Thursday, March 27, 2008

Singapore's New Welfarism

ST March 22, 2008
WELFARE spending: Is it just about money?

Senior Political Correspondent -

A yawning income gap combined with what appears to be swelling government coffers
have turned the spotlight on whether Singapore is doing enough to help its poor and needy. In an Asia Research Institute seminar on Tuesday, three panellists debated the whys and wherefores of welfare policy.

POOR folk and rich government make for a disconcerting mix. Last year's Budget surplus of $6.45 billion and recent billion dollar purchases of overseas assets by the Government of Singapore Investment Corporation (GIC) and Temasek Holdings have led many to ask why the Government does not spend more to help people at home - not just the poor, but the middle class - cope with rising costs of living and slowing wage growth.

The questions have been asked by the man in the street, last month in Parliament, and most recently, on Tuesday at a seminar at the Asia Research Institute (ARI). 

Sociologist Chua Beng Huat, who teaches at the National University of Singapore (NUS), said it struck him that the problem of poverty here was not one of money, but 'entirely ideological'.

'We could easily institute a minimum standard-of-living condition and it wouldn't bankrupt us,' he declared.

Professor Chua was among a 60-strong crowd that gathered at the ARI office in Bukit Timah to hear from Trade and Industry Second Permanent Secretary Ravi Menon, NUS social work department senior fellow Ann Wee and Nanyang Technological University political science associate professor Ho Khai Leong.

He was picking up on a point made by Mr Menon, that the 'binding constraint' on expanding welfare spending is its impact on society's values, rather than the immediate financial consequences.

Prof Chua had asked why, if the Government could afford to do more for the poorest 10 to 15 per cent of families, it was not doing so?

Heart of the matter

A LITTLE-KNOWN fact about welfare spending is that in many developed countries, the bulk of it goes to fund middle-class entitlements, not aid for the really poor.

The United States Budget is one example, as cited in an article by economics writer Robert Samuelson.

In 2006, its two most expensive items were Social Security (US$544 billion) and Medicare (US$374 billion), which pay out pensions and medical insurance, respectively, to all Americans, regardless of their income.

By comparison, welfare spending on the poor in the form of Medicaid, for their medical bills, cost US$181 billion; other payments such as food stamps and earned income-tax credit - a bit like Singapore's Workfare - cost a total of US$199 billion.  
It is hardly surprising then that as economists in advanced, industrialised countries watch welfare expenditures balloon, some have started calling for a roll-back of middle-class entitlements.

In a recent comment piece in The Australian newspaper, for instance, Melbourne Business School professorial fellow Paul Kerin described middle-class welfare as 'obscene' and said they have become 'an obstacle to sensible spending cuts'.

At the ARI roundtable discussion, Mr Menon noted that such developments are the result of electoral politics.

He chairs the Economic and Social Research Network (ESRN), an informal group of individuals from the public sector and academia who meet monthly over lunch to discuss economic or social studies.

The results of their discussions feed into relevant inter-agency government committees.

'The middle class is your largest vote bank and they exert pressure on the Government to extend to them assistance and subsidies initially targeted at the poor,' he said.

'In theory, it should be possible for governments to target social assistance only at the really poor, but this is difficult to achieve in practice, and this is why many assistance programmes in the West have grown so much,' he added.

There are also practical reasons why programmes cover more than the intended target group. He cited as an example, the Workfare Income Supplement scheme introduced last year to help older, low-wage workers.

It was originally intended for only the bottom 20 per cent of wage earners, which meant the cut-off to qualify for Workfare benefits should have been a monthly income of $1,200.

But that would have left the worker whose earnings go up by just $10 above $1,200 facing a sharp drop in benefits.

The withdrawal of Workfare benefits thus had to be scaled down gradually. So the programme was expanded to include those who earn up to $1,500 a month, that is, the bottom 30 per cent of workers.

In that sense, the Government's worry that if it gives an inch on welfare, it will be taken for a mile is 'not ideological', Mr Menon said in response to Prof Chua, but stems from practical considerations.

At the same time, the Singapore approach to welfare is based on an underlying assumption about human behaviour, Mr Menon said.

At its heart is a belief that extensive and generous provision of services at little or no cost by the Government risks engendering a crutch mentality among the low-income group, and an entitlement mentality among the middle class.

And there is evidence to suggest that the latter risk, at least, is 'not a trivial one'.

For instance, the middle class has put up the strongest resistance to means testing for health-care services, he noted.

The Government errs on the side of caution in social provision, Mr Menon said, because it fears sliding down the slippery slope towards ever-more subsidies and entitlements, as countries in the West have.

