GDP growth & the living standards of average Singaporean

By Kenneth Jeyaretnam

Singapore’s per capita GDP is one of the highest in the world but at the same time Freedom House rates Singapore as near the bottom of the partially free countries with a score of 4 (where 1 is most free) for civil liberties and 5 for political rights. However what is noteworthy is that Singapore appears to be an outlier. If we look at the top twenty countries by nominal GDP in 2008 as measured by the IMF, World Bank and CIA, we find that between 85% and 95% of the countries on the list rated between 1 and 1.5 for the combined average rating for political rights and civil liberties. The countries that did not fall into the category of free states were all oil exporters with low populations such as Qatar and Kuwait (though Kuwait rates as slightly freer than Singapore). You can argue about the direction of causation. However also consider that Singapore finds itself in the company of some of the world’s poorest countries in its ranking in the Freedom House Index. These include Pakistan, Nigeria, Haiti, Uganda and the Central African Republic.

Now Iet’s examine the quality of Singapore’s per capita GDP. Using the Yearbook of Statistics, 2009, I computed that the share of GDP going to foreigners in 2008 was approximately 45%. If we divide indigenous GDP by the total Singapore residential population of approximately 3.6 million we arrive at a figure of approximately SGD 38,000 or USD 27,400 at average 2008 exchange rates. This would push Singapore’s ranking in the charts down from around 22 on average to between 25 and 30, about the same level as Israel and below Hong Kong. This accords more with the fact that employment income’s share of GDP is only some 40% and domestic consumption (which is a good proxy for employment income) is about the same level.  And our inequality of income is the second highest in the world (behind only Hong Kong) and ahead of both the United States and China, both of which have huge regional variations.  According to a UBS survey recently the living standard of the median Singaporean lagged behind his counterpart in South Korea, Taiwan, Japan and Hong Kong. After adjusting for the differing costs of a similar basket of goods, his income was only on a par with a Malaysian worker. In recent years our GDP growth rate has been high but this has mainly been achieved by adding more inputs of capital and labour (from abroad) rather than by raising productivity which stagnated in 2007 and declined sharply in 2008 and 2009.

The current government’s economic model appears to be one of maximising GDP growth at all costs without paying attention to the question of whether this is raising the living standards of the average Singaporean or the effect it is having on the quality of life.

Now you might have listened to this and say it is all very well to criticise but how would the Reform Party make a difference? Given Singapore’s peculiar set of economic circumstances what choice did we have? Could we do better? I would like to respond by outlining a number of policy areas in which we would advocate a different path. We believe this would lead to better outcomes for the bulk of ordinary Singaporeans. The Reform Party is a liberal free market party and that our openness to foreign investment and trade would not change. Singapore’s small size and lack of natural resources militates against anything else. In certain areas we believe in less state control not more. The Reform Party would, if elected to power, adopt the following policies:

Invest More in Education
The government currently spends only around 2.8% of GDP on education which is one of the lowest in the world. By comparison Sweden spent some 8% of Gross National Income in 2005 and the UK and the US both spent over 5% of GDP. Even Malaysia spent considerably more.  An illuminating statistic that I read recently in the IHT was that we only spend about one-third per pupil of what Japan spends on primary education despite having slightly higher GDP per capita levels. In fact the reason Singapore performs reasonably well in international comparisons of exam scores is probably due to the fact that parents are forced to “top-up” their children’s’ education with private tutors and that children with disabilities are effectively excluded from school. The Reform Party would raise education spending, make education universal, free and compulsory up to secondary level. We would also look to broaden access to and improve the quality of tertiary education here so that more of the population can study here without having to go abroad which contributes to the brain drain. How we can afford to do this? My answer is firstly that we cannot afford not to if we are not to become ever more dependent on importing human capital from abroad. Savings can be found by reducing wasteful and unnecessary expenditure in other areas such as defence. Government saving can also be reduced given the excessive accumulation of unproductive overseas assets. A better educated domestic workforce should in time increase the tax base as many foreign workers at the top end may have ways of avoiding even Singapore’s relatively low levels of tax.

Minimum Wage
The Reform Party believes that Singapore will always need some foreign workers because the local labour pool is small. However a minimum wage will prevent our less well-off workers from being undercut by cheaper foreign labour from abroad and force our employers to use labour more productively

A Rational Immigration Policy
There must be a reassessment of whether it makes sense to continue to have such a liberal immigration regime which has seen Singapore’s population rise by over 60% in the last 20 years. If you take the current government’s argument that we need more foreign workers to counteract an aging population to their logical conclusion then there is theoretically no limit to the size of our population since in time the new residents will also age and their fertility levels will drop. Most of the workers admitted are not those with special skills but semi-skilled mid-level workers who compete directly with Singaporeans for jobs. Also foreign students now comprise up to 20% of the student population at our tertiary institutions. These students benefit from the tuition grant and then are allowed to work here and quickly acquire citizenship without doing NS. This is extremely inequitable and corrodes our national identity. The Reform Party favours a points-based system where only highly-skilled migrants would be admitted. Employers would be required to show that they could not find Singaporeans to fill vacancies before they were allowed to employ foreign workers.

