Budget 2012 Speech (Part 7): Budget position

For FY2012, a small basic surplus of $1.3 billion is expected, which is close to a balanced budget at 0.4% of GDP. -AsiaOne

Fri, Feb 17, 2012

Budget position

Mr Speaker Sir, this is therefore a Budget for the future. We are building an inclusive society, founded on higher skills, better jobs for every vocation, and a fair social compact. FY2012 Estimated Budget Position

We are starting off from a position of fiscal strength. For FY2012, we expect a small basic surplus of $1.3 billion, which is close to a balanced budget at 0.4% of GDP. This reflects our operating revenues, but does not take into account the Net Investment Returns Contribution (NIRC) from past reserves. It also reflects the expenditures we will make in FY2012, but not the monies we are setting aside in endowment and trust funds for future spending.

Our NIRC is estimated at $7.3 billion. Taking this into account and the contributions to endowment and trust funds – all of which that I have mentioned earlier – the Overall Budget Balance for FY2012 is projected to be $1.3 billion (0.4% of GDP).


Mr Speaker Sir, at the Opening of Parliament in October, PM spoke of building an inclusive society, and sketched the Government’s vision for a stronger Singapore and better home.

Budget 2012 sets out our directions and takes significant steps towards achieving this vision. We are restructuring and upgrading our economy, so that workers can enjoy higher incomes and every Singaporean family can aspire to move up. We are also introducing new initiatives, and deploying more resources to uplift and support lower- and middle-income Singaporeans.

But we all know that building an inclusive society is not just about government redistributing resources to help the poor. It is about building a society where at its heart, people retain a deep sense of responsibility for their families and seek every opportunity to improve themselves and do better. Where employers treat workers with respect, value their contributions and reward them fairly.

Where the more successful step forward to help others in the community, because they feel for their fellow citizens. And where Singaporeans actively participate in causes that will make this a better society. An inclusive society will only blossom if we grow this spirit of responsibility and community

It has to be about how we go about our lives as Singaporeans, like the people in this video.

[Tan Ai Li, 11. Sani Rosmani, 45. Mumtaz Begum, 40. John Forbes, 92. Mrs Goh Kah Tian, 55.]

Opportunity, improving ourselves, compassion. They define the character of the society we are building, and must be our common purpose as Singaporeans.


Budget 2012 Speech (Part 6): Better Healthcare, from Hospital to Home

Yearly healthcare expenditure will be doubled from $4 billion to about $8 billion over the next five years. -AsiaOne
Fri, Feb 17, 2012

Better Healthcare, from Hospital to Home

I will now move on to the significant measures we are taking in healthcare.

We will double our yearly healthcare expenditure from $4 billion to about $8 billion over the next five years. It is about more and better infrastructure, from hospitals to home-based care. It is about engaging many more healthcare professionals, such as doctors, nurses and Allied Health Professionals, and paying them more competitively. And it is about making it more affordable, including for the middle class.

We will expand bed capacity in our acute hospitals, as well as our ability to provide longer-term care for the elderly both in institutional settings, and at home. But we must also shift from the current concentration on acute hospital care and move towards providing affordable, long term care. Most importantly, we must make it easier and more affordable for the elderly to stay at home, with access to quality care services when needed.

Expand Healthcare Capacity

First, we will expand public hospital capacity. We will increase the number of beds in acute hospitals by about 30%, or 1,900 beds by 2020. This is more than the capacity of the Singapore General Hospital (SGH) today.

Second, we will add another 1,800 Community Hospital beds by 2020, more than a 100% increase from today. Besides the new Community Hospitals that will be co-located with Khoo Teck Puat Hospital and the new Ng Teng Fong General Hospital, we will add two more Community Hospitals in Outram and Sengkang by 2020.

Third, we will more than double the capacity in long term care services by 2020. This includes nursing homes, home-based health and social care services, day care and rehabilitation facilities, and Senior Activity Centres. We will also improve access to polyclinics and introduce new models of care, such as Medical Centres that provide specialist outpatient services in the community.

The Minister for Health will elaborate on this major expansion and broadening of our healthcare landscape in the COS.

Enhance Affordability

Next, we will enhance affordability of long term care.

We will increase subsidies in our Community Hospitals such that all patients can receive help with their bills. Lower-income patients will receive a 75% government subsidy. Those above the median income, who previously did not receive any subsidy, will now receive a 20% to 50% subsidy. The Community Hospitals that previously had to use charity dollars to offset bills for middle-income patients can now use these resources in other ways – such as providing further help to those in need, or improving the quality of care.

