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5 Minutes With… Leong Sze Hian on the budget

Posted by theonlinecitizen on February 18, 2008

With reference to the Straits Times reportHongbao Budget.

Straits Times: SINGAPOREANS received a $1.8 billion surplus-sharing hong bao from Finance Minister Tharman Shanmugaratnam yesterday.

TOC: The Straits Times also reported a total surplus of $6.45 billion. Is it true that it is a ‘surplus’? How did this ‘surplus’ come about? Was not the government earlier expecting a deficit?

TOC: In light of this surplus, Singaporeans would wonder why the government needed to raise GST by 2 per cent to 7 per cent only in July last year? Was the government’s earlier projection wrong?

Sze Hian: Actually the surplus may have been higher, if we include the top-ups to the various Endowment Funds, because these are in a sense, not really money spent, but set aside, whereby only the interest element of the Endowment Fund is, I believe, spent every year.

There was no need to increase GST to help the poor, in view of what is probably one of the most inaccurate Budget forecast in history.

Straits Times: Tharman Shanmugaratnam: “It (the good economic numbers) is about how we are attracting new and cutting-edge investments, capitalising on opportunities in new growth industries and markets abroad, upgrading our workers’ skills and competing at an advantage.”

TOC: How true is this? Our investments in Life Sciences, for example, have not borne fruits yet. Our investments abroad, especially those of Temasek and GIC, are fraught with uncertainties.

Sze Hian: Whlist I agree that the focus on R & D, and attracting investments is a good strategy, there is a limit to upgrading workers’ skills, particularly for the unskilled lower-income. Recent years’ data seems to suggest that upgrading for unskilled lower-income may not be helping them much in getting higher wages. Nationally, productivity has continued to fall.

Straits Times: Older Singaporeans aged 51 and above will receive top-ups of up to $450 to their CPF Medisave accounts, to help with medical bills and higher insurance premiums.

TOC: Will this really help older (and poorer) Singaporeans, given that health inflation is the highest among the components in the CPI? Are such ad hoc top-ups, dependent on budget surpluses which we might not have in future, going to really help Singaporeans?

Sze Hian: No, I don’t think so, because ad-hoc top-ups may not catch up with rising healthcare costs and rising MediShield premiums.

Straits Times: They will benefit from higher Public Assistance payouts, a $400 million injection into the ElderCare Fund for older folk needing long-term care, and $200 million top-ups each to the MediFund and Comcare Fund, to help the poor with medical bills, jobs and their children’s needs.

TOC: As in previous years, these funds seem to be financially healthy but they don’t seem to help Singaporeans in need. Healthcare is still a top worry for Singaporeans. What is wrong with the schemes? Are all these hundreds of millions of dollars going directly to those in need?

Sze Hian: Instead of allocating funding every year from the budget, currently, the system of topping-up Endowment Funds, may be limiting the amount of money that can be spent – which is dependent on the interest of each Endowment Fund, rather than how many citizens and how much is needed.

Straits Times: Mr Tharman identified two key challenges going forward: helping lower-income workers cope with continued pressures on their wages and helping people save more for retirement.

TOC: This is a view – and a promise – by the government over the last few years. However, wages continue to be depressed because of the influx of foreigners. How should the government actually deal with this problem?

Sze Hian: One possible solution is to give Singaporeans the option to invest their CPF and cash with Temasek and GIC. The higher returns (Temasek’s 18% per annum for 33 years, GIC’s 8.2% for 25 years) may give us more in retirement, and more to spend before retirement.

Straits Times: Lower- and middle-incomers nearing retirement will also receive a special sign-on bonus of up to $4,000 when they join the new CPF Life annuities scheme.

TOC: The newly renamed CPF Life annuities scheme still seems complicated to the average Singaporean. To ask them to sign-on by dangling a bonus as incentive, isn’t the government sort of pressuring Singaporeans to take up a scheme which many still may not understand fully? In any case, how is this new CPF Life scheme different from the original scheme announced last year?

