On Social Investments, Balanced Budgets And Other Matters – by Vikram Nair

I read a facebook note by Donald Low’s FC with interest.

As Mr Calvin Cheng pointed out in my facebook page, my speech in Parliament was really to ask Mr Chen what exactly  was the “more” he intended to do in the many areas he highlighted and how he intended to fund it.  Mr Chen did not suggest doing less in any other areas or raising revenues or making any other trade-offs.  In response to my questions,

Mr Chen also confirmed that he did not intend to run a deficit and simply said the investments would be self-funding.  I was simply trying to understand the specifics of how his plan would work and it was not really an exposition of my economic views in any detail.

I am also grateful to Davian Lee and Alps Tan for taking the time to share their thoughts on the matter.  You may find links to their notes here:

Alps Tan’s note:

http://www.facebook.com/notes/alps-tan/let-us-all-do-more-can-singapore-go-beyond-first-world/257774450970971

Davian Lee’s note:

https://www.facebook.com/#!/notes/davian-lee/investments-in-social-capital-but-how-do-you-fund-it/257630124318597

Anyway, for the avoidance of doubt, I am happy to set out some of my views on some of the issues.

 

On Social Returns and Investments

I fully accept that non-monetary considerations should go into decision making and as an MP, our job quite often involves pushing government agencies to make decisions that may not be profit maximizing purely in the financial sense, but which meet the needs of our residents.

For example, one of the issues I asked about just a few days ago in the ongoing COS debate involved the Best Sourcing Initiative by the Ministry of Finance.  This essentially involved the Singapore government moving away from awarding contracts for outsourced functions to the lower bidders.  Instead, it would only award contracts to accredited providers and part of the accreditation process involved the employment terms provided to workers.  This would naturally entail higher costs in the purely monetary sense.  In a supplementary point, I also suggested that in developing these guidelines, the Ministry should keep two tensions in mind:-

(i)  That many of the low wage workers in some of these industries, such as cleaning, may not be highly educated and introducing stringent requirements for language or literacy may result in their unemployment.  Yet, they might nonetheless be able to perform the function well.  As such, at least for our local workers, the accreditation guidelines should not deny these workers the chance for employment.

(ii)  I also suggested that the government look into the wages that employers provide the workers.  These wages should be fair and sufficient to provide them a decent living.  This may also have a knock on effect on the private sector by raising the wages for comparable low wage workers, especially if the supply of foreigners is also reduced and the labour market tightens at this end.

The Minister of State for Finance, Ms Josephine Teo, in response, said she appreciated the feedback and would look into incorporating these principles in the guidelines.  It should be noted that this is not by any stretch a monetary profit maximizing decision.  It essentially involves the government paying more for outsourced services and potentially, driving up costs across the industry.  Yet, I think it is a good measure because it improves the lives of some of the workers who struggle most in our country. It is an investment in our people.

On a more local level, at my ward, the concept of building a caring community, strong families and support for the vulnerable is one theme that emanates through many of the activities we do.  This includes programmes for families facing difficulties, programmes providing subsidised tuition.  I also tell residents and all my volunteers and activists to be on the look out for people who may need any form of assistance and to bring them to my attention if necessary.  I am aware that economic disruption may affect many people and families, and there is nothing worse than suffering alone.  I think there is nothing better than a strong community and local support to focus on helping these people get back on their feet.  To me, these are all investments in people, and I support the concept wholeheartedly.

In terms of dealing with agencies, one of the early issues my team had to deal with was the overcrowding of bus services during rush hours.  After some pressing, we managed to get an additional service of one of the feeder busses used by a large number of my residents during the period when overcrowding was worst and this has alleviated the situation somewhat.  However, there are still further routes and local transport issues to press for.  This decision was not a financially motivated one but one made to meet the need of residents for a more comfortable journey and a shorter waiting time for the bus.  There is tension between us and the bus operators on this, but by making a sufficiently strong case to LTA, LTA agreed to require the operators to provide the service.

Needless to say, there are many more examples of decisions made at a government level (cited by Alps and Davian too) which are not purely financial but which instead take into account our resident’s needs.  I am not sure if these social returns can be measured in precise mathematical form, but I certainly recognize their value.

 

 

Balancing the Budget

At the same time, I believe that as a general rule, governments should try to balance the budget.  I accept that there are situations when governments should spend beyond the budget.  In this regard, I have nothing but respect for the ideas of John Maynard Keynes suggesting deficit spending to pull countries out of the Great Depression.