We will also raise subsidies for nursing homes, day care and rehabilitation facilities and home-based care packages so that more in the middle-income group can benefit. Two-thirds of Singaporean households will now qualify for subsidies. As the elderly often do not themselves have income, what this effectively means is that about 80% of elderly will qualify.

Let me illustrate the impact. For a middle-income family with an elderly parent at a private nursing home, the new subsidies will bring down their costs from about $2,800 to $1,700 per month. However, if they opt for a home-based care package, our subsidies will bring the cost down from about $1,400 to $700 per month. Both will be significantly cheaper than before, and home-based care will be about 40% of the cost of nursing home care. This shift should hopefully allow about one out of two frail seniors to enjoy home-based care instead of moving to a nursing home.

Instead of getting external help, some families may prefer to hire a foreign domestic helper, especially when constant attention is required. This may also allow family members to continue working. We will give a $120 grant per month to families hiring a foreign domestic helper to help care for elderly family members who have severe dementia, or are immobile and unable to care for themselves[8]. This is on top of the $95 concession in the Foreign Domestic Worker Levy that all households with elderly persons will continue to enjoy.

[8]: Those unable to perform three or more Activities of Daily Living.

Families with elderly members also find it very helpful to have safety features in their flats. We will subsidise home modifications such as grab bars and anti-slip treatment for bathroom tiles through a new programme, the “EASE” (Enhancement for Active Seniors) Programme. Each citizen household with an elderly member can get home modifications worth around $2,000. They would pay no more than $250 themselves.

We expect this programme to benefit 130,000 households and cost around $260 million over the next 10 years. The Minister for National Development will elaborate on EASE in the COS.

Absorb GST for Long Term Care

GST is currently fully absorbed for Class B2 and C patients in our acute hospitals. I will extend the same benefit to subsidised patients in the long term care sector, extending from Community Hospitals to nursing homes and the range of home-care services. I spoke about this earlier, so that they do not have to pay GST. About 40,000 Singaporeans receiving long term care will benefit.

Medifund Top-up

The enhanced subsidies that we have introduced in this Budget will help many more Singaporeans with the cost of healthcare. However, there will be some who need extra assistance, including not only those with low incomes but also some middle-income Singaporeans faced with high medical expenses. Medifund will help them cope.

I will provide a $600 million top-up to Medifund this year. This will increase the payouts from Medifund by over 20%.

Enhance MediShield

The final plank in our plans to provide better healthcare support for older Singaporeans is to enhance MediShield, which covers them for their major hospital bills. For example, a basic MediShield plan can cover up to 70% of a large Class C hospital bill for a knee replacement. This would reduce the patient’s payment from $6,200 to $1,800, which can be paid for using Medisave.

We will extend MediShield coverage from age 85 to 90, as many more Singaporeans are now living till 90 and beyond. MOH also intends to engage the public on other changes to MediShield, including extending coverage to people who suffer from congenital conditions.

These are worthwhile shifts, and in particular will mean that most Singaporeans will be covered by MediShield for their whole life. But it will also require an increase in premiums across the board

I will therefore provide a one-off Medisave top-up to all Singaporeans currently on MediShield, to help them adjust to the premium increase. As older Singaporeans pay the highest premiums, they will receive a larger Medisave top-up (see Table 2).

[9]: Age at next birthday

The Minister for Health will elaborate on MediShield in the COS.

How Older Singaporeans will Benefit

As all this amounts to a significant package of support for the elderly, let me briefly summarise. Taken together, our strategy of helping the elderly by enabling them to stay at work, helping them unlock the savings in their homes and providing better and more affordable healthcare support will give them peace of mind and a greater sense of security.

a. Older workers will enjoy higher CPF contributions, and reduced income tax bills through a higher Earned Income Relief. Their employers will also receive a Special Employment Credit as an incentive to retain them and reward them adequately.

b. Elderly households who take up the Silver Housing Bonus or the Enhanced Lease Buyback Scheme can gain $20,000.

c. Lower-, and especially middle-income elderly will benefit from enhanced subsidies in Community Hospitals, nursing homes, day care and rehabilitation facilities and home-based care packages. They can gain $480 to $610[10] per month through subsidies for a range of home-based care services, and a further $1,800[11] to add safety features to their homes.