Sze Hian: The main difference between CPF Life and the old CPF system, is that CPF Life defers your Minimum Sum monthly payout withdrawal from 62 to 65, and the amount will be less. The advantage of CPF Life is that payouts are for as long as you live.

For lower-income Singaporeans, the lower and deferred payouts may cause some hardship to them.

Straits Times: He gave the assurance that the Government has in place strategies to ensure that Singapore continues to have lower inflation than the rest of the world over the medium term.

TOC: Is it fair to compare our inflation with those of other countries and be satisfied that ours is somehow “lower”? What criteria does the government use to determine this? The CPI? Is the CPI a universal or international standard?

Sze Hian: As our cost of living may be higher than our neighbouring countries, even in those comparisons whereby our inflation is lower, the impact on the population may be greater, because our costs are already much higher, on a relative basis.

Straits Times: The most fundamental strategy is to keep the economy competitive, because education and training, new investments, job creation and good income growth are ‘the best offset to global inflation’.

TOC: What are your views on this statement by the finance minister?

Sze Hian: There are also other measures that can be taken – like raising interest rates, freezing or lowering Government fees, etc. As to income growth, over the last 10 years or so, the bottom 30 per cent of workers hardly saw any real increase in wages.

Straits Times: MP Inderjit Singh, who chairs the Government Parliamentary Committee for Finance and Trade and Industry, said the Budget went a long way to address inflation worries for lower- and lower-middle income Singaporeans.

TOC: Is this true? Does this mean that Singaporeans do not have to worry about inflation – which is at a 25 year high – or cost of living anymore?

Sze Hian: If inflation is still expected to go up, and the bottom 30 per cent of workers’ wages may not be coming up fast enough to match inflation, I think the answer is quite obvious.

TOC: Each year’s budget is trumpeted as “generous” and applauded by the local media and PAP MPs. Last year’s budget, for example, was reported by Channel NewsAsia thus:

“There is no doubt the upcoming Budget will help the low income cope with rising cost of living, as they would be hardest hit by the impending increase in the Goods and Services Tax to 7 percent from the 5 percent now.”

Yet, the year proved to be one of record inflation, an increased income gap and continued wage depression for the low-income. The measures in 2007 “to help the low income” didn’t seem to help as many struggled to keep up.

What makes this year’s budget different?

Sze Hian: It’s very similar to previous budgets in that everybody seems to be getting some money.

However, I would like to give my concluding comments on the budget from the perspective of how well it is addressing the main problems facing Singaporeans today, and in the future, such as retirement, healthcare and housing, etc.

Retirement – Singaporeans save the most in the world, but end up with so little when they retire. The average CPF balance (all accounts – OA, SA, Medisave) was $66,000 at age 55 – the median for OA and SA I estimate is only $20,000+.

Healthcare – Rising costs and MediShield premiums that may wipe out any ad-hoc Medisave top-ups.

Housing – What’s the point of increasing HDB Housing Grants which do not catch up with rising HDB new flat prices? How many people have lost their homes and CPF when they cannot pay for their mortgages? This also contributes to the small sums left for retirement. As to monetising one’s HDB flat to retire, where does one live when you sell your house, since HDB has a 30 month waiting period to buy another new flat or rent one? If you downgrade to a resale flat, there may not be much difference to monetise for retirement.

PS: Sze Hian will be writing 3 articles to address the issues of healthcare, housing and retirement in more detail in upcoming articles on TOC. Look out for it.

Read also: 5 minutes with… Leong Sze Hian on rising inflation.



22 Responses to “5 Minutes With… Leong Sze Hian on the budget”

  1. family man said

    Thank you Mr Leong. My brother is a heart attack survivor, aged 57. His medisave is $30,000, but all his monthly visits require cash payment, not through medisave. The whole medisave top up does not count for anything while he continues to be cash poor. The joke is that he needs another massive heart failure, requiring hospitalisation, before he can unlock the medisave account, something I find is uniquely Singapore!

