Budget 2021: Living Wage, Level Playing Field, Stronger Social Safety Net Needed

This speech was given with regards to Budget 2021, and delivered on 2 March 2021.

Mr Leong Mun Wai (Non-Constituency Member): Mr Speaker, Sir, I welcome Budget 2021 announced by the Deputy Prime Minister and Finance Minister on 16 February. The Budget, which allocates about 20% of our GDP, has provided continued support to fight the COVID-19 and the resources to accelerate our socio-economic transformation to a new and sustainable model. 

The basic deficit of $31 billion is attributable to $11 billion for the Resilience Package and $24 billion spread over three years for the emerging stronger initiatives. This basic deficit can be easily covered by the NIR or Net Investment Return earned from our total financial assets of more than $1.35 trillion. This NIR is estimated to be $39.2 billion for FY2021. 

However, since the Government’s policy is to only use half of the NIR for spending every year, we can only use $19.6 billion to offset the basic deficit, which gives us an overall Budget deficit of $11 billion for FY2021.  

If there is a need to help Singaporeans to survive and to do better, we think we should not hesitate to spend more, even up to the total NIR we earn every year. For the foreseeable future, we do not see any shortage of fiscal revenues. 

Needless to say, we must ensure that the money spent will have a lasting effect on our people and give them the confidence to take ownership of and build their own futures. It is in this regard that I think Budget 2021 has fallen short.  

Firstly, like the Budgets of previous years, many of the measures are short term, ad hoc and come with confusing names. Just like the Household Support Package, as an example. We have the GST Voucher Special, U-Save Special, Service and Conservancy Charges rebate, Edusave Top-ups, CDC Voucher and more.   

With such a confusing array of schemes, it is difficult for Singaporeans to find any lasting reassurance or peace of mind and create long-term plans for their futures.   

A true Resilience Package must contain long-term transparent and predictable schemes which Singaporeans will automatically qualify if they fall below a certain threshold. In this way, every Singaporean would know where they stand financially in every stage of their lives and how they can work towards a stable financial position.   

Secondly, the Budget measures did not tackle the root cause of the problems of job security and a rising cost of living which still afflict Singaporeans today especially the middle class.  

There is an urgent need to rebalance the local-foreign worker mix in our job market. Mr Yeoh Lam Keong, the former GIC Chief Economist and one of the founders of FOSG or the Future of Singapore Group, has pointed out that, and I quote, “our most fundamental economic weaknesses stem (from) our structural excessive dependence on foreign capital and foreign labour.” So, in preparing for a post-COVID-19 future, should we not seize this opportunity to reduce our reliance on foreign labour?

I was disappointed that the Budget only adjusted the S Pass quota for the manufacturing sector for managing the local-foreign worker mix.

Currently, foreign workers account for, on the average, 40% of our workforce at all levels, whether Work Permit, S Pass or EP holders and many of the foreign workers have even taken the helm of our local companies.  

The growing numbers of displaced PMETs joining the ranks of the private hire drivers and gig workers is the best final evidence of the shortcomings of the current employment and immigration policies.   

The other urgent problem is the high cost of living and the heavy indirect tax burden of middle class Singaporeans. Housing prices has continued to surge during COVID-19 period. Other costs, like electricity, ERP and now, the petrol tax, are also increasing.  

For Singaporeans above 50 years old, the worries over retirement and healthcare is worsening by the day. In 2021, Singaporeans will not only have to pay up to 35% more in MediShield Life premiums, but will also have to start paying CareShield premiums.  

Seemingly, oblivious to all these pains of the middle class, the impending rise of the GST was brought up again during the Budget speech despite the Government agreeing that the GST is regressive in nature.

When the top quintile income earners contribute more than 80% of personal income tax revenue but only 60% of the GST revenues, I hope the Government would also admit that a tax system relying more on GST revenue will burden the middle class most, namely, those who do not earn enough to hit the higher income tax brackets, but do not qualify for GST Vouchers. These are also the people who have young families with children, spending most of their income on essentials. 

Adding on social stress like the unnecessarily competitive Primary school education system and the yearly commitment of in-camp training for male Singaporeans, it is not difficult to understand how stressed middle class Singaporeans are.  

 However, without the participation of the middle-class, the economic transformation is doomed because there will not be enough players to create healthy competition in the market if only the top quintile Singaporeans are innovating. Perhaps, it is because of an impoverished middle class that we need more foreigners.

Hence, a good Budget must tackle the root cause of the problems with long-term, predictable policies and schemes, and it must aim to build a secure foundation of financial stability and social dignity for our Singaporeans.  

With that objective in mind, we would like to make three major long-term policy recommendations to nudge the Budget in the correct direction.

The first recommendation is to introduce a living wage for the low-wage workers. The Singapore Progress Party (PSP) strongly believes that a Singaporean who has put in a day’s work should be compensated sufficiently to allow him to live with dignity.

And we firmly believe that honouring our fellow Singaporeans must take priority over all other economic arguments and we should not wait for the Government to take another decade or two to slowly review the wages of the low-wage workers, sector-by-sector, through its Progressive Wage Model. 