[10]: Based on a home-based care package for an elderly person in a median income household with moderate to severe disability.

[11]: For a household living in a 4- or 5-room flat

d. Older Singaporeans who use long term care services can benefit from GST absorption.

e. Those under MediShield will receive Medisave top-ups to help them pay for MediShield premiums as coverage extends to age 90.

This is therefore a package that will benefit virtually all Singaporean families, including the children who are or will in time be supporting their parents.

Supporting Singaporeans with Disabilities

Let me now move on to talk about what we will do for Singaporeans with disabilities. They are not a very large group in our society – about 3% of Singaporeans, or 100,000 in total. But their lives can be challenging. Parents of children with special needs try their best to cope and bring up their children with the care and love they need. They could do with extra support.

We will provide a stronger helping hand for Singaporeans with disabilities, at each stage of their lives.

Strengthening Early Intervention and Education

Let me start with their pre-school years. We will increase places in centres for children who need intensive early intervention. In addition, in mainstream pre-school classrooms, we will introduce a new programme to provide learning support and therapy interventions to children with mild speech, language and learning delays. Some 2,000 children will benefit from this new “Development Support Programme” when it is fully rolled out.

MCYS will elaborate on this in the COS. We will also make enhancements to our Special Education (SPED) schools, which MOE will speak about in the COS.

Supporting Employment

With better education and a supportive community, more young Singaporeans with disabilities will be able to enter the workforce and remain independent in their adult years.

Chen Min Li is an energetic 23-year-old who graduated from Towner Gardens School, one of our SPED schools. She then went on to complete four years of vocational skills training. She now works in the service crew at Carl’s Junior. Min Li is happy to be able to add to her family’s finances, and according to her supervisors, is one of the most enthusiastic workers at Carl’s Junior.

There are many others like Min Li who want the opportunity to do meaningful work. I will therefore extend the Special Employment Credit to employers who hire SPED graduates, regardless of age. They will get a credit of 16% of the employee’s wages, which is twice as large as the SEC that I spelt out earlier for older workers[12]. With these enhancements, the employer of a SPED graduate who earns $1,000 a month will receive $160 per month in the form of a Special Employment Credit.

[12]: For Singaporean SPED graduates earning up to $1,500 per month, the SEC will be 16% of wages. For monthly wages between $1,500 and $3,000, the SEC is $240 per worker. A lower SEC will also be provided for those with a monthly wage of between $3,000 and $4,000

To help the workers earn more income, I will also extend the Workfare Income Supplement scheme to all SPED graduates who work, even if they are below 35, and double the Handicapped Earned Income Relief for all persons with disabilities (refer to Annex A-4).

Our measures to support their employment will complement what we plan to do under the Enabling Masterplan, such as enhancing vocational training, job placement, and support for continuous improvement in their working years.

Better Adult Care

However, Singaporeans with more severe disabilities will need care throughout their adult lives. This is especially because more and more of them outlive their parents.

They will be eligible for the same enhanced care subsidies that older Singaporeans will receive. Additionally, we will expand places in Day Activity Centres by 25%[13], to allow their caregivers to work or have free time during the day. With our enhancements in adult care this year, a middle-income household can receive up to $5,700 in subsidies to offset 50% of the annual cost of attending a Day Activity Centre. Low-income households will get more.

[13]: 250 additional places

We will also embark on other measures including expanding places in residential homes and providing transport options. The Acting Minister for MCYS will elaborate on these and the other government responses to the Enabling Masterplan Committee’s recommendations in the COS.

Uplifting Lower-Income Families

We know that lower-income Singaporeans have real worries about their day-to-day expenses. And they are concerned about whether their children will do well in school and get a good job.

Our most important solution to help lower-income families is to give their children a high-quality education, and help them keep upgrading their skills as adults so they can take on better jobs. This is a major work-in-progress. We have also taken significant steps in recent years to support their incomes through Workfare, help them own their homes and build up their savings.

More Support for Children from Lower-Income Families

In this Budget, we will provide further financial support for children from less well-off families.

Pre-school Subsidies

We have enhanced our pre-school subsidies significantly in recent years. To provide further support for larger families, we will also introduce a new, per capita household income criterion (PCI) for subsidies.

Take for example a family of five (with three children), earning $2,500 in household income. They will now pay only $20 for each child in child care[14], compared to $110 previously. This is similar to what lower-income families with fewer children would pay.