  2. Gary Teoh said

    It is true, medisave top up can’t help much with rising health care cost

  3. sarek_home said

    Hi Family Man,

    Sadly, the gov set Medisave as the funding source for major illness. Like many other situation, CPF locks up our money for our “future good” while we are forced to deal with the PRESENT PROBLEMS with cash.

    It would make more sense if Medisave continues to open up to cover at least partial payment of such follow up monthly visits like some chronic diseases.

    Q3. How can I use Medisave for my outpatient chronic disease treatment?
    You can use your Medisave to pay for outpatient treatment for the following four chronic diseases:
    • Diabetes
    • Hypertension
    • Lipid disorders (e.g. high blood cholesterol)
    • Stroke

    For each bill, you will only need to pay the first $30 of the bill (as the deductible) as well as 15% of the balance of the bill. Medisave can be used to pay for the remaining amount. This is regardless of whether the bill is for a one-off visit or a package (e.g. on a bill of $100, you will pay $30 plus $10.50 (15% of $70) and use Medisave to settle the balance of $59.50.)

  4. Simple mind said

    Hi there

    If the CPF is yours why cant you use it when you need to pay your bills ?

    CPF = your own cash ?

    Yes ? then why cant we use it….

    When we need it ??

    Simple mind

  5. Dear Mr Leong,

    With all the so called hongbaos that’s been dished out, in all honesty, who do you think get the biggest slice of the cake?

    Would not the fat cats with million $$$ salary benefit more than the the poor and middle income Singaporeans.

    Example 1: If a minister who earns more than a million per annum, would he not enjoy the maximum rebate of $2,000 from his income tax? Even he lives in a guarded bungalow, would he not still enjoy $100 from Growth Dividends? If he did NS, would he not still get $100. So all in all, he gets $2,200 in benefits?

    Example 2: If a fat cat earns millions and he’s in he’s 80’s, would he not still get the maximum Govt top-up Medisave of $450? So he still enjoys $2,000 from his income tax rebate and $100 from Growth Dividens. Wow, he gets $2,750?

    More than the whole of what the Tok family receives?

    Please correct me if I’m wrong in the above examples.

    So Mr Leong, does this hongbao budget (especially tax rebate) help the fat cats more than the men-in-the-street?

    I have been reading your financial and economic articles here and I have learned much.

    Your expert reply here would help me understand more about the selected truths that’s been dish out so often.

    Thank you

    Feed me to the fish.

  6. saintmoron said

    Inflating the prices of consumption, especially essential goods and services, follow by ‘peanut handouts’ somehow seems an effective strategy.

    I never failed to see ordinary folks getting excited and elated whenever ‘handouts’ are announced.
    They are charmed and ingratiated, even though the amounts are insignificant and much of them are negligible, practically useless, such as Medisave top-up, for general purposes.

    Unless and until the peasants realised, that their gravitations toward ‘money they don’t have to labour for’, work against their interests in the long run, it is going to be dire. They will be like frogs swimming in a boiling pot not knowing the danger they are in.

    Neither can I say the handout givers are any wiser for making their very own people behaving in the aforesaid manner. It is going to be a vicious cycle and the endings for both the people(the takers) and the State(the giver) just can’t be good. It is foreboding.

  7. peasantJUDGE said

    Mr Leong,

    You are right. The budget forcaste at the time of the GST raise must be the most ridiculously inaccurate forecast ever made.

    Pause. Could it have been a deliberately inaccurate forecast? Afterall, there was much resistance to the 2% increase. They had to hardsell it: “to help the poor” and, I’d say, “without the 2% we will be running on deficit of xxx billions”.

    Today few people can remember such a forecast. They are right, you know — Singaporeans have very short memories. Except you, thank godness.

  8. Vincent said

    Quote: “Our investments abroad, especially those of Temasek and GIC, are fraud with uncertainties.”

