Sunday, February 19, 2012

Income growth in some sectors cannot be tied to productivity growth


The Government should be lauded for enhancing the schemes that cater to the people with lower-income, people with disability and the elderly. The increased budget for healthcare expenditure from $4 billion to $8 billion a year should be especially appreciated. It's good that the Government has realized that it cannot continue to spend less than 4 per cent of its GDP on healthcare.

Singapore's Department of Statistics Report on Retail Sales Index reveals that despite the high GDP growth in 2011, the retail sector remained lackluster. The Report said, 'The total retail sales value in December 2011 was estimated at $3.5 billion compared to $3.4 billion in December 2010'.

Budget 2012 could have considered a retail rebate scheme where retailers could give 5 per cent of the GST back to the consumer as a rebate in the form of shopping vouchers. Such a scheme would have boosted consumption. Singapore's consumption remains at 40 per cent of the GDP, whereas it is as high as 55 per cent in other developed Asian economies.

Such a retail rebate scheme will entice the consumer to keep the retail scene in Singapore more vibrant.

It is good that the Finance Minister has given assurance that the economy of Singapore will be restructured on the basis of skills, innovation and productivity. But there will always be some essential sectors where upgrading of skills, innovation and increased productivity may be limited. To tie the income growth of workers in these sectors to productivity growth would be meaningless.

For example Minister of State for Transport Josephine Teo told Parliament that despite stepped-up recruitment efforts, fewer younger Singaporeans want to become public bus drivers. Ms Teo admitted that the reasons for this as being, 'the tight labour market and the availability of other jobs where working hours would be more conducive to family life' (see HERE). How much more skills upgrading can drivers have? How much more productivity or innovation could be infused into driving buses?

There are quite a few similar sectors where there can be very little productivity, innovation and skills growth. To tie in income growth to these factors in these industries will mean that Singaporeans will find it very difficult to take up jobs in such sectors as they may not pay meaningfully well. And the jobs in these sectors are essential and cannot be relocated to other countries.

Budget 2012 could have identified such sectors and increased funding for such sectors, specifically aimed at increases in income growth, which may have induced more Singaporeans to take up jobs in these sectors.  

While one can appreciate that that with the new Budget the Government will now 'give a $120 grant per month to families hiring a foreign domestic helper to help care for elderly family members who have severe dementia, or are immobile and unable to care for themselves...on top of the $95 concession in the Foreign Domestic Worker Levy that all households with elderly persons will continue to enjoy', the Budget could have aimed to do more for the elderly and the disabled, like:

1.                       Removing the Domestic Foreign Worker levy for qualified foreign workers who are brought in to care for the elderly, so that the elderly could be provided appropriate care at home (where possible) without the need step-down care at nursing home; and
2.                       Providing Elder/Disability Care Tax Credit for qualified elder and/or disability care expenses. As caregivers make heavy financial sacrifices in spending a large amount of money each year on expenses for aging relatives, including cost of providing food and transportation and paying for medical expenses, such a tax credit would be an added incentive and encouragement for caregivers to provide appropriate care for the elderly in their own homes.

Budget allocation for such initiatives would make significant difference in a graying society like Singapore's.

Another area the Budget could have addressed is the Total Fertility Rate (TFR) problem, which has also resulted in the high influx of foreigners.

The TFR problem may be mitigated if the Budget had provided for free education from pre-school right up to college.  By providing 2 months of maternity leave and 4 more months of childcare leave (which can be taken by either the father or the mother) for every child born. And by providing free medical care for the child until he or she turns 21.  

Mr Lee Kuan Yew said in June 2010 that America has overcome the TFR problem probably because of 'wide open spaces' (see HERE). The Budget could have made allocation for creating more 'wide open spaces', instead of encroaching on such spaces for the sake of urbanization, which besides contributing to the TFR problem, has also been blamed for the problem of flooding.

"This earth can hold only so many people. It's six billion now. It will be nine billion in 50 years. You destroy all the biodiversity, you destroy all the forests. You have to grow more food and this (results in) earth warming... it will destroy our habitat."
- Mr Lee Kuan Yew (speaking at the Singapore International Water Week and the World Cities Summit in June 2010) 

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