However, I do think that this principle that it is ok to spend beyond the budget and incur debt has been abused by governments over the years in many different countries.  Doubtless, these countries would have had proper sounding investment justifications for issuing this debt at the time it was issued.  The crisis of government debt, playing itself out in Europe and elsewhere, I think is the result of systematically spending beyond the budget.  This price for past excesses is now being paid for by the current generations in these countries.

At alternative to issuing debt is to tap into reserves.  In Singapore, the investment income generated from our reserves is a an additional source of income for our government.  In that sense, the reserves are a little like the goose that lays the golden eggs.   I accept at times it may be necessary to dip into the reserves, but these attempts should be properly scrutinized.  It is for this reason that tapping into the reserves is a matter that requires approval from the President and is subject to stringent requirements.   It may be expedient for us to spend more now by tapping into our reserves, but doing so essentially reduces the amount of reserves our future generations can rely on for income.  The reality is that as the need for government spending grows, preserving our reserves and allowing them to grow in sync with the economy  is one way to continue to generate investment income for these needs without straining our people further by raising taxes.

The issue of incurring debt or tapping into reserves never arose in the Parliamentary Debate because the importance of balancing the budget was accepted by almost all members of the house who spoke up on it.  Mr Chen too was very quick to emphasize that he did not agree to incurring a deficit to fund any of his proposals.

 

Raising Taxes

It should be noted that this issue was not discussed in any detail because the Worker’s Party never mentioned it intended to do anything to raise revenues.   Indeed, Mr Low Thia Khiang suggested cutting GST by 2%.  This was part of the reason I felt it necessary to probe their proposals to understand how they intended to do “more” without additional funds.

I accept that there may be times when taxes may need to be raised, but I also recognize that any rise in taxes would largely be carried by middle-income earners.  The wealthy, especially those who do not generate their earnings from salaries paid in a particular country, will be able to organize their affairs to minimize the tax burden they face.  The poorest will probably remain exempt.

 

My ward is one composed largely of 4 and 5 room HDB flats, and my residents would broadly be in the middle-income group.  Thus, any rise in taxes will probably impact them hardest.  I would therefore want to scrutinize any substantial demand on government finances that may require taxes to be raised, so I can explain to them in very clear terms why they have to pay more taxes.  I accept it is sometimes necessary, but it is also my duty to ensure it is so.

 

The Real Issue:  Allocating Scarce Resources

There was much in common in principle between Mr Chen and myself.  We both accept that the government should be focused on taking care of its people and also on not incurring deficits in doing so.  This really means that the question we face in a budget debate is one of the trade-offs that one wishes to make.My main quarrel was with the made loud claims for spending in many areas without any detail on the trade-offs that were to be made in order to spend more in all these areas identified.  Mr Chen simply said they were investments and would be ‘self-funding’.

Of course, I don’t expect every MP that raises a discrete suggestion to be able to argue for where the additional revenues should come from.  However, where the changes appear to be broad ranging and substantial I think it is necessary to explain where the revenues come from.  For example, a Worker’s Party member suggested that the government should raise healthcare spending to 6% of GDP.  In response, DPM Tharman highlighted the very large increase in taxes that this would require.

It should be noted that healthcare was just one of the 10 areas in which Mr Chen said “Let’s do more”.  My concern was that the Worker’s Party were contemplating changes of substantial magnitude in government spending and seemed to measure success on the basis of the spending itself rather than the outcomes achieved.  When proposing such substantial changes, I think it becomes necessary to discuss revenue implications as every MP must be sure they can justify the additional burden this spending may incur to their residents.

 

I think the current approach of the government is to focus on the outcomes it wants to achieve, and devise affordable ways to get there, rather than just throwing money in an area.   For example, in relation to healthcare, this is why the approach in the budget is to address the needs that need to be met, including the provision of more hospital beds, community hospitals and home based healthcare.  This is to make sure that healthcare remains affordable and accessible to users, but it is still delivered in a cost-effective fashion.

In principle, I would support any schemes whose social returns far outweigh the initial outlay.  However, I also recognize the government would still need to raise revenues to meet this outlay (initial or permanent).  We then have to prioritise, which are the best schemes and how high we should take taxes or other revenue measures.

 

Link : https://www.facebook.com/notes/vikram-nair/on-social-investments-balanced-budgets-and-other-matters/333624530008170 

    Vikram Nair

 

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: