By Devadas Krishnadas

The annual national budget is something most Singaporeans take only passing and selective notice of. They should give it more attention. The budget is not simply an exercise in national accounting. It is an expression of where the tyre meets the road for policy. No money, no talk as the saying goes.

An Envied Fiscal Posture

Singaporeans should take comfort on three important features of the national budget.

First, unlike almost every other advanced economy, our budget is not debt financed. This is to say that we do not borrow for our needs but meet them out of our revenue raised. Hence, we do not have a fiscal situation where we are indentured to paying off interest as a percentage of our revenue. We thus avoid being at the mercy of fickle credit markets. The net result is that within the boundaries of our fiscal space, we can act with confidence. This makes us fiscally credible and policy predictable.

Second, the government runs lean comparative to other economies in our GDP per capita bracket. Whereas it is not unusual to find national budgets in advanced economies running over 30 per cent of annual GDP, we have typically restrained ourselves to spending below 17 per cent of annual GDP.  Considering the modern city we inhabit this means that we get considerable bang for each buck of public expenditure.

Third, again unlike almost every other advanced economy, we have been reducing the burden of taxation rather than increasing it. Direct taxation has fallen over the past decade. However, indirect taxation has increased, but since indirect taxation falls on consumption the amount of taxation incurred in this way is discretionary on the part of the taxed. The government has also practised a tax and transfers model to moderate the regressive nature of consumption taxation.

Looming Fiscal Challenge

To most fiscal planners these features are highly desirable. However, in recent years, most loudly during the series of political elections over the past 18 months, there has been growing contention that there should be less emphasis on economic growth and greater expenditure on social safety nets. Well founded concerns over growing income inequality have also led to suggestions that ‘something’ must be done to countervail this trend. In successive recent budgets the government announced several enhancements to social policy and in the wake of the last general election it has restructured itself to give more emphasis to the issues these policies seek to address. These policy and political adjustments, while responsive to the demands of the electorate, could alter the three features which have made our public finance the envy of most other countries.

If we want to spend more there are three ways to go about it. The first is choosing different ways to cut up the revenue pie. This calls for changing of priorities in public expenditure and acceptance of ensuing trade-offs. The second approach is to increase the revenue pie with higher taxation or a greater share of investment returns from our sovereign wealth funds. The third approach is to persist with trying to grow the economy and thereby expand the revenue base.

We are facing three large public finance drivers. The first is the infrastructure needs to support population growth. The second is the needs of an ageing society. Third is the moderation of growth as we settle into economic maturity. The fiscal future of Singapore would probably require a mix of all three approaches to public finance. Only should these still be insufficient would we then find ourselves resorting to risky measures of debt financing or running down reserves.

Why We Grow

Simple budget expansion is not a panacea for the challenges that Singapore and Singaporeans face. And yes, there is a distinction. When we think about ‘Singapore’ it is as an abstract.  Doing so permits policy makers to arrive at technically clean policy solutions. However, it is when there is a need to reconcile these solutions with how we think about ‘Singaporeans’ as a citizenry that policy making becomes conflicted and sometimes controversial. This is simply because while policy should be considered a means and to a considerable degree can be treated objectively and rationally, the ends of policy are unfailingly political and thus inherently subjective and ideological. Therefore the first task of analysis in our consideration of any budget is to make a distinction between what is policy means and what is political ends.

As illustration, let us take the central thesis of the ruling party’s political narrative. This concerns the role of economic growth. Is growth a political or policy objective? A large number of Singaporeans in the recent past have taken issue with the prioritisation of economic growth over social policy considerations. Their occasionally heated, but doubtless sincere perspective, is understandable if we accepted two things as fact. The first is that economic growth is a political objective and the second that its prioritisation needs to be mutually exclusive to social policy. However, neither of these assertions is true.

The political narrative characterises economic growth as a policy not a political end. The political end is national survival. The rationalisation is that Singapore must have growth in order to prosper and without prosperity, we decline and fail. This is because of two actual facts of economic and political reality. First, there is no such thing as a ‘standing still’ or ‘rest point’ for the economy. We are either growing or we are contracting. Second, our survival is conditional on our relevance in the international space. Being a very small country, our only credible channel of relevance is economic. All our other dimensions of engagement – political, military and cultural – are conditional on our being economically relevant.