In 2019, Asst Prof Ng Kok Hoe and his team from the Lee Kuan Yew School of Public Policy had conducted a minimum income standards study on what older households need to meet their basic needs. The study postulated that single elderly households aged over 65 needed $1,379 per month and single households aged 55 to 64 needed $1,721 per month. While not definitive, this provides a good benchmark to design a living wage policy.

Using this benchmark, we propose a living wage of $1,500 take-home pay for all local workers which translates into $2,055 in gross wages for a start. The Government could pay the main portion of the increase from 2021 to 2023 to allow businesses time to adjust. We estimate this will increase operating expenditure by about $1.6 billion in each of the next three years. The living wage will lift the wage share of the GDP, something that my colleague Ms Hazel Poa has recommended yesterday.

There is a consensus in this House that we should care for our essential workers who are also often low-wage workers. We think the best way to achieve that is to have the living wage. Low-income Singaporeans will be able to have peace of mind with a living wage rather than those usual ad hoc, short-term and unpredictable schemes offered by the Government. 

The second recommendation is to level the playing field for our Singaporean talents in our very own job market.  

While it is understandable that we need foreign workers to complement us, it puzzles me why the Government has allowed a wage disadvantage against the Singaporeans for the longest time.

This wage disadvantage against our local workers has arisen from the fact that foreigners are not included in the CPF system. While this disadvantage has been slightly reduced in the case of the Work Permit holders and the S Pass holders through the levy system, it is not the case for the EP holders. It has often been highlighted that this is a loophole for employers to exploit to the disadvantage of our Singaporean workers.  

Hence, in order to level the playing field, we recommend imposing a $1,200 monthly levy on all EP holders immediately. The $1,200 amount is based on the employer’s contribution and part of the employee’s contribution. This is estimated to generate new operating revenue of $2.7 billion per annum. If the Government needs more revenue, this is a good option to consider. 

This levy will differentiate the true foreign talents, who are high salaried and less affected by the $1,200 levy, from the foreign talents who are simply cheap labour that compete unfairly with our Singaporeans and whom our economy has become overly dependent on.

The third and last recommendation is to strengthen the social security for Singaporeans by having the Government pay for all the MediShield and CareShield insurance premiums. Base on our financial projections, most middle class Singaporeans cannot afford the MediShield and CareShield premiums in their old age. And this is not clearly explained to the people.

The average Singaporean can accumulate about $1 million in savings in his CPF account, if he had contributed continuously from 25 to 65 years old. With the contributions compounded at the CPF interest rates of 2.5% and 4% per annum for the Ordinary, Special and MediSave account respectively.

Ostensibly, all Singaporeans should have adequate retirement resources in their CPF account. This is the reason why our CPF system is rated as one of the best retirement schemes in the world. But like the many other accolades that we have received, it only tells half the story. 

In reality, about half of the CPF members do not have enough money in their CPF account, even to satisfy the Basic Retirement Sum of $93,000. This is because in addition to retirement use, the Government has designated two additional uses for the CPF monies, namely purchasing HDB flats and topping up the MediSave account.

The MediSave account is designed to pay for all the MediShield and CareShield premiums and out-of-pocket medical expenses of a Singaporean and his dependent family members, including his parents. Yes, he or she is responsible for all his family members as far as medical expenses are concerned.

We estimated that the total premium paid by an average family of four, up to 65 years old for the parents, and 25 years old for the two children before they become independent, will cause a drain of $110, 000 from the parents’ CPF resources. Considering that those premiums, if not withdrawn from the CPF account, they could have earned a compounded annual return of 4% over the years. In other words, if the family did not need to pay the MediShield and CareShield premiums, he would have an additional $110, 000 for retirement. Furthermore, if the premium increases by 10% every five years, which is highly possible, given that MediShield premium is going to go up 35% this year. The drain on the CPF account will be from $110, 000 to $246,000.

The MediShield and CareShield schemes are thus a big drag on the retirement resources of Singaporeans. And the current social security plans are highly unsatisfactory. The reason why CPF rules have to be tweaked frequently, it is not because that the Government had lost the CPF money in bad investment, like some fake news have it. Rather, it is because the Government knows that most Singaporeans do not have enough funds to cater for all the three uses. Hence, it is restricting withdrawals.

So, we recommend that the Government funds, the insurance premiums of the MediShield Life and CareShield scheme for all Singaporeans and PRs. This will increase operating expenditure by adjustable justifiable some of $2.6 billion per annum, which is only 0.5% of our GDP.

By taking away one of the sources of drain on the CPF funds, most Singaporeans will be able to satisfy the basic retirement sum of $93,000, and also not to have to worry about the unaffordable premiums in their old age. This means that two social security problems of Singaporeans are resolved by one policy. And if we relax, the withdrawal limit for MediSave at the same time, because more cash is now available in the account, we will resolve another financial problem for Singaporeans.

Managing healthcare cost is an on-going and complex matter, which requires many more policy and system changes. However, we believe our recommendation is a significant first step in the correct direction. 

Sir, in total, the three recommendations will incur a net additional spending of $1.5 billion. The Government can decide whether it wants to reallocate existing resources to these recommendations, or allow the additional spending to provide more stimulus for the recovering economy.

We believe our recommendations will go a long way; helping to secure a foundation of financial stability and social dignity for Singaporeans. Only with this secure foundation, can we really emerge as one people. Sir, I support the Budget. 

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