Reform of CPF
The Reform Party would like to see more control over what proportion of their income Singaporeans wish to save. It would do this by earmarking a certain percentage of total CPF to provide:

A Basic National Health Insurance Scheme
Those in private or employer schemes could keep their current insurance and perhaps receive a tax deduction on the cost of their scheme if they opted out of the public health insurance option.

A Basic Pension
Unlike the CPF Life Scheme the Reform Party’s scheme would pay everyone a basic lifelong pension from the age of 65 provided they had worked in Singapore and contributed to CPF for a certain number of years.

After funding these two requirements Singaporeans should be free to choose what proportion of their income they want to put into CPF and where they wish to invest it. Singaporeans could continue to use CPF to finance their property purchases. They should be able to withdraw their excess contributions but at the cost of losing the tax benefit.

It has been pointed out that Singapore’s high ranking in indices for economic freedom, such as the one compiled by the Heritage Foundation, are misleading because they fail to take account of Singapore’s forced savings scheme as well as the dominant role of the state sector.

HDB Affordability
The Reform Party would examine public housing could be made more affordable by greater competition in its provision. We would also review the government’s role as the biggest owner of land in Singapore and its pricing policies for land sales. In addition we would end the current restrictions on minority owners of HDB properties not being able to sell them except to a minority buyer which has led to a two-tier market. This has disadvantaged minorities who often can only sell their flats for a lower price than the market price.

Privatization of the State Sector
The Reform Party believes that no vital national or strategic interest is served by the government continuing to hold majority stakes in most of the top Singapore companies. Most of these companies are mature and can stand on their own two feet. It would seek to sell them off directly and to privatize Temasek, and possibly GIC, by listing its shares on the stock market and distributing the shares free to Singaporeans.

Reduction of Taxes and Fees on the Less Well-Off
As part of its drive to increase domestic consumption the Reform Party would cut taxes and fees that have a disproportionate impact on the less well-off, such as GST. It would examine whether HDB conservancy charges and other fees were excessive and whether efficiencies could be introduced.

Restoration of Fundamental Rights
Whilst intangible, there is plenty of empirical evidence that political and civil liberalization is a spur to economic growth. I have cited earlier the correlation between GDP per capita and countries’ ranking in the Freedom House index. Undoubtedly one of the reasons this is so is because creativity and originality of thought are both dependent on being able to voice dissenting opinions and to criticise. Also without criticism and freedom of information government mistakes are not discovered and bad policies are not changed.

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26 Responses to GDP growth & the living standards of average Singaporean

  1. Pingback: Daily SG: 6 Aug 2010 « The Singapore Daily

  2. alex tan says:

    Hi Kenneth

    As regard to your point on
    “Reduction of Taxes and Fees on the Less Well-Off”

    I am puzzled by the purpose of investing the Sinking Fund.

    In the following report by Tanjong Pagar GRC,
    http://www.tptc.org.sg/pdf/TPTC%20FAQ.pdf
    the PAP government said “the amount(SnCC) collected is not sufficient to run the operations and we are reliant on the government operating grant.”

    1) Let says if there is a scenario that a Town Council needed more fundings, it is assumed they seek operating grant from the Government, correct? So why is there still a need for an existence of an excess fund, legislated by Law, to be held by the Town Council itself? Shouldn’t all excess funds be invested by the Government itself?

    2) If the Service and Conservancy Charges are indeed insufficient to meet the constituency’s needs, how did the Town Councils accumulate tens of millions in Sinking Fund?

    If the Government insists on the irrationality of having a Sinking Fund, then I believe it is time we take a look at the purpose of having a ballooned Sinking Fund, which can be as much as $166 Million in Tanjong Pagar GRC. Shouldn’t there be an upper limit quota for Town Councils’ collection? They are running a constituency, not a business.

  3. Stefan says:

    Well done. It will definitely be a people’s country. May I add that COE should be made cheaper for families to own their first car and charge an increasing COE rate based on percentages to tax rich families who have many cars. With a baby now, it is definitely important and convenient to own a car but car ownership should be based on needs and not entriely on affordability.

