Recently an article by Financial Times columnist Martin Wolf drew attention to what he characterised as the UK’s fundamental economic problem: a low savings rate as a proportion of GDP which meant that even the relatively investment rate, compared to countries like Germany, France, the US and especially South Korea, had to be financed by borrowing from abroad. Wolf then suggested the UK should emulate Singapore and adopt policies designed to raise savings. He praised Singapore’s CPF scheme of forced saving and contrasted the 17% Employer contribution with the average 8% paid by UK employers. He cited Singapore’s huge current account surplus of 17.5% of GDP as a model for the UK.

Needless to say, I found his article both ignorant of Singapore and deeply nonsensical to anyone who had imbibed the Keynesian lessons of the last sixty years. Increasing saving, whether by the private or the government sector is likely to lead to a fall in GDP and thus be self-defeating in the absence of an increase in investment or exports. Singapore’s high current account surplus is a sign of its low consumption and its dependence on external demand. The Government also runs a huge surplus, though it attempts, not very successfully, to disguise this in the Budget by tricking Singaporeans into believing that any surplus coming from earnings on what it designates as Past Reseves cannot be touched. CPF forced savings and huge government surpluses mean that domestic consumption is abnormally low, less than 40% of GDP as compared to a more normal level of around 70% for the US. It also makes Singapore’s economy overly dependent on external demand so that any drop in world trade is magnified.

Wolf claims that this is good because higher investment leads to higher productivity growth. However this has not been the case for Singapore as its record on productivity growth has in general been mediocre. While the PAP likes to mislead, and global pundits fall over themselves in their eagerness to be misled, by pointing to GDP per capita, this is a misleading measure because of Singapore’s low dependency ratio (because of its enormous foreign work force and its very high number of hours worked compared to other developed countries). Output per hour worked is more towards the median of developed countries and that is even before taking account of the fact that Singapore is a city and thus should be compared with other global cities which would have generally higher productivity levels than their hinterlands or rural areas. Certainly Singapore has not really closed the productivity gap with the US over the last twenty years despite its much higher levels of investment.

In addition Singapore only gets away with running such a huge current account surplus because of the relatively small size of its economy. Other countries, mainly Asian such as China, Japan, South Korea and Taiwan but also Germany and the EU, favour running trade surpluses because they are still influenced by mercantilist policies of reserve accumulation and favouring domestic producers over their consumers. If Singapore’s economy was the sixe of Germany’s it would attract a lot of American pressure to expand domestic demand or let its currency appreciate and reduce its surplus . Singapore would perhaps get more pressure but the PAP buy a lot of American armaments, probably just in order to defuse US anger. Having a low level of imports and a big surplus should not be a sign of virility but instead a stunte

In the Budget Lawrence Wong took steps to increase forced savings. He boosted subsidies for HDB purchases, which is a self-defeating move since the Government controls the supply of new flats. Higher subsidies in general just serve to push up resale prices which increases the value of land which the Government sells to HDB. Rising land costs for HDB allows the Finance Minister to divert more of the Budget revenues into the reserves where they disappear and cannot be touched without Presidential approval. It also allows the PAP to make the farcical claim that they are subsidising Singaporean home ownership.

But Lawrence Wong also boosted savings directly by raising the cap on CPF contributions to $8,000 a month from $6,000. He did not produce any estimate of how much this would increase CPF balances but it is sure to be several billion dollars a year. CPF balances used for housing purchases serve the same purpose as the Government’s housing subsidies since the major portion of house purchases is the land cost which goes directly to the reserves. Again limited supply of housing due to the Government’s monopoly means that most of the additional funds will boost land prices and thus the reserves. Even if the additional CPF balances do not go to housing they end up being lent by CPF to the Government which gives them to GIC.

On state media’s propaganda programme last Friday, Ask the Finance Minister, Wong made the increase in CPF look entirely reasonable. According. to CNA, Wong said he understood why the raised CPF salary ceiling is a concern for employers and individuals. 

