Sunday, June 15, 2014

The perils of please-all economics

Jun 14, 2014

By Andy Mukherjee

SINGAPORE is confronting the perils of please-all economics. Ageing citizens are pushing the Government for bigger nest eggs and more subsidised health care and housing. There is also popular resentment against letting more foreigners in, and not much appetite for increasing the 7 per cent consumption tax. Squaring this fiscal circle will be a long-term challenge.

Already, there's simmering anger in the city-state about overcrowded trains and costly public housing. About 2,000 people gathered recently to demand that the state-run retirement plan raise its 4 per cent annual interest rate.

People protested last year, too, when the Government unveiled a plan to boost the resident population by 30 per cent to 6.9 million by 2030, with immigration compensating for a drooping birth rate.

[And this is evidence that the Govt had not communicated their White Paper correctly. Or that even journalists/columnists are just taking things at face value. A proper reading of the White Paper is not the the Govt PLANS to increase the population to 6.9m, but that the govt is planning for the day when the population hits 6.9m; that the trend is that eventually, there will be 6.9m people in Singapore because that is what the natural pull of vacancies will lead to.

No difference, you say?

Planning for the possibility of 6.9m people means ensuring that there is enough housing for 6.9m people, that there is sufficient transport infrastructure to support 6.9m people, and that there is adequate health and human services to meet the needs for 6.9m people.

And you might say, if the Govt did not plan for this, how is it that they are now able to prevent it? They are implementing policies that would slow if not reduce inflows of foreigners.

Yes, the govt can do that. By erecting artificial barriers or putting policies in place to prevent inflows of foreigners, and taking steps to reduce the need for foreign workers. BUT this means postponing some projects (e.g. some govt development projects), imposing stricter quotas and caps on foreigners, and tightening approvals for Foreign workers. 

This has led to some difficulties for businesses in SG. 

It has stifled some development, but SC have said that this is what they wanted.]

The multifaceted discontent puts Singapore's fiscally conservative Government in a quandary.

Expanding the economy - and the tax base - with less foreign labour will mean improving the productivity of the local workforce. That's a long shot.

Another way to pay for everything people want is to tax companies more heavily. But Singapore's business costs are already quite high. A third strategy could be for the city-state to try to earn more on its substantial sovereign wealth by buying riskier assets. That could backfire, leaving less money for welfare.

Alternatively, the Government could skimp on investing. The outlay on the city's development budget in the most recent five- year period has jumped by a third.

Slowing the pace might be a mistake, however. Pricey real estate would swoon if Singapore loses its urban buzz and stops attracting investors and tourists. That will make Singapore's property- loving citizens less wealthy and more miserable. The trade-offs are difficult. But Singapore has some advantages.

Rival Hong Kong is facing an existential threat as China tightens its grip on the former British colony and boosts alternatives like Shanghai. By contrast, Singapore offers investors proximity to India and Indonesia, neither of which will boast a global city soon.

For all the grumbling, the majority of Singaporeans are too pragmatic to opt for unbridled welfarism at the next elections, which will take place by 2016.

Still, please-all economics is scratching at the door. If it finds a way in, prosperity could be in jeopardy.

Andy Mukherjee is a columnist with Reuters BreakingViews.

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