    GST for groceries, utilities, education and other necessities should be waived. Luxury products like restaurant dining, holidays etc can continue. All Singaporean should be given a free pass a year to visit our casinos. We should not be treated like 3rd class citizen in our own country. All it is it is the Singapore Pools outlet that is the main culprit of gambling problems. Many “aunties” and “uncles” have blown alot of money on lottery over the years. Tax rate should be much higher for the high income group as tax breaks for child, parents etc favours the well-off more than the masses.

    Foreigners should serve NS as long as they are below 28 years old but those over 28 years old should serve community services for a specified amount of hours or pay a one-time tax. Spouses of Singapore Citizens can be excused.

    Many education bursaries are only open to foreigners which should be open to Singaporeans as well. We should be nurtured and not spend tax-payers’ money nurturing foreigners.

    Foreigners should contribute towards CPF to level the playing field. Once they return to their countries they can withdraw their CPF contribution but subjected to a one-time tax of say 20-30%. This amount can be used to contribute towards state pension for our citizens aged 65 and above.

    Last but not least the requirement for destitutes to qualify for public assistance should not be so stringent. Surely spending $383 millions on YOG without much debate we can afford to include more people in Comcare and provide more than the $330 a month which based on the rate our GDP and cost of living is rising, is barely enough.

    I really like the fact that ministers’ pay as suggested by RP should be determined and linked to our welfare. Civil Servants should serve the nation not the people serve the civil servants by paying astronomical wages. Why not let our GST credits but pegged to GDP? I am sure this will allow Singaporeans a better share of the GDP pie.

    I have many more suggestions but above are the foremost on my mind.

  4. defennder says:

    Hi Kenneth, I think you’re missing out something in your analysis of GDP. In addition to netting out foreign contribution to GDP, shouldn’t you include net factor receipts from abroad as well? Doing so would give a fairer picture of gross national product. Secondly, Singapore’s Gini coefficient is second highest only amongst developed nations. Many developing nations in Africa have much higher Gini coefficients.

  5. Nik says:

    On GDP, you missed the fact that GDP per capita greatly exceeds disposable after-tax income per capita, a superior metric. Convert that into real terms by constructing a basket more closely aligned with the living values of Singaporeans and you will have what you seek.

    Education, again you do better. Singapore’s system breeds test taking and carries all the baggage therein. There is little evidence of critical thinking, risk-taking, and objective performance. Many, many blank stares. The system needs to be completely torn down and rebuilt with vision, not useless KPI’s. True students successes are in spite of the system not because of it.

    Don;t be fooled, minimum wage is less about economics and more about values and dignity. Both are always in short supply.

    Foreign Workers: I was one. Given my efforts I “deserved” thrice the pay. There is a lot of local favourtism and politicking working to the detriment of Singapore and Singaporeans as well. That said, the rationale for local emphasis is a point well taken.

    CPF: Forced Savings and punitive withdrawal rates are abhorrent unless there is significant quid pro quo. More care should be given to means tests on the elderly so that they can live out their years in dignity.

    Privatize the State sector: Why not use proceeds to fund health care and education?

    Your last point is perhaps your most important. Without basic civil liberties, all else is mechanised living without soul and good honest debates over the direction of Singapore remain quiet, private conversations.

    Good luck!

  6. Im not sure I agree, but great info anyway thanks

  7. Ret Sis says:

    Hear, hear!

    Vote Reform! Reclaim Singapore!

  8. singapoorean says:

    Currently, 900 millions were spent by NUS from the total 10 billions budget allocated.
    i.e. 10% of the education budget. Yet nobody question how NUS spend this amount of money and the amount of output from the budget.
    MINDEF too was allocated with 11 billions this year for defense budget, yet has anyone ever wonder why on earth we need so much budget for MINDEF? Why? Why they do not even consider pass the budget to those who have served as NSF for years and getting less than 300 dollars a month average out.
    Any tom dick and harry Foreign Trash earn more than this amount.
    The 3rd highest budget allocated was MOH. Yet look at the number of foreigners working in the hospitals. Is this a good sign?
    Worst, look at the amount of referral from one doctor to another. Is this cost effective?
    I do not think by increasing budget spent is the way to go.

  9. Pingback: The Rot Within :: Is low spending on education a problem? :: August :: 2010

  10. CitizenReddot says:

    I would totally agree on the pension scheme and should further add medical(free if possible) and transport for those 65 years and above.

    These are the tru blu citizens that gave their all during that period of uncertainty,road gangs,wharf workers,construction and ordinary clerks, they gave everything plus the sacrifices that made what Singapore is today accepting the employment act that PAP suggested with grace and working hard to put three meals on the table and raise a family simultaneously.