[14]: Assuming they attend a HDB Childcare Centre costing $620 per month.

MOE Financial Assistance Scheme

We will help more students benefit from the MOE Financial Assistance Scheme by raising the household income ceiling from $1,500 to $2,500 per month. It will mean that 40,000 more students, or twice the original number, will be fully subsidised for their school fees, uniforms and textbooks, and receive a 75% subsidy on their exam fees.

Top-ups to Schools for Discretionary Financial Assistance

We will provide a further top-up to School Advisory and Management Committees of up to $15,000 per year for the next three years. This will give the committees greater certainty of government support and help them introduce new schemes in the school – such as transport assistance for students.

The two enhancements I have just mentioned will also be provided to our SPED schools.

Student Care Fee Assistance (SCFA) Scheme

We will enhance the Student Care Fee Assistance (SCFA) scheme to benefit more families. As student care costs much more than fees and expenses for regular school, we will extend subsidies to a larger group of families than those who qualify for the MOE Financial Assistance Scheme. Subsidies for student care will be extended to families with up to $3,500 in monthly household income. A family earning say $2,500 per month would typically see the amount they pay for student care reduced from $200 to $80 per month.

Top-ups for Education and Social Support

To support the Government’s and community’s efforts, I will also make several top-ups this year.

I will provide a $200 million top-up to the Edusave Endowment Fund to help all children enjoy meaningful enrichment programmes.

I will make a $200 million top-up to the ComCare Endowment Fund to support families in need.

As the community plays a crucial role in helping low-income families, I will also give a total of $10 million to our Self-Help Groups and the CCC ComCare Fund.

Broadening Opportunities for Every Child

The real story, however, is not just about helping families cover their fees and costs in school. What we are providing is a breadth of exposure to every child regardless of family background in a way that few school systems overseas do. We have been building this up across the school landscape, so as to allow every child to discover what they like, and what they are good at.

Muhammad Fairoz is now in Secondary 4 at Yusof Ishak Secondary School. His family has modest means – his father is a factory cleaner and his mother is a housewife. He is doing very well. He has obtained Edusave Merit Bursaries and Scholarships over the last few years, besides the MOE Financial Assistance Scheme. In fact, he has had near perfect scores of 6 academic distinctions every year. He also went to Xi’an on a 10-day cultural exchange programme that was fully funded by the Trips for International Experience Fund that every school gets, plus his Edusave Account.

Fairoz does a lot more in school. He is a tenor in the school choir, which is where his talent was also spotted for the school’s Performing Arts Programme. Last year, he played the role of Professor Higgins in the school’s production of “My Fair Lady”. Now, he wants to go on to do theatre studies so that he can become a stage actor. So that’s how we do it. Give every student the chance to go through varied experiences so that along the way they can discover something they like and that they are good at.

A Fair Tax System

Let me move on now to a broader theme, which involves how the GST affects the poor, and its role as part of a fair system of taxes and benefits.

Our fiscal system is a progressive one, which means that the poor get far more benefits compared to the taxes they pay, and the better-off pay more taxes.

The top 20% of households pay 80% of income taxes collected. We shifted to progressive property taxes last year, and they should become more so over time. Then, there is the GST, which is a flat tax and is therefore on its own, regressive, taking up more of the pay of those with low incomes.

But taken as a whole, our fiscal system has in fact become more progressive over the last decade despite our raising the GST from 5% to 7%. This is because we introduced programmes like Workfare and enhanced our subsidies to help lower-income families. These enhanced benefits are much larger than the increase in GST that they now pay.[15]

[15]: If we add it all up, the average lower-income (2nd decile) household has received $2.40 back in additional permanent transfers for every dollar of additional GST paid over the past five years

These permanent transfer schemes are how lower-income Singaporeans benefit from our fiscal system. Our GST, most of which comes from residents in the upper half of the population by incomes and foreigners, is an important source of revenue that enables us to fund this system of transfers.

In addition, we provided a substantial package of temporary offsets for individuals and households when we raised the GST in 2007. These temporary offsets lasted until last year.

To carry on with these offsets, I will now introduce a permanent GST Voucher to help lower-income Singaporeans. The GST Voucher will provide continuing assurance that our GST does not hurt the poor.

This Voucher will fully offset the 7% GST that the lower half of retiree households pay on their expenses. Many retirees in the upper half will also have their GST offset by a significant amount.

