Governance of a City-State
Bold innovations needed to make Singapore stronger together

In recent national broadcasts which addressed Singapore’s response to the disruptions caused by COVID-19, Deputy Prime Minister Heng Swee Keat and Senior Minister Tharman Shanmugaratnam emphasised the need to strengthen solidarity amongst Singaporeans.

One critical area where this is needed is in the protection of Singaporean workers, even as they continue to make a living.

Workers will not always be able to rely on their own individual capacities in a volatile, uncertain, complex and ambiguous post-pandemic world. So, Singapore’s social compact will need to evolve to one which still emphasises the fundamental principle of self-reliance, but with new features.

These measures may involve pushing Singaporeans out of their comfort zones. The price of social solidarity will not only be in the form of a higher tax burden on a portion of the population, but also a discarding of zero-sum mental modes of thinking. The challenges brought by COVID-19 have surely shown that this nettle will need to be grasped forcefully.

In particular, new institutions and policies need to be introduced that emphasise the sharing of employment risks, leading possibly to some form of universal basic income.

Saving for rainy days

The volatility of workers’ earnings in a post-pandemic economy will necessitate income smoothing to tide workers over during lean patches, as many jobs may be characterised by intermittent periods of peak activity followed by inactivity or slack.

The most obvious means of income smoothing is to save a portion of income earned to cover the worker’s consumption needs when he or she is not working.  In Singapore, the Central Provident Fund (CPF) is a social security savings system that helps to finance lifelong retirement income security, healthcare and home ownership.

CPF savings however cannot be tapped to cover temporary shortfalls in income resulting from voluntary or involuntary bouts of under- or unemployment. To do this, the system would need to set up a new savings account which allows workers to build up additional savings held in the CPF, for withdrawal during periods of specified economic inactivity.

The amounts withdrawn would have to be replenished as quickly as possible once the worker starts earning again, perhaps after a new gig is secured or after retraining and starting a new occupation.

Even with this seemingly simple addition to the CPF scheme, a number of workers would still face considerable insecurity during periods of heightened income volatility.

Already up to 37% of an employee’s gross wages are set aside in CPF members’ accounts, and it is unclear how much more income might realistically be put into this employment security savings pot, especially for those already living from pay-check to pay-check.

Therefore, a more comprehensive collective employment risk pooling system might be required, in the form of unemployment insurance.

Risk pooling

At its most basic form, unemployment insurance offers pay-outs to workers who lose their jobs and meet certain eligibility criteria.  The scheme might be funded by premiums paid by workers – and perhaps also by their employers – or financed by the government through taxes, or a combination of the two sources.

Proponents argue that unemployment insurance buffers workers from the vagaries of the labour market today by providing short-term income support. It also facilitates re-skilling, re-training and re-employment transitions for workers who lose their jobs.

Critics, especially of state-funded schemes providing broad coverage, point to examples of bloated, overly bureaucratic and expensive schemes around the world.  Other reservations, especially expressed in the local context, indicate unemployment insurance might adversely affect the work ethic and increase the structural unemployment rate.

The arguments span the political spectrum.  But perhaps the most important point to note is many unemployment insurance schemes will not cover self-employed, gig economy and freelance workers well.

There is a need therefore to supplement these schemes, especially as these groups of workers might form a large part of the future workforce.

A universal basic income

To completely update the social safety net for the future workforce, even more radical solutions based on mutual solidarity and collective support might have to be considered.

One such solution could be a variation of what is known as universal basic income (UBI).  In its most radical form, UBI would involve periodic payments to all members of a defined population without means-testing nor a requirement to work.

UBI would support workers through periods of under- or unemployment and enable them to bounce back effectively.  It would allow all members of the society – and not just those in the formal labour market – to have the space and financial buffers to take more risk. They may start new ventures that may have uncertain pay-offs or use the time to develop new capabilities to adapt to situations no-one may have encountered before.

It would also be expensive from a fiscal standpoint, even more so than unemployment insurance.  Making payments of $600 a month to every citizen aged 18 years and above would cost over $20 billion a year.

If funded entirely from income tax collections on current tax brackets, this would require an across the board increase in income tax rates of 19 percentage points.  Those at the lowest income tax-paying band would be subject to a marginal tax rate of 21%, whilst the top income tax rate would be 41%, up from 22%.

In theory, UBI would significantly reduce after-tax income inequality.  Although there would be a sharp increase in tax rates levied on them, those with assessed income less than $150,000 would be better off as their UBI received would be greater than their increased taxes.

It would increase the financial security of all citizens and bring many of the individual and societal benefits alluded to above.

Although there have been a number of policy experiments around the world on UBI – Canada, Finland and Kenya, for example – there are at present no UBI schemes where meaningful insights can be drawn on the likely outcomes.

Singapore needs to make difficult trade-offs as it moves into a post-pandemic future. But as we consider how our workers can make a living in an uncertain world, surely even radical adjustments like a form of UBI could be examined.

Implementing these bold social innovations would require a significant shift in mindset across the whole of society. Only then can the call for an enhanced culture of solidarity be backed up with action.

The principle of self-reliance that underpins our social compact can be complemented with schemes that reinforce a culture of shared risks, rewards and responsibilities, enabling Singaporeans to imagine a future where we are stronger together.


Christopher Gee is Senior Research Fellow and Head of the Governance and Economy department at the Institute of Policy Studies

Top photo from Freepik.

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