'We could probably make a case to upgrade some of our assistance schemes to arrive at what might seem a more optimal position, but the optimal position is unlikely to be a stable one,' he suggested.

'The optimal position may be on the slope, and it's going to be very difficult to stand on the slope. So the tendency has been to take a cautious and calibrated approach and to under-shoot, rather than get to what you might think is the optimal position, and (find that) you can't hold that ground,' he added.

As for the question that many have asked, on whether Singapore can afford more generous and extensive welfare provisions, Mr Menon said: 'I think we probably can.'

But that is not the key consideration, he stressed.

What matters more to the Government is how to design social assistance schemes, subsidies and incentives in a way that preserves the desired core social values - that is, a strong work ethic, personal responsibility, and the family as the first line of support.

He said: 'Even if we can afford to double the amount of Workfare payments to individuals, is it a good thing to do? Is it the right thing to do?

'What does it mean for a person's sense of self-worth and dignity? What does it mean for the work ethic? What does it mean for the family?

'I think these are the larger considerations in assessing whether to expand these programmes.'

At what cost to society?

IN THE Singapore approach, the Central Provident Fund (CPF) is the chief mechanism that tries to ensure individuals have sufficient savings for their old age.

But as this is self-funded - that is, funds come from individuals themselves rather than taxpayers - it means that those who earn very little for most of their lives will end up with a shortfall in retirement savings.
At the ARI seminar, a political science undergraduate suggested that left to itself, the current CPF system could exacerbate the growing income gap. He wanted to know if a rethink of the CPF was on the cards.

The CPF is what is known as a defined-contribution social security scheme. CPF members can draw out only what they have put in, so those on lower incomes naturally end up with less for old age.

It is unlike tax-funded defined- benefit schemes found in most countries in the West, which provide all pensioners with same-size payouts. This helps to keep the income gap in check.

Panellist Ann Wee, former head of the NUS department of social work, said that notwithstanding the new annuities scheme that will pay out a monthly income for life to all participating CPF members, there will still be strains on the lower-income.

She said: 'Adequate income in old age means, for most people, in addition to CPF benefits, a combination of personal savings, extended working life, possible liquidisation of fixed assets and family support.

'For the mainstream middle class, this is probably a workable combination, but many will fail in one or more of these components.'
Families have traditionally stepped in to provide for the elderly poor, but Mrs Wee warned that such arrangements might become increasingly unsustainable.

She said: 'As families grow smaller, and as longevity increases the number of four-generation families, the stresses on this source of assistance are at risk of becoming unbearable.'
On the CPF, Mr Menon said its problems are easier to fix than those of defined-benefit pension schemes, which are fiscally unsustainable in the longer run.

Measures that the Government now has in place to boost the old-age savings of the low-income include periodic top-ups to their CPF accounts, as well as higher interest rates on their CPF savings.

There is also a plethora of help schemes for the poor, ranging from education grants and rebates on utilities bills to virtually free medical care.

These measures have prompted some commentators to suggest that Singapore is already a welfare state, but detractors argue they are insufficient.

Mr Menon, however, noted that efforts to improve or expand social assistance should be driven not by a desire to reduce inequality, but more to preserve inter-generational mobility.

The concerns raised during the ARI seminar are but a foretaste of the challenges that loom ahead for Singapore society.

Unrelenting global economic forces, combined with changes in demographic trends, will leave in their wake new levels of affluence for some, and relative deprivation for others.

Going forward, one of the Government's biggest challenges will be to maintain the political consensus on those values that it considers essential to Singapore's continued survival and success: a strong work ethos, personal responsibility and families that care for their own in times of need.

The pressure to increase spending to ensure the welfare of both the poor and middle class will no doubt grow, as it has done in developed countries over the past few decades.

The Government will thus have not one question to tackle but two. In addition to the fiscal one of whether Singapore can afford a welfare state, is the political one: Can it afford not to have a welfare state, or at least components of one?

Finding the correct balance between these two is the toughest test of good governance.

March 21, 2008

's new welfarism: 'Give it to them'

By Chua Mui Hoong, Senior Writer

THERE is a new disease in town and it is called new welfarism.

At least, that's the term I like to use.

The phenomenon crept in over the last few years. It became more manifest this year, in the wake of grumbles that the Government didn't distribute a larger part of the $6.45 billion Budget surplus.

The 'gimme my share' mentality disturbed Senior Minister Goh Chok Tong and Prime Minister Lee Hsien Loong.