The GST Voucher for other lower-income families (who do not have elderly members) will also offset about half their total GST bills. Further, taking into account the other permanent benefits that they receive through Workfare, housing, education and healthcare, they will get back much more than the GST they pay.

There will be three components to the GST Voucher – cash, Medisave top-ups and U-Save. The amount each Singaporean will get will be based on both their income and the Annual Value (AV) of their homes. This is by no means a perfect system, but it is fair to have both criteria. For example, retirees and homemakers who have no incomes but live in higher-end homes, are generally better off than most lower-income Singaporeans.

GST Voucher – Cash

The cash component will be given to Singaporeans whose incomes fall within the bottom 40%, and who live in HDB flats or the bottom 15% of private properties (those with an Annual Value of up to $20,000).

Those who live in HDB flats will receive $250 in cash each year. Those living in lower-end private properties will receive $100, as long as their incomes are also low (below $24,000)[16]. $100 may not be a large sum, but taken together with the Medisave component of the GST Voucher, it will provide some help for our retirees who live in lower-end private properties. (See Table 3 for full schedule).

[16]: 40th percentile of annual incomes.

GST Voucher – Medisave

The second component of the Voucher will comprise an annual top-up to the Medisave Accounts of older Singaporeans. Those above 65 and living in HDB flats or lower-end private properties will receive this top-up (see Table 4). This would benefit 85% of all elderly Singaporeans.

A 75 year old Singaporean, for example, will receive $350 if he lives in an HDB flat, or $250 if he lives in a lower-end private property.

GST Voucher – U-Save

Finally, the GST Voucher will help lower- and middle-income households through permanent U-Save rebates, to offset part of their utilities bills.

Households living in smaller flats will benefit more. 1- and 2-room HDB households will receive $260 per year, which is equivalent to about three to four months of their utilities bills on average (see Table 5).[17]

[17]: Overall, the U-Save rebates will benefit about 800,000 households (or 75% of all households).

Let me illustrate how the GST Voucher adds up. A retiree couple living in a 3-room flat will receive enough to offset fully the GST they pay each year. They typically pay about $840[18] in GST a year, but will receive $1,240 worth in their GST Voucher. (This is without counting the one-off Medisave top-up they will receive this year, which is not part of the GST Voucher).

[18]: See Annex B-2.

Younger lower-income households (without elderly persons) in 3-room or 4-room flats will also receive a significant GST offset. It should cover about half of the total GST they pay each year.

In total, the GST Voucher will cost about $680 million this year. As I have explained, this will be a long-term feature of our fiscal system and not a scheme of temporary offsets. To ensure that we can provide this GST Voucher irrespective of economic circumstances over the next few years, I will set aside $3.6 billion this year to finance the scheme for the first five years. To do this I will set up a GST Voucher Fund from which payouts will be made in the coming years.

Budget 2012 Speech (Part 5): A fair and inclusive society

Equally, we are stepping up social policy: to provide greater economic security for the elderly and Singaporeans with disabilities. -AsiaOne
Fri, Feb 17, 2012

A fair and inclusive society

Mr Speaker Sir, we are making important moves to build a fair and inclusive society. We are growing our economy in a way that can lift incomes for all Singaporeans. Equally, we are stepping up social policy: to provide greater economic security for the elderly and Singaporeans with disabilities; and to help lower-income families develop resilience, strive hard, and move up.

We have two key challenges. First, to help the growing number of older Singaporeans live comfortably, even as they are living longer.

Our seniors want active and fulfilling lives. At the same time, many have worries, including those in the middle-income group. They worry about whether they will be able to afford treatments when they fall ill, whether they will be a burden on their children, and whether they can grow old in the company of family and friends.

We will do more to help them. We are particularly concerned about the current generation of older Singaporeans, many of whom have very limited cash savings. Their CPF balances are low because wages were much lower 20 or 30 years ago, and the Minimum Sum they were required to set aside was also much smaller.

However, these older Singaporeans do have substantial savings in the value of their homes.

We will help them use this wealth to boost their retirement income. At the same time, we will give them greater assurance of being able to afford their healthcare.

Our second challenge is inequality. The economic pressures that have led to widening income gaps nearly everywhere in the world will not go away soon. Furthermore, because Singapore is a city, our income inequality will inevitably be wider than in larger countries, like in many other global cities.

But we cannot leave our social compact vulnerable to market forces. We have to do all we can to contain inequality, and to sustain social mobility in each new generation.

