Speech by Henry Kwek at World Bank-Lee Kuan Yew School of Public Policy Asia Competitiveness Institute luncheon
Today, we’re here to talk about Singapore’s welfare spending, and the budget sustainability.
The answer to this question is significantly tougher than it is say a decade ago.
Singapore today is
Quite different compared to decades ago, when one can dial up or down the economic input factors to achieve a certain growth number, with clarity in how to climb up the economic value change. The general certainty of economic trend, in turn, determines how much welfare spending we can afford, and how much to save.
So to answer the issue about the welfare spending, and its sustainability, we can no longer just describe key welfare spending in isolate, and then project it against steadying rising revenue to gauge sustainability.
Rather, we must ensure that the welfare spending must meet the baseline aspirations of Singaporeans today, but crucially, it must help us answer our future challenges.
If our welfare spending does not meet the needs of the future, then as many other small trading city-states of antiquity found out, the feedback loop can be rather quick. What is at stake is survival, rather than mere fiscal sustainability.
Singapore’s needs today and tomorrow
Today:
Tomorrow:
Our way forward rests on five key principles:
Current State of Affairs
Let me first walk you through our current state of affairs, before I illustrate how we strive to meet our current and future welfare needs by incorporating these five principles.
There are studies to show that GDP growth actually increases inequality. This happens in even some developed countries because the rich find ways to avoid paying the very high tax rates, and the middle class ends up paying a lot for not just itself, but for the poor as well.
For Singapore, we ensure that our economy is both open and competitive. They idea is to make money from the rest of the world, to pay for an inclusive society.
The rich are not asked to pay high taxes, so they pay. The taxes of the rich take care of the poor. Our middle class receives more than it gives.
Let us look at some data.
When our economy grows, unlike other countries, our experience is that a fall in Gini coefficient coincides with periods of growth.
We have been moderating income disparity through policies, especially with a progressive tax system.
We also achieve relatively good outcomes of governmental policy.
We also have strict fiscal spending rules:
Government spending has risen due to much higher social spending, and the need for us to continue to invest in infrastructure for both our people, and our economy.
The “silver tsunami” can be a big challenge given our low birth rate, which happens in most developed countries.
Our revenue is able to keep up due to income from our reserves.
Nevertheless, there will likely be more needs in the future.
Fortunately, as of today, our starting point is not a bad one. We’ve got relatively low government spending and revenue.
Let me now provide three examples of how these principles came together as we adjusted our welfare policy adjustments in the last few years.
From Silver Tsunami to Silver Dividend<
Investing in our seniors’ health, by rapidly expanding our healthcare system, and significantly subsidizing seniors’ healthcare costs:
In five short years, we have tripled our healthcare spending to more than 12 billion a year.
In percentages, I believe we are undergoing the most aggressive healthcare expansion in any developed country.
We have made much progress building more acute care hospitals, community hospitals, specialist hospitals, and polyclinics.
For older Singaporeans, who grow up in a 3rd world country but retired in a first world country, we invested more in their healthcare, up increasing their basic medical subsidies significantly:
At the same time, we are redesigning our healthcare system for sustainability through our 3 beyond strategies:
A healthier nation requires less of the healthcare system. In recent years, the Health Promotion Board (HPB) has stepped up efforts on this front, such as by getting people to opt for healthier meals. The authorities have also launched a “war” against diabetes as well as highly subsidised health screening for people who are 40 years and older.
Care for patients go beyond hospitals. The idea is to let them receive appropriate care in the community or at home so they can stay well and avoid frequent hospital admissions.
This includes post-discharge visits to patients’ homes by nurses and care workers to ensure that they remain well.
This is done for patients who are deemed at risk of frequent readmission to hospital.
This is better for the patient in terms of health and convenience, and for the healthcare system too, as hospital care is very expensive.
This is an effort to retain or increase quality of care while ensuring value for money.
The Agency for Care Effectiveness (ACE) was set up in 2015 to research treatments that provide the best value for money.
For example, three drugs may offer the same results, but have very different prices. Or a drug may be more expensive, but offer outcomes that are far better than cheaper alternative drugs.
Such information is disseminated in detail to doctors who may not have the time to do their own research. The ACE recommendations will also be adopted in the public sector.
The introduction of fee benchmarks is another effort to keep a lid on spiralling healthcare costs. This recommended fee structure will be decided together with doctors, hospitals and other stakeholders.
Such benchmarks not only give doctors a yardstick against which to measure their prices, but also give patients an idea of the cost.
We also set aside 3B for the Action Plan for Successful Aging which called for Singapore to become a Kampong and City for all ages, with vast opportunities for our seniors. We encourage our seniors to continue working if they choose, and if they are healthy, through
Refreshing Singapore’s Approach to Public Housing
Singapore offers affordable house prices for citizens. House prices are based on mean income of applicants. After subsidies, they come to around 4-5 times of the average annual salary. Prices are fundamentally delinked from market pricing, so most young couples have the means to buy their flats a few years after they start work.
Citizens also get subsidies to upgrade to a larger flat as their families grow bigger. Or when they grow old, subsidies to right-size to a smaller flat or age in place by selling back several years of the lease.
We are also traditionally known for our integrated public housing- dfferent ethnicities living together, to create a sense of togetherness.
Moving forward, we are looking into:
The benefits of these include:
Fighting Inequality Through Education
Meritocracy and rising income uplifted many in the first two generations of Singaporeans.
We have the lowest educational underclass in the world.
There’s a high percentage of Singaporeans from the bottom 20% who made it to the top 20% within a lifetime. 
But after 3 generations of uplifting, precisely because of our success in doing so, the smaller groups of families that remain poor are facing increasingly difficult challenges. Our past success paradoxically makes it harder for us to continue to do so.
The ability to rise above one’s circumstances through social mobility is at the heart of Singapore’s identity. So our welfare policies must support this important aspiration of Singapore. How do we do this increasingly difficult job in a financially sustainable way? Education will continue to be the key enabler.
For children from needy families, we are also moving upstream to solve the problem:
Encourage the spirit of giving from community, because social capital is just as important in uplifting as compared to social spending.
Conclusion
To conclude, at a personal level, it is very hard for me to make a prediction of the sustainability of our welfare spending, though we are starting our next lap on a strong footing.
We do not see welfare spending as mere tax dollars spent on recurring evergreen programs.
Rather, they are funding policies that change dynamically with the changing world. And these policies must work hand-in-glove.
Will Singapore be fiscally sustainable to pay for taking care of our people? Will as many Singaporeans be able to learn 21st century competencies, and can our economy transform itself with the shifting global trade patterns and the technology disruption, and will we succeed in keeping the social cohesiveness?
It depends on not just policies, but also execution of the policy. It depends on our people and external circumstances.
But I think our chances are highest when our welfare policies are guided by clear principles.