“But we also need to look at the long term. Retirement adequacy is a very important issue and if we don’t start building up for our retirement, we are storing up more problems for ourselves and for society,” he added. 

“And really the CPF salary ceiling ought to be keeping pace with inflation. That’s the right way to think about this. It can’t be that we set the salary ceiling at S$6,000 and forever it doesn’t change.” 

This is the usual PAP mixture of what sound like obvious and innocuous truisms that no one can disagree with but are in reality both mendacious and disingenuous. Because of LHL’s and the Government’s wish to extract surpluses from Singaporeans that they can control and use to maintain themselves in power and enrich themselves at the same time, coupled with an economically nonsensical attraction to mercantilist policies which say consumption is bad and exports are good, we save far too much as a country. It is not normal or a signifier of a nation’s virility to drive consumption below 40% of GDP and run a current account surplus of nearly 20%. It just means that Singaporeans are much pooer than citizens of other countries with much lower levels of GDP per capita. I have written about this extensively (see here and here).

Retirement adequacy is a real issue for Singaporeans. But PAP do not really want to solve it. LHL wants to keep extracting money from you through higher HDB prices, CPF deductions and regressive indirect taxes like GST and diverting it into Temasek and GIC in a carefully camouflaged manner that he hopes will not arouse your suspicions. At least he hoped not to until I started exposing the PAP Government’ s budgetary tricks (see here, here and here). Instead with consumption already less than 40% of GDP Lawrence Wong wants to force you to save more.

Raising the CPF cap also tilts the playing field further in favour of foreigners on Employment Passes, who already benefit, if male, from not having to do NS and who collectively are fast-tracked to citizenship while the Government frequently allows their children to study in Singapore and also escape NS despite their parents having benefited from low taxes and cheap domestic slave labour. The cost of employing a Singaporean earning $8,000 per month is 17% higher than a so-called FT. It is an economic fallacy to think that employers will bear the full cost of the employers’ increased contribution. Employers may absorb some of the additional cost but they will substitute cheaper foreigners and cut the pay of Singaporeans as well. As workers in Singapore are not in a strong bargaining position, again courtesy of the PAP, the increased CPF is likely to be absorbed more by the workers than by employers. This suits the PAP Government just fine because they prefer to employ foreigners who mostly are not able to vote and if they become citizens are more likely to vote for them.

Singaporeans should not accept Lawrence Wong’s hogwash. Curing retirement adequacy does not have to mean imposing new burdens on long suffering Singaporeans. What we need to ensure is that the likely $2.6-3.6 trillion in reserves start producing a real dividend rather than the fake Net Investment Returns Contribution. An annual dividend of between 2% and 4% of this amount should yield extra spending of at least $50 billion-144 billion a year. This would be enough to pay for free health care for citizens, generous child benefit and old age pensions and free university education. Even a Universal Basic Income should be possible. At the moment money only seems to go in to our reserves but never comes out, like a black hole. Don’t be fobbed off by the PAP Government’s lies! Force Lawrence Wong and his master to explain why Singapore is in a tight fiscal situation and where the money has gone!

Published by kjeyaretnam

I'm a Singaporean economist who became an opposition activist. I blog to provide an alternative to the porkies that the Pinkies tell. It just so happens that my alternative is the truth. That's why I've never been sued in any civil or criminal court no matter how hard hitting my criticism. I'm quoted and interviewed and asked to speak across the world but largely censored in Singapore in an effort to silence my political opinions. The left hate me because they think I split their vote and because I eschew their outmoded economic models. Models that don't work. The Right and the Conservatives hate me because I'm a liberal. I'm not sure what the middle think of me. I don't think there are more than a handful of people in the middle, here in Singapore. I'm a Singaporean born and bred, dual heritage, my parents Singaporean established here before the State of Singapore was created. I'm not Eurasian. I read economics at Cambridge and could be broadly described as from the Keynesian school but I believe in interventions. I was formerly a successful hedge fund manager. After economics and politics my greatest interests are history, film and Makan. I run but I run so I can eat like a Singaporean. View all posts by kjeyaretnam