We are therefore making a determined, multi-year effort to raise the prospects of success for lower-income families. We must also give our middle-income families every opportunity to achieve their aspirations in an evolving and often unpredictable economic environment.

We still see evidence of considerable social mobility, as students from all backgrounds flow through our education system. Take our PSLE cohorts. Each year the top students come from schools all around the island, including many neighbourhood schools. And a significant proportion of students from the lower end on the socio-economic scale make it to the top one-third in PSLE performance.

But it will get more difficult to keep up this mobility in the years to come – precisely because we achieved a very high degree of mobility in the past. We must therefore work harder at this. We must find every effective way to help those who start off lower down to catch up and do well; every way to prevent disadvantage from repeating itself across generations.

Education and jobs are the springboards to success in Singapore. We will do more to help children from disadvantaged homes, starting earlier in their lives – better quality pre-schooling, specialised intervention to help those with specific learning difficulties, and more after-school student care in the primary school years. We are also broadening education so that every student can develop their strengths, in and out of the classroom.

We are expanding our pathways to a university education, to match the aspirations of our students and give them skills that will find them good jobs. PM spoke about this at last year’s National Day Rally. We are also investing heavily to give every adult worker the opportunity to keep up-skilling, or even return to a tertiary institution mid-career to enrich his knowledge.

But we must also groom a larger pool of social workers and other professionals, to help lower-income families overcome the deeper and more complex problems that many of them face. The solution to low incomes does not only lie in supporting incomes through government transfers, as many societies have found. We need many more people with passion for the job, from speech therapists and learning support specialists to work with children in their early years, to counsellors who can help families work towards better times, or gain the trust of drug offenders and help them turn their lives around. This is an important priority. We will do more to attract Singaporeans into the social sector, reward them better, and enable them to have fulfilling careers.

Helping our Seniors Live Long, Live Well

Mr Speaker Sir, let me move on now to the main steps we are taking in this year’s Budget, as part of the broader shifts that we will be making in our social policies over the next five years.

First and foremost, we want to help Singaporeans age with dignity and grace. Our seniors aspire not just to live long, but to have fulfilling, active golden years. But they have worries as well, centering on whether they will be able to afford the cost of medical care when they fall ill, and avoid being too big a burden on their children.

The key change is that fortunately people are healthier and are living longer, but unfortunately working careers have not lengthened to the same extent. So the savings they have at the time they retire have to be stretched out in smaller amounts over a longer period. To help our older Singaporeans, we will provide strong support for those who desire to stay at work. We will also help them unlock the savings in their homes, so as to boost retirement income. And we will significantly expand hospital and long term care capacity and make services more affordable – including for the middle-class elderly.

Rewarding Work

First, helping older Singaporeans at work.

Increase CPF Contribution Rates

Earlier, I announced a strong incentive we will provide for employers to engage older Singaporeans. The Special Employment Credit (SEC) will especially help older Singaporeans who are in the bottom half of the income ladder.

On top of this, we will help all our older workers, including those with incomes in the upper half, by raising CPF contribution rates.

We lowered contribution rates for older workers in the late 1980s and again in the last decade, because their employment rates were lower compared to younger workers. Seniority-based wages discouraged employers from hiring older workers. The lower CPF contribution rates hence helped to offset the higher cost of older workers, and kept them in demand in the employment market. However, we have made good progress in recent years in flattening wage scales, and in increasing the employment of older Singaporeans.

We can expect this positive trend to continue. The labour market is tight. Our workers in their 50s and 60s will increasingly have better educational and skills profiles. Our re-employment legislation is now in place. And the SEC will provide further support.

It is therefore a good time for us to raise CPF contribution rates for three groups of Singaporeans – those aged 50 to 55, 55 to 60 and 60 to 65.

First for those aged between 50 and 55. We have had good consultations with our tripartite partners, and reached a consensus that we should give this group the same CPF contributions as younger workers, rather than reduce CPF contribution rates after age 50.

We therefore need to raise CPF contribution rates for this group by 6 percentage points – 4 percentage points from the employer and 2 percentage points from the employee – to reach the full CPF contribution rate of 36%. However, we cannot make this major move in one step, and particularly with an economic slowdown at hand.

For the first step this year, we will raise CPF contribution rates for those aged between 50 and 55 by 2.5 percentage points – 2 percentage points from the employer and 0.5 percentage points from the employee. This will bring their total CPF contributions up from 30% to 32.5%.