While seemingly objective, this is still arguably an ideological point of view. It would be perfectly possible to take a different view. Radical political ideas in the past have asserted that national survival is not consequential and the greater end is some form of social transformation– anarchy, class dominance,  even racial supremacy.

More recently,  there has been the suggestion that while national survival was primal, as an idea it need not be indexed to growth but to some other measure such as the much touted ‘happiness’. However what has hitherto proved impossible is to how to make this work.

Growing for Whom

2011 should be considered a seminal budget year. In Budget 2011 the government clearly articulated a shift in emphasis from ‘quantity’ growth to ‘quality’ growth. Quantity growth was growth for the sake of it and where the unit of smallest analysis was the economic sector. Quality growth took as its purpose the needs of the citizen and made the smallest unit of analysis the individual worker. Budget 2011 set the goal of growth as being real income growth for all Singaporeans. Providing jobs for all who can work and boosting real incomes make for the best possible social policy formula. It gives our citizens the dignity of taking care of themselves and the sense that they are doing better over time. The mechanism for achieving this target is to improve productivity across the economy.

Achieving productivity improvements is rarely straightforward. While the government has invested in measures such as the Productivity and Innovation Credit and made available further funds through the National Productivity Fund it requires employers and workers to act together to utilise these resources for the purpose. The accelerated raising of the foreign worker levy has been introduced to incentivise employers to be more productive. This was not an easy call as the costs are passed through finally to consumers. However, unless the economy restructures onto a more productive plane, we cannot expect to stay competitive. Unless we succeed, we surely cannot afford the social investments we commonly desire nor could we keep the ones we already have made. Such is our reality.

Until otherwise proved, we must thus accept that our particular circumstances imply that economic growth as a policy objective is sound and serves the supreme political end – national survival.  It is a wry irony that without growth we  cannot afford those same social policies its detractors’ champion. Where these detractors also err is that economic growth and social policies are not mutually exclusive. The challenge is how to find a mix where the first can be sustained such that we can continue to afford the price of the second and where well intentioned social policies do not inadvertently undermine our ability to grow or stay fiscally sound.

Arguing Why

The future political contests will be on two axes.

The first, and more difficult, is the contest of political ends. The ruling party has a well-oiled political narrative. The opposition could try to present a competing alternative political narrative which can win the support of the people.

The second axis is where the opposition could embrace the prevailing political narrative and limit its case to arguments about policy means. The second approach need not necessarily weaken any eventual claim by the opposition to form the government but neither does it help it.

Arguing How

If the opposition is unable to present a countervailing political narrative then it should be careful to avoid confusing the electorate with futile disputes about shared political ends. Their focus should instead be on the debatable policy means to secure those ends. Future debates must be characterised by political actors investing energy and intellect to study, compose and present compelling policy ideas to move us forward.

There is an onus on all political actors to premise their platforms on two principles of action. The first is that these platforms should be more than about what they are standing against and extend to include a clear articulation as to what they are standing for. Second, provide policy solutions on how to actualise their political goals.

A Big Tent of Ideas

One’s relationship with the budget should not be restricted to responding to it upon its release. There is much scope for more participation by academics, civic leaders, the citizenry and all political actors to engage more intensively to generate ideas and feedback to the budget process. When doing so there is an obligation not only to make clear how the suggested policy means serve declared political ends but also an acknowledgement of the consequential fiscal imperatives.

Governance has become more complex, our trade-offs more stark and our fiscal means more marginal. However, our electorate is more educated and our intelligentsia more active. The government should erect a big tent for a rigorous debate over policy ideas. If it does, then it is up to the rest of us to leave aside the temptation to merely pin feathers of opinions onto the canvas and walk in prepared to share in the heavy lifting of policy solutions.

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Devadas Krishnadas is the Director of Future-Moves. He was previously Deputy Director of Fiscal Policy at the Ministry of Finance.