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You’ll be dead before you can spend it! Singaporeans enter the 20th year of unnecessary, self -imposed austerity.

Watching the Euro-zone unravel has so far almost been like a moral fable for Singaporeans.   Be honest! Who out there isn’t feeling a sense of Schadenfreude? The original Greek or Irish problem on the periphery of Europe and investor flight from European sovereign debt has spread via Spain and Portugal, to Italy and even France, Austria, the Netherlands and Finland.

This moral fable could be said to illustrate the dangers of profligate governments who have bought electoral popularity with populist policies and high levels of welfare spending and are now paying the price.  As an economist I would say that the only certain moral to this story is, ‘beware the folly of entering a currency union without a fiscal union’.  The rest is open to debate.

In a desperate attempt to stave off default and unlock emergency funding from the ECB and latterly the IMF, those beleaguered states have agreed to scale back their generous social welfare programmes, increase existing taxes and impose new taxes. All of this results in an externally imposed, endless round of “austerity” budgets. As I write it is not only the financial axe that is being wielded.  The Euro-zone governments are discussing a solution which will essentially involve a loss of political and economic sovereignty by the countries facing insolvency.  This prompted one friend to say that the Germans, by having the most competitive exchange rate when entering the Euro (coupled with a high level of productivity and skilled labour) have achieved a mastery over Europe where Hitler failed.

However, the solution being imposed on the weaker economies would be likely to condemn them to years of lost output and slow growth as compared with higher levels of output and employment in the stronger countries. Without a true political union, which is unlikely to be acceptable to the richer Euro-zone countries such as Germany, it is difficult to see how the currency union can survive longer term.

According to the popular logic of the anti-populists such policies as free health care, free education and old age pensions, lead to a lazy workforce that demands uncompetitive levels of wages.  Thankfully for us our wise government has never fallen for the easy route of giving the people what they want (or need or deserve). On the contrary they have ensured that Singaporeans have been kept on an austerity diet almost since independence.   Pity the struggling European economies but don’t forget to look in your own backyard when you shed a tear.

We have very little welfare spending (except the ‘ give-aways’ at election time when the government throws around money away in an untargeted manner) and one of the lowest expenditures as a proportion of GDP in the developed world on education and health.  Let me repeat that.  One of the lowest public expenditures as a proportion of GDP in the developed world on education and health.   As we know the expenditure in terms of private money coming from your own pocket is very high indeed with exam success being directly correlated to expenditure on tuition. In Singapore we are proud to have developed a world class system of ‘hire ‘education. As well as the private financial burden we have the devastating personal social costs of long term medication and care required for old age, cancer, chronic illness or disabilities both physical and mental.

Despite the government’s harping on how this has resulted in low taxes for median-income Singaporeans compared with Europeans, these income groups are not really any better off. Europeans generally receive free health care and completely free education -which is mostly compulsory up to the age of 16. (a vital child protection safeguard).  Singaporeans have to pay for medical care with Medisave and Medishield and are often forced to top this up or go without treatment because of gaps in coverage or inadequate savings.  We also work up to 50% longer hours to achieve living standards on a par with the less affluent Euro-zone countries.

The end result of this scrimping and saving is familiar to all. The Government has run huge and persistent surpluses as a proportion of GDP(between 5% and10% of GDP though in 2007 it was considerably higher than this) for over twenty years. This includes revenues and receipts from current and past reserves as well as revenues from land sales and capital receipts. I believe it is misleading to exclude these revenues and receipts from the Budget.  The Government further disguises its exceedingly comfortable fiscal position by using an accounting convention of subtracting both current and development expenditure from current revenues. It then adds back only (at most) 50% of the revenues from the Sovereign Wealth Funds, Temasek and GIC.  Our Opposition needs to demand a proper accounting

The high levels of government saving are partly responsible for a current account surplus of over 20% of GDP. Because the MAS intervenes to prevent the Singapore $ rising too far, this is reflected in the growing holdings of official reserves and the overseas assets held by our Sovereign Wealth Funds, Temasek and GIC.  It is true that Singapore has avoided a situation where the Government has had to issue foreign currency debt and in fact has a substantial net asset position (particularly when its ownership of 80% of the land is included!). The benefit is that we have avoided the problems of the Euro-zone where the deficit countries are being forced to cut back on spending and raise taxes.

But is this a good thing and does it make our government fiscally wise? In a way that is like saying that a starving man has avoided having a starvation diet imposed on him by voluntarily deciding to impose it on himself first.   Some of you will be acutely aware that those holding the food supplies make sure they themselves have a very rich diet. The wonder is that whilst they earn  millions of dollars for cabinet roles you agree to tighten your belts, take on extra work, move dad into the corridor, rent out your rooms and die slowly without the dignity of care and medication.  If you are still feeling smug bear this in mind. Even with cutbacks the countries embracing austerity programmes will still have almost free public health and education while Singaporeans do not.

