Budget 2012 Speech (Part 2): Sustaining Economic Growth

The first task is to upgrade and restructure our economy, so that we can grow by becoming more productive -AsiaOne
Fri, Feb 17, 2012
AsiaOne

Sustaining Economic Growth

Our first task is to upgrade and restructure our economy, so that we can grow by becoming more productive, and can rely less on expanding our workforce. We embarked on this new direction two years ago. Our aim is to achieve productivity growth of 2% to 3% per year, or in total 30% productivity growth over a decade. It is a challenging target.

We have made some progress in the last two years, but mainly because the economy rebounded strongly in 2010 after the downturn, with output growing much faster than the workforce. The core task of restructuring businesses and industries remains and must be our key economic priority.

We will therefore take important further steps in this Budget to promote this necessary restructuring. We have to reduce our dependence on foreign labour, and do much more to build an economy driven by higher skills, innovation and productivity, as the basis for achieving higher incomes for Singaporeans.We have made some progress in the last two years, but mainly because the economy rebounded strongly in 2010 after the downturn, with output growing much faster than the workforce. The core task of restructuring businesses and industries remains and must be our key economic priority.

Foreign workers have in fact been indispensable to many of our industries. Our businesses have complemented a core Singaporean workforce with foreign employees at all skill levels. It has enabled them to stay competitive internationally and to service their customers and markets. In particular, many smaller and newer firms would not have been able to survive and grow without access to skilled foreign workers.

Singaporeans workers too have benefited, and not just businesses, from the presence of foreign workers here. As the number of foreign workers rose in recent years, so did demand for local workers. Many new jobs have thus been created for Singaporeans. Incomes have gone up. The median Singapore household saw income per household member grow by 17% in the past five years, after adjusting for inflation. The lower end has not lost out either. Singaporeans at the 20th percentile of households experienced 14% real growth in income per household member – both because their individual wages have gone up, and also because more members of the household obtained jobs (see Chart 1)

Some Singaporeans at the lowest rungs of the income ladder, especially cleaners, have not seen this lift in incomes. We take that seriously, and are tackling the problem. But the broader picture of the last five years has been that most Singaporean families have enjoyed significant real income growth.

However, our increasing dependence on foreign workers is not sustainable. It will test the limits of our space and infrastructure, despite our efforts to build more housing and expand our public transport system. A continued rapid infusion of foreign workers will also inevitably affect the Singaporean character of our society. There is also an important economic reason: the easy availability of foreign labour will reduce the incentives for our companies to upgrade, design better jobs and raise productivity.

We must therefore take further measures to reduce the inflow of foreign workers, and help our businesses adapt to the permanent reality of a tight labour market.

None of this will be easy. Many companies, including growth enterprises with strong demand for their services, are finding it difficult to recruit local workers. While many of them may be able to adapt and grow in less labour-intensive ways, others may choose to downsize, switch to new business lines or move abroad. We must allow market forces to restructure our economy, so that efficient enterprises have more room to grow. The Government cannot decide which companies should succeed or phase out. But we will provide broad-based support to help as many businesses as possible to retain their roots in Singapore and grow, and help Singaporean workers who may be displaced to find new jobs.

Our SMEs are in fact the most affected by this challenge. The Government will extend special help to them, so they can reorganise and upgrade their operations, attract Singaporeans to work with them, and be viable and vibrant contributors to our economy years from now.

We have in fact seen major improvements in productivity in each phase of our economic development. In 1980, it took 27 workers to produce $1 million worth of output (in today’s prices). Today, it takes only 10 workers to produce the same value of output. This is why the median Singaporean worker now earns three times as much as 30 years ago, after taking inflation into account.

However, while the economic growth in these past decades has relied equally on productivity improvements and increases in the labour force, in future, productivity must be the key driver of our growth. In terms of productivity, we still are some distance behind the most advanced economies. Today, the same value of output produced by 10 workers in Singapore takes only 7 workers to produce in the US or 6 in Switzerland[2].

[2]: Based on data from official sources and converted to common currency using average market exchange rates from 2009 to 2011.

If we succeed in transforming our economy and achieving productivity growth of 2% to 3% per year over this decade, we should be able to sustain economic growth at 3% to 5%, and build competitive enterprises. It is, more importantly, the only way in which our workers can enjoy higher incomes and our society can be strong and cohesive.

A Fair and Inclusive Society

Restructuring our economy so that our incomes can grow steadily is therefore our first task in building an inclusive society. We have to maintain a dynamic economy and grow the pie, in order to generate the resources to help all Singaporeans get a fair share of the pie.

But to build a fair and inclusive society, we also have to create more opportunities for lower- and middle- income Singaporeans, and provide stronger help for families who fall on difficult times to pick themselves up.

We have taken major steps in this direction in the last five years. We introduced the Workfare Income Supplement (WIS) scheme in 2008. This is a major Government programme, topping up the wages of low-income workers by as much as 25% each year. In addition, we have a one-off Workfare Special Bonus that will last till next year. Through these two Workfare schemes, we are benefiting 400,000 Singaporeans by a total of $590 million per year.

We are providing lower-income families with bigger grants to buy their own homes. We have continued education reforms to broaden the pathways to success, and increased education subsidies for students from lower-income families, from pre-school through to university. We have more than doubled the help that Medifund provides. And we have provided strong incentives for better-off Singaporeans and companies to give back to society and strengthen our social compact.

We have to do more. Our population will age quickly over the next two decades. We must be ready for that. We also have to do everything we can to keep up social mobility in each generation, and prevent a permanent underclass from forming in our society.

We will address these challenges not just in this year’s Budget, but over the next five years.

Budget 2012 marks a significant step up in our support for three groups of Singaporeans:

a. For older Singaporeans, including those in the middle-income group, we will introduce a comprehensive set of measures to help you work, to build up your savings, and to stay healthy and have a greater sense of security in retirement.

b. For Singaporeans with disabilities, we will do more to help you maximise your potential at each stage of life – in early childhood, in school, and as adults, to work and to be cared for.

c. For lower-income Singaporeans, we will do more to support your children’s education, and help you acquire skills as adults, hold good jobs and improve your incomes over time. We will also introduce a new and permanent feature in our tax system: GST Vouchers, which will provide continuing assurance of a fair system of taxes and benefits.

The changes we are making continue the process begun five years ago, of making our system of taxes and benefits more progressive, and strengthening our social safety nets. Through education, work, housing and healthcare, we are giving more help and support to lower- and middle- income Singaporeans.

We must therefore expect our social expenditures to rise in the coming years, most of all in healthcare. At the same time, we are making major investments in our public transport system, including new initiatives that I will mention later.

The step up in our social programmes makes it critical that we strike the right balance in our public finances. We must avoid the path that many developed countries took, where successive governments, across the political spectrum, committed themselves to continually expanding social entitlements – in social security, healthcare, and unemployment – without the ability to pay for them. Their massive public debts have now resulted not just in a financial crisis, but a social crisis, with their citizens being forced to make painful adjustments in living standards for several years to come.

Singapore’s system of sustainable finances, where we spend what we can afford, is a strength. We must preserve this advantage, so that we can build and maintain a fair and inclusive society not just for 10 or 15 years, but for our children’s generation and beyond.

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