    I think the correct word is ‘fraught’, but I’m sure you’re just being facetious here! 🙂

  9. anonymous said

    The only telling thing about the budget is the scrapping of estate duty.

    To me, it means one thing. They are preparing for one LEE to die.

  10. Hi Vince,

    Thanks for pointing out the mistake. No ill-intent was meant and our apologies to everyone. We’ve corrected it. 🙂



  11. saintmoron said

    Perpetrating schemes to gain political advantages and or monetary rewards for personal/organizational enrichments are to be seen as common practices by politicians, universally. However, the State and the people should be taken care of in such big scheme of ‘running a country’. Obviously, any wise ruler will want to make his people happy, the Country rich.

    As I see it, in Singapore, citizens are conscripted to defend the country, perpetual schemes to make the people slog for survivals and creating different classes of people in the population are parts of the Strategy of control, divide and rule and for the Rulers to have tight grips over the people.

    The Election System, as it stands, with grc, educational, deposits and other requirements, is all out to stifle any opposition. It is not that there are no aspiring politicians for both the Ruling and Opposition Parties, it is, I believe, the fear for the lack and loss of respects when becoming one. The ambition of any would-be politician will wither fast in our political environ.

    Yes, make the people beholden to the Ruler using the handouts as the bait and glue; it has proven very effective to get the people addicted. But, how long can such a sheme be maintained? How long should the ‘Golden Goose'(as described by GCT) be fed and fatten to obesity, high cholestrol/blood and other medical conditions and ultimate its’ natural short lifespan? How many ‘Golden Eggs’ will it lay before it ends in maturity?

    It is really tough and touchy as a citizen to relate with our leaders who seem to have more foreign than local friends. Can they be casual and caring in relating to their very own people? We certainly hope that they can!

  12. […] domestically, but not internationally… – in a blink of an eye: Budget 2008 – The Online Citizen: 5 Minutes With… Leong Sze Hian on the budget – LadyJava: Singapore budget 2008 – The States Times: A Bo-Chap Budget – My Singapore News: […]

  13. Gary Teoh said

    Why should the government gave the people HongBao, any motive?? $150 or $200 can’t help much. If they are sincere,why not subsidize petrol, other essential items like Malaysia and Indonesia where the government subsidize daily goods and necessity,and not giving handout.The PA scheme is good for the poor, but there are flaws in it

  14. susu said

    Low-balling projected revenue numbers accomplishes two key political goals for the government. The first is that it enables the government to claim poverty and underfund needed programs.

    Over the years, we have heard these claims in the areas of health care, education, in trying to justify offensively low social assistance rates, and even in avoiding needed infrastructure projects.


    Hiding revenues also allows the government more freedom in making spending decisions once the unbudgeted funds comes in, because the decisions can be made in cabinet and passed by the legislature after the fact.

    This benefit is enhanced by the possibility for high-profile and highly popular spending announcements outside of the formal budget process, and away from the scrutiny and questioning of the opposition.

    ……after registering another huge unbudgeted surplus, the premier is looking for the most politically expedient way to spend the money. And because it is the middle of summer, the final decision will not be made by the legislature.

    This bypassing of the legislature — the venue where government is supposed to be held accountable for how they spend our money — by constantly low-balling revenues, is a huge part of the democratic deficit in this province.

    ……spending decisions must be made democratically and in the public interest, not behind closed doors and for political gain.

  15. Expected Analysis said

    If Singaporeans can opt not to accept the handouts in exchange for a freeze in price/fee increases, a vast majority will be most relieved.

    It has been consistently proven that whatever goodies dished out by the govt, more will be taken back from the people through many forms of disguised revenue generating policies.

    The 2% GST increase was totally unjustified. It was implemented to generate revenue to cover the civil service pay hike in the name of ‘good governance.’

    “If Singaporeans want good governance, then the civil service must be paid very well to discourage wrongdoings?”