For the second group comprising Singaporeans aged between 55 and 60, we will raise contribution rates by 2 percentage points – 1.5 percentage points coming from the employer and 0.5 percentage points from the employee.

For the third group, those aged between 60 and 65, their employer contribution rate will increase by 0.5 percentage points. There will be no increase in their employee contribution rate. (See Table 1 for full schedule.)

We will have to watch how the employment market develops before making any further moves. The SEC will hopefully encourage employers to attract and retain more of these older workers.

These changes in CPF contribution rates will take effect from September 2012, in line with the first disbursement of the enhanced SEC.

We will also raise contribution rates of self-employed persons into their Medisave Accounts, to be in line with those of employees. The Medisave contribution rates for those aged 50 and above will be raised from 9% to 9.5%. This change will take effect from January 2013.

More details are in Annex B-1, and a press release that the Ministry of Manpower will issue later today.

Enhanced Earned Income Relief

I will also raise the income tax relief for older taxpayers so that they can retain more of their income from work. They deserve this. I will double the Earned Income Relief for those aged 55 and above. Those aged 55 to 59 will now enjoy $6,000 in Earned Income Relief per annum, while those aged 60 and above will enjoy $8,000.

119,000 older Singaporeans will benefit. The increased relief will cost the Government $30 million per annum, and will be effective from Year of Assessment 2013.

Helping Seniors Unlock Savings

As I mentioned earlier, many of our current generation of elderly have significant wealth in their homes. We will provide them an attractive option to free up money for their retirement years by moving to smaller homes.

Silver Housing Bonus

First, we will introduce a Silver Housing Bonus of $20,000.

This Bonus will be given to older Singaporeans who wish to sell their existing flats and purchase 3-room or smaller HDB flats. Many of our senior citizens are in fact keen to do so – the great popularity of our Studio Apartments speaks for itself. It is not just a desire to unlock their savings, but that the apartments are practically designed for them. And they have nearby amenities that cater to the elderly, such as Senior Activity Centres. We will be building more Studio Apartments in the next few years.

The Silver Housing Bonus works like this. The Government will provide $15,000 in cash and $5,000 to the CPF accounts. To benefit from the scheme, the homeowners will use the proceeds from the sale of their previous home to top up their CPF savings up to the prevailing Minimum Sum. All amounts above the Minimum Sum can be withdrawn in cash, and we expect many to be able to do so.

Providing the best care for our seniors

Transforming Long-Term Care

Singaporeans are living longer. A larger proportion of our people are going to be elderly – by 2030, one in five residents will be aged 65 and above. We want to provide our seniors with the best possible care and help them stay healthy and active in their retirement years.

We are continuing to make significant investments with new acute care hospitals – Khoo Teck Puat Hospital has opened last year in the north, and Jurong General Hospital will open in 2014.

Our next big priority is to build up our long-term care sector. We will develop a high quality and comprehensive system, to provide the best possible care for the elderly and the disabled, not just in our hospitals but also in the community and in their own homes. We will provide enhanced government support so that we can develop the VWO sector for long-term care – good people and institutions that bring passion, expertise, and resources to help the elderly and disabled.

Today, we already have several good long-term care providers amongst our VWOs. For example, St Luke’s ElderCare provides day care services; Metta Welfare Association helps the disabled to stay active; the Home Nursing Foundation does good work to help the elderly in the community. We need more of them, and must raise the quality across the whole spectrum of providers – including community hospitals; day rehabilitation centres and home-based care so that the elderly can be close to family and friends; and institutionalised care in nursing homes and hospices.

The Minister for National Development will elaborate on these measures in the COS.

Budget 2012 Speech (Part 4): Enhancing our transport system

The Government will provide funding for 550 buses while the public bus operators will add another 250 buses. -AsiaOne
Fri, Feb 17, 2012

I will now go on to a significant initiative in this year’s Budget – to enhance our public transport system.

Reliable and convenient public transport is critical to the quality of daily life for the majority of Singaporeans. When the planned Downtown Line, Tuas West Extension, Thomson Line and Eastern Regional Line are completed in a decade’s time, our rail coverage will be comparable to that of cities with the most developed rail networks today such as New York. We will also have 400,000 housing units within 400 metres of MRT stations, double the number today.

