not succumbing to the same sort of pressures that other societies have felt?
A: We will face it. We will face it. I don't think we can pretend we will be a very different society. There will be pressures for more short-term responses and we can't be purists. We can't be purists in our policies - social or economic. And you do it in a way that doesn't change the fundamentals. Those fundamentals are - make sure that what you do allows the lower income and average Singaporean to have a good quality of life, not just now but for their children in the next generation. Make sure we stick to those fundamentals.
ST: Do you see the next PM in this current batch?
A: Yes, I do but I can't tell you who I think it is. But I think first, by temperament, I think they are very good people. They have their heart in the right place and that's the first and most important attribute you need as a political leader. Some of them are having to be thrown in the deep end very quickly and in Singapore, that means not just mastering the politics of the ground, but in Singapore, it's very important to also understand policies and shape policies for the long term. I think they are coping quite well, working well with the civil servants, asking tough questions, rethinking policies. The advantage you always find in bringing in a new generation of ministers and MPs is they are willing to ask questions. They are willing to ask questions. They don't take existing policies as a given. That's refreshing of not just the PAP but of cabinet has been quite important. I find it quite important in cabinet that we have a new set of people there who are willing to ask different questions and who come in with different biases.
ST: Earlier you talked about minority MPs leading at a GRC. Do you think the electorate is starting to look beyond race perhaps?
A: I think it's evolving. It's partly generational. People are, you know, people have grown up differently. It will evolve. Singapore 20 or 30 years from now, I think, would be quite a different place, quite a different place - both in politics as well as in society.
ST: So there might be a non-Chinese prime minister in the future?
A: My own sense is if you talk about, you know, in 20 years, I'd say, entirely possible. Entirely possible. I'd find it very odd if we only have Chinese prime ministers forever. I'd find it quite odd. I have no aspirations by the way to be prime minister! I enjoy being part of the team, contributing as much as I can.
ST: Has politics been all that you expected it to be when you first agreed to join in 2001?
A: It has not been very different, but one thing that I have learnt and found very warming is the fact that people change. Even someone who starts off being quite reckless and irresponsible or families who just can't be bothered, they respond when you try to help because they all feel a sense of obligation. We're helping you because we feel you're actually capable of doing something much better. You're capable of a better job, your children are capable of doing better, we're going to help you. And people respond in a very heart-warming way. So, self-reliance and family responsibility is not just out there, it also responds to the way Government is conducting itself. It's the response to the way in which those on the ground who are trying to help interact with families and individuals. And that's not a bad composite. It's not a bad combination to have a system with strong support from Government, from community and volunteers, reinforcing a culture of responsibility in society and the two interact quite well. It's not that you only go out to help those who already have that culture and leave aside the rest. The rest are in fact far more important because they will respond to you. And you can turn people around. That's one of the most, that is the most heart-warming part of my own experience.
ST: We wanted to ask you a question on the recent changes to car loans actually.
A: Yes. So let me talk about that. I have not previously favoured restrictions on car loans mainly because there will be people who genuinely need a car but who may not be very well off. And restrictions on car loans will make it difficult for them. So it's not the first recourse at all. The only reason why we moved is because the increase in COE prices has continued for too long, and it's been too sharp an increase. So, last year alone, it contributed more than 1 percentage point on our CPI inflation. And although that increase in itself only affects those who are buying a car and not the rest, eventually if you have a sustained increase in COE prices, it has a way of feeding into general inflation. And that's what we want to avoid. So the short term impact isn't so significant for the majority of people, but eventually it feeds through into inflation more generally. And that's why we've had to take this exceptional measure - a very large reduction in the loan-to-value ratio, significant tightening of the loans. It's not permanent.
The last time round, we had it at 70 per cent loan-to-value ratio, up to 2003. It didn't have much impact on COE prices and that's why we decided this time we’ve got to do something larger. Do it larger, but don't hold it there permanently because we are well aware of the fact that there are people who really need a car. We made an exception for the disabled but there are others, you know, with elderly folk at home, although they are not disabled or immobile, you know, they may really need a car. And the current levels are not suitable for the long term. But for now, it's here and we do want to cool the COE market.
ST: Some people have also said that, you know, beyond just these immediate measures, we do need to do more to address the more fundamental question of the COE system itself.
A: Yes. There are issues which MOT will study, but most fundamentally, we have to improve our public transport system. Just in the next few years we can make improvements, particularly through the bus system, significant improvements. And 10 years from now, the MRT system would be quite different from today.
ST: And staying with the Budget, people have described it as a Robin Hood Budget. There are some concerns that perhaps now the Government is leaning too much towards the socialist stance and there is concern about welfarism. What are your views on these comments?