    Majority through hard work raised their children for a better life and upgraded themselves accordingly.Sadly there are those maybe 40% in the lower level that could not make the grade owing to circumstances that remain at the bottom of the ladder when Singapore made its meteoric climb towards a 1st world? status.

    Are they to be denied and left at the wayside owing to reasons beyond them but nevertheless gave their all during the call for survival???

    The more successful 65 and above can always waive these privilege for the less successful or unfortunate thus giving these poor a dignity that had been denied them after their sacrifices for years and cursing the govt. in the process.

  11. CPPoodle says:

    Reinstate estate duty.
    Independence of Judiciary from the Executive branch of government.
    Foreigners only allowed to own one property.
    Singaporeans only allowed to own one, maybe two properties.
    Remove ISD from SPH and all other state owned media.
    Removal of state control over media outlets.
    All high office bearers to report their assets every two years.
    Removal of all laws deemed authoritarian in nature.
    Independence of Elections Office and CPIB.
    Increase spending on healthcare to be on par with other first world countries.

  12. Yoyo says:

    * Invest More in Education (this is awesome, in fact this is the best way of helping the poor)
    * Minimum Wage (have my doubt if this is even possible consider the value of our workers now)
    * A Rational Immigration Policy ( i would say a solution to the immigration will directly prevent competition with the less well-off )
    * A Basic Pension (let’s be realistic, do you think it makes economical sense to reward a group of retired workers with pension? i would say u are asking the next generation to foot the bills while this generation enjoy their privilage very much like what happen to most of the countries from europe
    * Reform of CPF, A Basic National Health Insurance Scheme (this is great. i certainly believe that we should be in control of our money although i also believe that if one were to overspend his saving on luxury product, one should be left to die as well )
    * HDB Affordability ( i would say this is near to impossible to resolve now consider how My Mah has screwed us so badly. Imagine the price of the HDB were to lower by 30% from 500 000 to 350 000, the existing home owner will be paying a over-price bank loan of 150 000 + interests. And unless the gov were to write off the addition loan, no owners in the right mind will support this policy and yes i’m a owner but no i’m not interested in profit engineering via HDB.)
    * Reduction of Taxes and Fees on the Less Well-Off ( Great idea to help the poor )
    * Restoration of Fundamental Rights ( Great idea, in fact i truly believe that we are mature enough to manage our life if not, i guess it’s very much a individual problem and i have no problem leaving dry and die)

  13. Cpt says:

    A well written plan. But in the next few months GE is coming. I think it difficult for RP to gain a majority in parliament. At this time I thank K Jeya for his efforts.

  14. Pingback: Weekly Roundup: Week 32 « The Singapore Daily

  15. Ang Seh Ping says:

    Please come to my GRC. Hong Kah GRC. I will like to listen to your party”s speech and your policies in general and of course to meet you and your candidates in person. I always believe that to let a party rule for decades will not be. in the long run, a good idea and certainly there are rooms for improvements. Which is why, you need to be nominated into the Cabinet and learn to improve the livelihood of ingenious Singaporean. And not those people whom can come into Singapore to improve their own lifestyles while compromising ours.

    Seh Ping

  16. Michael says:

    I would urge RP to reconsider reducing the defence budget as it is vital to the survival of our nation. Defence is like taking an insurance policy, you never know when you will need it until it is too late! And yet this is one area that take years to build & easy to dismantle.

  17. question says:

    Sir, I note you drop remarks on an anti-government propaganda site. There are some extremist elements operating there out of the convenience of anonymity and loose editorial stance.

    They attack rank and file activists indiscriminately, by twisting comments out of context, by bringing out details (family particulars, sexuality) as a threat or supposed embarrassment.

    Any comments?

  18. May Rulers of the World Be Righteous says:

    Singaporeans who were born in the 40s and 50s made the most sacrifices to support Singapore’s struggle for independence from British Colonial rule, combat Communist subversion as well as racial extremism, and in later years National Service and the 70s and 80s in economic development. Now they are all seniors in their 60s and 70s, but received zero or little gratitude from the PAP government in terms of aged pension, medical benefits, not even a reasonable concession on public transport. How can we build a gracious society egual to that of Switzeland (a goal envisoned by SM Goh Chok Tong many years ago) if there is no display of gratitude from the ruling elite? I hope the Reform Party can set a fine example to show gratitude to the older generations of Singaporeans who have made so small contribution to nation building.