Last week, PM Lee noted that 'the assumption which some people had is that we are now rich and we can afford to spend more'.

'This is a very dangerous way of thinking and it worries me a lot. We are here, strong, because we have saved and been frugal and haven't just thrown money away,' he said.

The People's Action Party (PAP) Government has always shied away from the 'S' and 'W' words, arguing that excessive Subsidies lead to a Welfare state that erodes the work ethic.

That message has been hammered home by the first generation of political leaders, internalised by the second and is now being transmitted to the third.

It has become an article of faith for many, including Singaporeans outside the Government, who applaud the PAP's hard-headed fiscal stance.

This can be summed up, crudely, as: Make a lot of money, save a lot, spend enough to get by - and stash the rest for a rainy day. Common sense tells us that's a smart approach even for our personal finances.

The PAP's traditional argument against welfarism warns that giving away too much subsidies can lead to a 'crutch mentality' and reduce the incentive to work.

You could say that this argument springs from a fear that the low income and indigent poor can become used to handouts. In other words, the lower-income is viewed as the segment most likely to pressure for more handouts.

But in recent years, loud calls to spend more have come from a broader swathe of society.

These days, it is the middle class and the upper middle class who pose the greatest challenge to the 'save a lot, spend little' ethos.

First, the middle-income group, which I define roughly as those from the 30th to 70th percentile in household incomes, or households earning $4,000 to $7,000 a month.

In March 2001, I wrote in a commentary that Singapore was in danger of becoming a welfare state for the middle class in all but name. This was after the Government said state funds would be used to upgrade private housing estates, and gave utilities rebates to those living in Housing Board five-room flats, not just those in smaller flats.

A large segment of the population enjoys and has come to expect subsidies in everything from public housing and health care to education, and state handouts to cope with rising costs.

Not surprisingly, the middle class is developing a sense of entitlement to subsidies.

In fact, the PAP Government has been sympathetic to middle income households' concerns. The last two years' Budget statements explicitly said giveaways and relief measures were slanted towards both the low- and middle-income households.

During the recent Budget debate, one MP spoke about young couples earning above $8,000 who felt cheated out of their share of public-housing subsidy.

Older PAP MPs and ministers would have, rightly, castigated such thinking as reflecting a selfish sense of entitlement among the privileged, considering that $8,000 a month would catapult the couple straight into the upper-income category.

But this young MP raised the issue in Parliament because he sympathised with them - which made me wonder just how the PAP is communicating its ethos of fiscal discipline to new MPs within its own ranks.

A few years ago, another PAP MP suggested in Parliament that it was unreasonable to expect middle-class families to give up ballet and enrichment classes for the kids just because the parents had lost their jobs.

This remark appalled me then, and now, as it epitomises the depth of the sentiment in some quarters that the state owes every Singaporean family a cushy middle-class life.

It is clearly not only the lower income who may get addicted to subsidies; the middle-income too are susceptible.

Lest anyone think I'm an anti-subsidy arch capitalist, let me state my own view clearly. I think more can be done for the bottom 20 per cent, especially children from such households. Some middle income families need help, especially if they have elderly or sick dependants, or both.

But I am not in favour of extending comprehensive social safety nets, like income support, to cover the median earner. Otherwise, this is tantamount to saying that Singapore should subsidise the daily needs of half its population!

While the middle-income - especially those at the margins of subsidy schemes - adopt a 'gimme also' attitude, the upper middle class, meanwhile, is in danger of letting its soft heart run awry.

The argument I have encountered from people I talk to, some of whom are my good friends despite our different social leanings, goes something like this: Singapore has hundreds of billions in reserves. It can afford to be much more generous to the bottom 20, 30 per cent, so they don't have to struggle so much. Singapore is a First World country - we should not have people who have to scrimp and save and struggle for daily needs!

When I hear such views, I think: Classic upper-middle-class liberal guilt.

'Liberal guilt' refers to the guilty feelings among the haves when they encounter the deprivations of the have-nots. Being fundamentally decent people, they would like to remove the struggles of the masses.

I overstate their argument somewhat by summarising it this way. But with respect to such thinking, I would say that such fine feelings can motivate private charity, but would form a poor basis for running a government.

To sum up, I would say the PAP has been right in fearing a 'crutch mentality' among the low-income.

Now, it has to face the creeping threat to fiscal discipline issuing from a more insidious source: middle-class voters with their 'gimme also' mentality and the upper-income with their 'give it to them' sentiment arising from misplaced liberal guilt.

Especially when such views find sympathetic hearing, and parliamentary airing, from its own MPs.

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