There is really no justification for the continual accumulation of reserves and government surpluses once these have reached a level sufficient to provide for a serious crisis. Our Government passed this level some years back but continues to insist on its necessity. Meanwhile CPF holders are being forced to take unilateral changes in the terms on which they can get their money back. This is despite the low returns on  CPF savings having been one of the major contributors to the growth in overseas assets. The present generation of Singaporeans has been robbed, supposedly to pay for a future generation of Singaporeans, despite accelerating technological change and productivity growth making all but certain that future generations will be much richer than the present one.

The big question is will we even benefit from our enormous overseas assets? I believe we are fooling ourselves if we think that by actually saving all this money we will get to spend it or that our children will.  GIC, Temasek and MAS have yet to come clean on how much it has invested in Euro-zone sovereign debt and how much it stands to lose should there be a debt default in the worst case or just a restructuring.  As I said before, there is no-one in Parliament willing or able to demand an account.

Presently the countries that have run large current account deficits for many years, such as the US and many members of the Euro-zone, are acutely aware that the counterpart of their deficits is excessive saving in the surplus countries, mainly China but also Japan, Korea, Germany and of course Singapore. They know this prevents them from being able to achieve satisfactory levels of growth, output and employment. The Euro-zone has already turned to China and asked the Chinese Government to buy more Euro-zone debt. This has allegedly infuriated many ordinary Chinese who complain about how poor they are compared with the average European. Their anger should be directed at their government which has held down consumption and domestic living standards to create a level of reserves far higher than necessary. This has allowed a situation in which they now find themselves held hostage to the debtor nations. It is likely that our Government faces the same pressures from the EU to invest in bailing out the insolvent members of the Euro-zone.

It would be far better if our reserves were spent on benefiting Singaporeans in the first place rather than hijacked by political considerations.  That is why I have consistently called for a reduction in our general budget surplus, measured as widely as possible, to a much lower figure, say under 1% of GDP over the course of an economic cycle. The funds could be invested in basic improvements to Singaporeans’ health and education as well as cutting taxes.

I have also called for the privatization of Temasek and GIC with the distribution of shares to Singaporeans. If they are owned directly by the people then it will be more difficult for them to be held hostage to foreign political pressures.


  1. Free healthcare and education in Europe?

    Someone conveniently left out the value-added tax rates in these European nations. Someone is telling the half-truth. Someone is hoping that people are so angry with their lives, ready to blame the government for all their woes, and too lazy to look up the facts themselves.

    I wonder what kind of blow-back someone is going to get if Singaporeans are told they are going to have to pay an ultra-high GST rate, somewhere in the region of 25-30%.

    Be honest. Please. Even if the truth doesn’t get you many votes. I understand that telling people what they want to hear is a great temptation for all politicians but why not try getting elected based on the merit of your ideas and plans. If you do the right thing but Singaporeans decide to give their votes to those who spew sweet words it will be their own peril. If the half-truths, sweet-talking politicians get rewarded every election then Singapore is lost.

    Again – please don’t lower yourself to such standards.


    • I did not talk about raising taxes to pay for extra spending. I talked about the government’s extraordinary and unnecessary surpluses and the how we can cut taxes and invest in healthcare and education without going into debt. I do not understand how you jump from that to the notion that GST rates will have to be raised to 25-30%. In any case VAT rates in Europe are around 15-20% with many basic goods that take up a high proportion of the spending of the less well-off exempted so the effective rate is much lower. Singaporeans also pay unnecessarily high prices for housing of lower quality because of the government monopoly of land and pay a whole host of other indirect fees and taxes without receiving any benefit in terms of free healthcare and education. Perhaps you could be honest enough to reveal your identity so we can see where you are coming from. Some of your Twitter posts would seem to indicate a big interest in Indian domestic politics. Are you a new citizen who has been exempted from the NS tax (in terms of two years of lost earnings) that all Singaporeans have to pay?


  2. I see where you’re comin from but full disclosure will lead us to a situation like Germany, the richest nation in the eurozone. Everyone is looking to them to pick up the tab, at least the bulk of it. Their own economy is now suffering as well. We have to look long term, not for your old age, not even your children, but the children of your children.


  3. You are right, I will probably not live to see or benefit from my CPF savings. All this accumulation of reserves by the government is benefitting the PAP directly as they are in control of the Parliament and GIC etc. All their activities are funded by state funds, being the government. The Opposition must grow in numbers in parliament and oust PAP from power and give the money and control back to the people. Public-list the GIC and Temasek holdings. We, the people want the lion’s share of the reserves.


  4. hasalavista hey they are building so many condominium that make me feel sad what can we do
    I mean the one at the field yew tee cc and yew tee police post
    just check the number of condominium at this place

    also reduce diesel tax and reduce the 35 % surcharge to 15 %

    and reduce the service charge to 5 %
    and make sire end month the staff get the service charge
    with thanks jey


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