  19. May Rulers of the World Be Righteous says:

    Singaporeans who were born in the 40s and 50s made the most sacrifices to support Singapore’s struggle for independence from British Colonial rule, combat Communist subversion as well as racial extremism, and in later years National Service and the 70s and 80s in economic development. Now they are all seniors in their 60s and 70s, but received zero or little gratitude from the PAP government in terms of aged pension, medical benefits, not even a reasonable concession on public transport. How can we build a gracious society egual to that of Switzeland (a goal envisoned by SM Goh Chok Tong many years ago) if there is no display of gratitude from the ruling elite? I hope the Reform Party can set a fine example to show gratitude to the older generations of Singaporeans who have made no small contribution to nation building.

  20. John Quek says:

    Finally, Singapore has an opposition party that is capable of talking some real economic sense and certainly with more conviction that even what the PAP can muster.

  21. Davee says:

    Dear RP,

    What is your stand on Singapore being a “Pro family society” and how do singles fit into a Pro family society? I acknowledge the importance of population growth especially in a small state like Singapore and I do support policies to support growth of family and procreation. The question is how do singles fit into this society as such, in view of the many policies that are pro family which indirectly disadvantage the singles?

    The proposed pension after 65 would be popular but in my view, unsustainable. The amount of resources needed would inevitably lead to increase in taxes of the next generation. How would you find the resources to sustain it? Is it fair to tax the next generation for our current generation?

    GST taxes on ability to consume whereas income tax taxes on ability to earn in general. Unpopular as it seems, it is the right direction to go. To go the income tax direction, would means the middle income group would be further saddled. The high income would in general not be affected to the same extent as the middle income even if they are subjected to a higher tax rate than the middle income, because consumption does not vary in terms of prices for the same identical good that are being consumed by the middle income customer or high income customer. With due respect, it’s not about scrapping GST, it’s about helping the low income to cope with GST. It’s about ensuring that GST does not becomes a burden to the low income. A basket of GST exempted basic items was discussed previously but what else?

    I notice the opposition parties are more vocal about domestic issues and few ventured into foreign policies, defence and international relations, how ready are the opposition parties or rather what are the plans in the long run for the opposition parties to be able to run the government?

    On the issue of foreigners which is understandably the issue on many Singaporeans’ minds, one of the question is not how many of them comes in, but rather how many of them stay eventually and contribute.

    One can be highly selective about the inflow of immigrants into Singapore, but doing so does not necessarily means this selected group of people would stay eventually. Stopping the inflow is only a “visible” solution. How does RP view the issue of foreigners using singapore as a stepping stone to elsewhere, and how do we resolve this without turning them away in the first place?

    However, I truly appreciate the efforts of RP to comment on issues in Singapore. It’s about starting to do something that will go a long way rather than doing the little populist moves here and there .

    Cheers

  22. aSingaporean says:

    I do not understand how you come to the conclusion about indigenous GDP. The same figures of Per Capita Indigenous GDP of 2008 is S$43,352, according to the Yearbook of Statistics 2010. http://www.singstat.gov.sg/pubn/reference/yos10/yos2010.pdf

    Also I do not understand why you look poorly on GDP contributed by resident foreigners and resident foreign companies. If these foreign companies did not base their operations here, they could have based it elsewhere in Asia. This would have reduced the number of jobs for locals, reduced state tax receipts, and negatively impacted Singapore’s local industry.

  23. Saints says:

    i would suggest further improvement to immigration and housing policy. HDB is only for citizen, not PR. For existing PR or foreigners owning property, they can only sell to Singaporean only.

    All PR or New Citizen will be revoked of their status if they or their immediate family are not living in Singapore or away for more than 5 years.

    And no new citizen who has not served National Service will not/ should not participate in political activities.

    RP – counting on you to build a team to contest GE. Time for Real Singapore to be heard!

  24. Well done…
    I generally agree with the article.
    I would like to suggest that if Singapore does need foreigners, we can give them WORK PERMITS. Not PR status or citizenship. PR status and citizenship are only for those with REAL talents or ability to make REAL contribution to Singapore, not any Tom, Dick or HARRY. We don’t need to give PR or citizenship to even normal degree holder from overseas, we have plenty of that around.
    Any “normal” foreigners who have PR or citizenship have no right to tell me that they deserved to be a PR or citizen unless you have served NS, or you are someone like Jet Li, or a multi-millionaire, or someone with some PhD qualification.

  25. Vote for RP says:

    Dear RP,

    Please come to Sengkang so that we can vote for you and volunteer and assist you.

    Thank you.

  26. Pingback: The PAP’s White Paper on Population reveals that the government has all the benefits of surround sound and a wide screen picture at the cost of losing the plot. « Rethinking the Rice Bowl

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