Questioning Budget 2012

This year’s budget focuses on everything a first world country does. As much as Obama placed great emphasis on a social safety net, we are looking towards the same direction tip toeing between hand holding that causes the removal of incentive to work and ensuring there’s sufficient soft landing for our citizens to fall back on. Public economists always grapple between either side and frankly it’s a tough line to toe. Economics function by regarding people, both you and I, as complete bastards looking only to maximize our enjoyment. While this looks gloomy, it is true most of the time. I’m very sure that some are altruistic, some will voluntarily do more without needing incentive but most aren’t. And if you run a social experiment where the majority are innate leechers, it is only logical that the minority will soon follow suit.

Personal Experience

My point of view does not come from a man sitting on top of the pile eating with a silver spoon. I come from a relatively poor family and while the situation has gotten better with time, we are certainly in the bottom 20% of family incomes in this country. The good news is there’s just 3 of us and I personally have enjoyed the multiple study grants and subsidies to my education which I am very grateful for. In fact, help has been extended from the Lee Foundation and CDAC in a manner that my entire university education is cared for. I am a product of our country’s welfare system (even though ministers abhor this term). How did I qualify for these grants? I’m no top student, I consider myself above average but never in the top end (based on results). The reason I enjoy such is because my dad is a hardworking man who has done his utmost best to be employed for over 25 years consistently. Both my parents are handicapped and the scenario of my physically disabled father doing all he can to stay afloat is what this country is looking for. If you do your best, we’ll help you. That’s the tagline here. I agree with that.

Sometimes when renewing such financial aid, my mom gets pissed with all the forms and documents we have to provide. She finds it ridiculous that she and my dad have to provide medical documents regarding their physically disability (it is visually obvious that they are not faking their handicap). But the reason why such rigidity is required is because – people are largely moral shit holes. I’ve witnessed with disgust people feigning their family situations to get that free transport voucher, etc. Morally low and disgusting. But what do you expect? Most citizens feel they are entitled to ALL benefits and most over estimate their needs. We have a Meet the People’s session here where they provide dinner for those queuing up. You know what happens? Yep, you guessed it – people from the surrounding blocks came rushing for the free food. If you need any further affirmation that people are largely self utility maximizing agents – this is it. If it’s free you bet the Singaporean rush will ensue.

Budget 2012

All our budgets for the past 5 years have been around the same line. Softening the blow for GST increase and ensuring the bottom percentile are able to fend for themselves. Things like the Workfare (see the play on words?) emphasizes the tagline I mentioned earlier. The usual components are all here, subsidies for education and adult retraining. Encouraging the aging population to work longer so our labour force does not shrink too quickly. Reducing medical costs. The usual stuff that has worked for years and are largely on the right track. But I’ve a bone or two to pick with the budget. So here we go.

1. Too Inclusive

While Singapore does face the problem of a sandwiched middle class, I don’t think those who live in executive apartments need U-Save vouchers. I think those who cannot afford to maintain living in such apartments should scale down. Also providing a $120 grant per month to help lower- and middle-income families who may prefer to hire a foreign domestic helper to care for an elderly member at home shouldn’t become an automatic system. This should only come in place when the family can prove that NONE of the children can personally take care of their elderly. You can see this system being abused already. The same goes for subsidies that will qualify 2/3 of our citizens to send their old folks to a home. This must be carried out on a case by case basis, adults must be encouraged to take care of their elders; not be given the incentive to send them packing to a home as first choice. I get why these schemes are in place, it could be that the elder in question require nursing care, or the adult cannot juggle due to him possibly being the only son and can’t be at home in the day, etc etc. Yes, use this system to help those that really need it but don’t create a package that includes those who can actually manage if they put in some personal effort.

2. CPF Contribution

I do not agree with CPF in the first place. CPF works well only in 1 situation – The individual is unable to plan his finances and if left alone to do so will end up planning to save less than what he actually needs. In short, do this if you believe your citizen cannot plan financially. That may have been the case in the 1960s to 1990s but I doubt so now especially with the amount of effort given to education. When the government raises a policy where one has to contribute for another, say a tax that is laid on sellers or in this case a labor tax that employers have to pay for, an economist always questions – Who really bears the burden?

With the current elastic demand for labor especially that of the elderly, I’m pretty much sure of my estimate that the elderly will bear the brunt of a possible 2% increase in employer contribution to CPF. This is how it will work. Employer knows he has to now contribute 14% instead of 12% to the CPF for every elder he employs. What he will do is to reduce the salary of the elder worker so that it offsets the increase in tax that the employer bears. This results in the employer not needing to pay the extra 2% because the elder has his salary reduced. The government should study if such pass on effects are occuring not just within the elderly sector of the labor force but in other areas as well.

3. Transport – More Buses?

It was astonishing to see the government spending on increasing bus fleet. There are many things wrong with this. First, I must say that yes buses are more efficient compared to cars in terms of passenger to road space utilized ratios. But that’s about it. Increasing the number of buses will reduce the waiting time and possibly mean more space on the bus and a more comfortable journey. But at what cost? Congestion. The problem about buses are highlighted only during peak hours and we have sufficient congestion at that period. One must realize that buses compete for road space with cars. To offset the increase in buses on the road, one must reduce the amount of cars. Many economic studies including the one I personally carried out clearly show that the income elasticity of demand for cars is at the point where people will buy / hang on to their cars no matter how high you tax them (how low their effective incomes are). This explain the high COE prices in Singapore. The policy makers are digging themselves into a hole with this, they need to find a way to reduce car numbers to cope with the increase in bus fleets. Singapore does not have a dedicated bus lane which will solve the competition for road space issue. This is largely due to our narrow roads and relative lack of space.

To this I believe that the government should focus their transport efforts on developing light rail. These are your LRTs. LRTs are meant to take over feeder bus routes. You have seen them in the Choa Chu Kang area and also at Sengkang. They have a lower running cost than the large trains (MRTs) but are definitely more expensive to run than buses. What I would suggest is building LRTs for denser neighborhoods. LRTs run on their own elevated track (no road space competition), are relatively quiet, and have solved the privacy issue by blanking out windows when they run too close to housing apartments. Of course, they are also a lot faster than buses, more regular and are not subject to traffic jams. They link up better with the main train lines as well reducing both time and monetary cost of transfers. This should be the main master plan of transport sector here. Increasing buses is just a poor thought out band aid solution which will do more harm than good.

4. Disabilities – Past the VWO SPED

The last point is relatively minor compared to the scale of the issues brought up. It doesn’t affect most of the country but as mentioned earlier I come from a family with two physically handicapped parents and so I’d like to have a go here. First, it is great that policy makers are finally stepping up support for the employment of the handicapped. My dad has tried helping his disabled friends to hunt for a job and its a really tough thing to do. Currently such subsidies are granted to those who graduate from VWO-run Special Education (SPED) schools. I suggest they expand this to all handicapped workers. The amount subsidized can be adjusted accordingly but any physically handicapped person who are looking to support themselves are in dire need of such aid. It could be wise to be more inclusive in this case.

YouthSpeak – Budget 2012 – People’s Association

So here you are, an economics major’s thoughts on Budget 2012. I will be representing CDAC in the upcoming Budget 2012 YouthSpeak event at the People’s Association. Hopefully all goes well and it’ll be a great learning experience. As always, don’t blindly accept. Read, think, appreciate, analyze and give constructive feedback.

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