    Is Singapore so poor of talent that one will only take up civil service jobs lured by the fact that one will be an instant millionaire when promoted to a minister?

    We can safely assume that for every one attracted by the pay, there’s another one who genuinely feel and wants to help the people.

    Why are these good and equally qualified people not in the govt? Looking at the setup of the govt, one would question whether one could really make a difference in the decision process.

    The main problem of our govt is simply a case of profiting in every conceivable ways. Remember, the ministers have a performance bonus to look forward to. Maybe, their bonus will turn out to be much more than their basic pay.

    Can you see the true price that Singaporeans have to pay?

    The answer lies in the next GE.

  16. simon goh said

    read thru all yr replys, seems like this garmen is not looking after singaporean after all. only for themselves !!! too bad , most of us are all brainwash that they are the best to lead us( at least not me, i vote against them ),without them singapore will die !!! sick leaders, got to hell !!!

  17. b said

    A few points to add in my humble opinion:

    1) True enough, the last budget was probably the most inaccurate budget in history, but one would have to look back at the constant upward revision of economic growth forecast throughout the year to gain a better perspective. Our own economy and the global economy wasn’t expected to do as well as it did when the budget was first planned and announced, so will it be good if an overly optimistic budget (at that moment in time) was planned and the economy actually did worse than predicted?

    2) To Susu: the 2nd previous handout was for political gain, the previous handout was for political gain, and the current handout is for political gain. So when will it come to a time when its not for political gain? I think we have to be fair to the government for having the willingness to give handouts to Singaporeans, as the budget surplus could well be kept into our reserves following what have been done ever since we gained our independence.

    3) However, I would say that the $1.8billion handout is probably too low considering how much our budget surplus was for the previous fiscal year. The distribution curve could be made steeper to enable more help to be rendered to lower income families. Furthermore, the income tax rebate should be scrapped as most of the lower income families do not even earn enough to pay taxes anyway! The money that would have been spent on the income tax rebate could well be transferred to a higher handout for people, or/and a higher top-up into their Medisave accounts, which when done, would benefit the lower-income group more, instead of giving rebates to the super-rich to purchase their Guccis and LVs.

  18. sarek_home said

    Dear B,

    To the question of “when will it come to a time when its not for political gain”, it is more a matter of how the government is giving the surplus back to the people.

    For example, the government could use the surplus to build up a retirement fund, it would have addressed the annuity issue and there will be no need to impose this annuity scheme on the people. However, doing so will not win the government as much political gain because the giving is not individually targeted and the benefit felt immediately as it is now.

    It is a matter of addressing the people’s long term needs with the surplus vs the government’s short term need of winning political gain and the government has chosen the later one.


  19. saintmoron said

    To: B;
    Everybody in Singapore pays taxes, from the conceived unborn to the dying patients, all pay taxes; at least the GST.

    Maybe it is frivolous of me mentioning taxes on cigarettes and liquors but let me say that these two items are the most ‘common consumed’ items throughout the World. They are ‘breaks’ for simple folks, if You understand what I mean. And they are taxed outstanding high.

    Well, let’s just say that it is well and good to make and accumulate surpluses, but how long must they be kept unused? One generation had gone by without benefitting from it(surplus), so how many more generations are the surpluses to be reserved? Money is currency, which I surmise serves greatest purpose, when it is used productively and not kept under the pillow.

  20. Robert Teh Kok Hua said

    Last year (2007), in announcing the proposal to increase GST from 5% to 7%, PM Lee could have simply told the truth to the parliament that we might have a possible surpluse of $6.00 billion from land sales and other capital gains not reported in the annual budget due to past creative accounting practices.

    Without telling the truth it looks like people have been deceived into approving the increases of GST and other government charges.

    It is hoped this lesson will be learned and our 84 MPs in parliament this time will have a more responsible debate on the 2008 budget.

    channeled direct to the President’s Reserve

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