A: Well, first, I don't think we have become, and will become, populist in the sense of doing things for short-term electoral gains. We will not do that. Second, have we shifted to the Left? Yes, we have. If I compare our thinking in Cabinet, or the weight of thinking in Cabinet, when I first entered politics about 11 years ago, I would say it was, the weight of thinking was centrist but there were two flanks on either side of it. There were some who were a little right-of-centre, and there were some a little left-of-centre. Now, I would say the weight of thinking is left-of-centre. You still get diversity of views in Cabinet but the centre of gravity is left of centre. And that means the current team is very clearly focused on upgrading the lives, improving the lives of lower-income Singaporeans and of our older folk. Those are two very important social objectives and we're going to succeed. We're going to do something to improve life for these two very important groups of Singaporeans.
Middle-income Singaporeans are, compared to the rest of the world, I think we've done quite well. The fact that the median earner has seen a significant increase in real wages after knocking off inflation is something that few other societies in our position have achieved in the last five years and the last 10 years. So, keeping an economy competitive is also very much on our minds. It's not because we are, you know, always looking at economic issues or looking at GDP and so on. It's got nothing to do with that. It's got to do with Singaporeans. If you want to help the majority and you want to help the middle-income earner, there's no other way other than having an economy that's competitive, that's able to create good jobs where businesses are able to run a profit and are able to share gains with workers. There's no other way. And that’s something that Singaporeans want because the average Singaporean does not want to coast along at the present standard of living. They do want further improvement and they want their children especially to have a better life than them. And I think that optimism is a great part of Singapore. The fact that we are still an optimistic society and we still expect our children to do better than us, I think it's a very important part of Singapore and we shouldn't lose that. So, it is a pragmatic, left-of-centre Government, focused especially on those who need help the most - which is the low-income group and the elderly - but has to make sure that we keep this ship moving in what can be quite rough seas because that's what will determine the lives of the majority, including the middle-income group. Make sure that we stay competitive.
ST: Could we move on to a question on the Wage Credit Scheme? It was a centrepiece of the recent Budget. What has been the feedback so far on how it's being rolled out?
A: The Wage Credit Scheme is by itself not intended to achieve wonders. It isn't going to automatically raise productivity. Why did we have a Wage Credit Scheme? It's first and foremost because we are taking money out of the system through the foreign worker levies, in fact increased foreign worker levies, so it's a significant source of revenue out of the system and we want to put back. In fact, we are committed to put the entire addition in foreign worker levies back in the system. How to put it back? Corporate income tax rebates was one way. That helps the larger firms much more than the smaller firms. So we're putting it back in ways that support productivity - through the PIC (Productivity and Innovation Credit), through other productivity grants, as well as through the Wage Credit Scheme so that businesses are incentivised to share productivity gains with workers.
But we recognise improving productivity will take some time, but in the meantime, businesses do have a very tight labour market to contend with, and wages are likely to go up together with other business costs. So there is a time gap, a time gap between the time productivity is able to come up forcefully enough and when costs go up - which is immediate. So we're helping businesses through this transition so they can persevere with productivity improvements, but in the meantime, get Government sharing in some of the burden of costs. That's the basic logic. Put the money back in a way that doesn't just benefit the big boys but the SMEs. Second, reward anything that has to do with productivity improvements but recognise that there's going to be a gap in time before SMEs can raise productivity. And in the meantime, let's help them with their cost increases. And the Wage Credit Scheme is a very simple, automatic way in which we can flow back foreign worker levy revenues to our SME base.
ST: May I perhaps end with a personal question? You've been in politics for 12 years. What has given you the most satisfaction? And on a personal note as well, people who've worked with you have described how you are extremely hardworking and very committed to what you do, often putting in very late nights. What makes you tick?
A: First of all, you have got to enjoy your work. And politics is not something you should be in unless you really want to do it and you enjoy it. You must enjoy meeting people, you must enjoy listening to people and you must find it very meaningful to help them through small and big problems. If you treat it as a chore, you'd better not be in politics. Then everything becomes business. Everything becomes time being spent. Whereas if you see that as your core purpose, then time is not important. It's all about how can I do it together with my volunteers and the others who are helping out on the ground? How can we best do it? And getting satisfaction for the person you're trying to help is I think a very important part of what keeps our political system responsive. One good thing is we inherited the British parliamentary system - where to be a minister you have to be an MP in a local ward. It's a very useful discipline because when you think of policy, you're instructed by all the realities that you know on the ground. Whereas if you have systems like in many other parts of the world, where you just appoint ministers based on their professional capabilities and qualifications, I think you lose something.
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