Ensuring a fair and inclusive society

Deputy Prime Minister Tharman Shanmugaratnam last Friday outlined how the Government intends to fund its new approach to broaden social safety nets. Speaking at an event organised by the Academy of Medicine, this is an excerpt of his speech:

OUR objectives are clear. We will do more to help those who start with less, starting from young, and ensure that every citizen has a fair share in Singapore's success.

We will do more to give the elderly a sense of security and provide special recognition to the pioneer generation of Singaporeans who worked with lower wages and built up the nation. And even as we intervene boldly, we will ensure that our policies can be funded and sustained well into our children's generation.

We have a good starting point. While the more mature economies built up large debts during their rapid growth years and when their populations were young, we did the opposite. We built up savings.

They will now have to take significant sums from their budgets each year - at least 2 per cent of GDP - to service these national debts. We are in the opposite position of being able to get 2 per cent of GDP from the income on our reserves to spend each year on our social and economic priorities.

Let's keep clearly in mind a few priorities as we go forward so that we ensure that policies for a fair society are not just for two or three electoral terms, but for generations ahead.

First, we should continue to target subsidies at those who need them the most, instead of committing to benefits for all.

Universal subsidies are not just wasteful, but inequitable. They are also hard to take away once given. Even in the UK today, despite severe fiscal pressures and with the Conservatives in government, they have found it too difficult to cut entitlements that benefit the upper middle class and rich elderly.

Second, we should design spending and subsidies in ways that reinforce individual effort and responsibility for the family, values that keep our society strong.

This is not about leaving things to self-reliance or about leaving families to face uncertainties on their own. It is a strategy of government support for efforts by individuals to learn and strive to achieve their aspirations to own a home by working and paying down a loan, and to save for their retirement needs.

It may be a paradox, but this paradox of active government support for self-reliance has to run through all our social policies. It is how we help people to stand with pride and contribute to society.

Third, the Government must, for the same reason, find every way to catalyse and support community initiative for a fair and just society.

One of the paradoxes of the welfare state has indeed been the way an active state has freed people from the social and moral bonds of family and local community. We must strengthen, not weaken, the values that drive us to be our brothers' keepers. Our tax incentives and grants must continue to support the community and civic sector, and aggressively so.

Fourth, we must maintain a progressive system of taxes and benefits.

It is in fact more progressive than meets the eye. For instance, take our income taxes. Our top marginal rate of 20 per cent is low when compared with many other countries. But in fact, our income tax schedule includes Workfare (WIS) or negative income taxes for lower-wage workers. If you are older and of lower income, you get a 20 to 30 per cent credit from the Government through Workfare.

So our income tax schedule is actually 50 percentage points wide - from 20 per cent for the top income bracket all the way down to minus 30 per cent.

This progressivity in our system is even more so when we add in housing grants, which are the second pillar of our social strategies. The housing grants provide significant mortgage savings for lower-income couples.

Taking Workfare together with these housing grants, we are effectively providing low-income couples at the 10th percentile of the income ladder with benefits equal to about 30 per cent of their lifetime incomes.

This is, in fact, a conservative estimate as it does not take into account the appreciation in value of their homes, which even with modest assumptions implies significantly greater lifetime benefits. It also does not account for other subsidies that they receive, which substantially outweigh the taxes they pay through the GST.

We will preserve and build on this progressive system of taxes and subsidies in future, even when eventually, in future terms of Government, we find it necessary to raise revenues to support our growing health-care needs.

Finally, we cannot think about a fair and inclusive society purely in wage or income terms, or in terms of redistribution.

It is also about people having access to a quality living in public spaces: for sports and arts, or just to relax in. We take public spaces seriously in Government, including providing green and blue spaces near our HDB estates.

Or about opportunities to keep learning no matter how old you are, even if you are not learning for the purpose of work, but because there is something inherently satisfying about learning.

It must involve developing a spirit of fellowship as our young grow up in schools.

It has to include a workplace culture that treats all employees with respect, including our blue-collar workers.

And it must include Singaporeans pursuing causes which they feel lead to a better society and doing something to help their fellow citizens see a better life.

So let me conclude. We are in transition as a society. We are no longer a developing nation, but we are not yet truly an advanced nation because our level of productivity, our skills and the wages of our ordinary workers are not there yet.

We face many challenges. Can we keep median incomes growing at a healthy pace and avoid what has happened elsewhere, not just in the developed economies but also in the Asian newly industrialised economies? Can we keep social mobility going, even as many among past generations of poor Singaporeans have already succeeded in moving up? There is no assurance that we will succeed, but that makes it all the more necessary that we put all we can into succeeding.

We are starting from a position of strength, not despair. We have one of the best education systems in the world and we have the most successful public housing programme in the world. We have, by international reckonings, one of the better health-care systems in the world. We also have the lowest rate of unemployment among developed societies, including Hong Kong, Taiwan, Korea.

But whether we do better at the end of the day will not just be a result of whether we've got the right policies and incentives and taxes and subsidies, but whether we retain a culture of responsibility in our society and the spirit of fellowship that I spoke about. We all play a part in keeping ours a fair and just society and taking pride in making it so.