Boosting Bus Capacity

It will take time for these rail capacity improvements to be completed. In the meantime, we will significantly ramp up bus capacity so as to relieve daily congestion in public transport. 60% of all passenger trips are in fact made on buses.

The Government has decided to make a major commitment to improve bus service levels. We will partner the public transport operators (PTOs) to add about 800 buses over the next five years, or a 20% increase. This is a significant increase. It took the PTOs close to 20 years to grow the public bus fleet by 800 buses in the past.

The Government will provide funding for 550 buses while the public bus operators will add another 250 buses. This significant increase in bus capacity will reduce crowding and waiting times. For example, it will enable almost all feeder buses to run every 10 minutes or less – for two hours during morning and evening peak periods, instead of a one-hour peak currently.

This is an important new commitment that will stretch beyond this term of Government. To ensure that the Government can fulfil this commitment for both the purchase of buses and the running costs for 10 years, I will set aside $1.1 billion in this Budget for a Bus Services Enhancement Fund.

Beyond this one-time Government commitment to fund 550 buses, the viability of bus operations will have to rest on improvements in efficiency and a sustainable system of fare revenues.

Revisions to the Vehicle Tax Regime

I shall now move on to private transport measures.

The Green Vehicle Rebate Scheme (GVR) was introduced in 2001. Electric and hybrid cars, as well as those running on compressed natural gas (CNG), are given a 40% rebate of their Open Market Value, which is offset against the vehicle’s Additional Registration Fee or ARF.

Ten years on, the take-up of green vehicles remains modest. One drawback of the GVR is that it is based on the technology platform, rather than the actual impact on the environment. Some hybrid vehicles with large engine capacity are in fact not very environmentally friendly, while some petrol cars with smaller engine capacity emit less carbon. We have thus decided to replace the GVR with a new Carbon Emissions-based Vehicle Scheme, or CEVS in short, when the GVR scheme expires at the end of 2012.

CEVS is based on carbon efficiency and will be applicable to all new passenger cars. Car models with low carbon emissions will enjoy generous rebates on their ARF of up to $20,000, while those with high carbon emissions will have to pay a registration surcharge of up to $20,000.

With CEVS, some car buyers will pay less and others pay more, but the Government will collect less revenue overall. CEVS is expected to cost Government $34 million per year, more than double the total annual incentives given under GVR.

For commercial vehicles and motorcycles, we will be extending the GVR by another two years till end-2014. The Ministry of Transport will be announcing more details on CEVS in the COS.

Special Diesel Tax for Euro V Vehicles

Last year, the Government announced the adoption of Euro V emission standards for new diesel vehicles by 2014.

To encourage the adoption of new and cleaner diesel technologies, the Special Tax for Euro V compliant cars will be lowered from $1.25 per cc to $0.40 per cc from January 2013, a reduction of 70%. For a 1,600cc Euro V diesel car, this means that the Special Tax payable is comparable to the annual fuel tax paid by an equivalent petrol car.

Removal of Additional Transfer Fee

The Additional Transfer Fee, or ATF, is levied on used-vehicle transactions at 2% of the vehicle value at the point of transfer. Arising from feedback from the public and the motor industry, the Government has reviewed and decided that the ATF is no longer necessary. I will therefore abolish the ATF, starting tomorrow. This is estimated to cost the Government $70 million per annum in revenue forgone.

Budget 2012 Speech (Part 3): Restructuring to sustain growth

The Government will also provide more help for our industries to restructure and upgrade. -AsiaOne
Fri, Feb 17, 2012

Restructuring to sustain growth

Mr Speaker Sir, I will now move on to the first major priority of this Budget: restructuring our economy, to grow on the basis of skills, innovation and productivity.

We have to take further steps now to slow the growth of our foreign workforce. But the Government will also provide more help for our industries to restructure and upgrade, so that we can continue to grow despite the constraints in labour supply.

We will also provide further support for businesses that are innovating, establishing their mark internationally, and capturing growth opportunities in the region and further afield.We have to take further steps now to slow the growth of our foreign workforce. But the Government will also provide more help for our industries to restructure and upgrade, so that we can continue to grow despite the constraints in labour supply.

I will talk about each of these priorities in turn.

Adjusting to Slower Workforce Growth

Managing our Dependence on Foreign Workers

The Economic Strategies Committee in 2010 recommended that we moderate the growth of the foreign workforce, and in the long term, avoid its proportion of the total workforce increasing steadily beyond one-third. While the proportion may fluctuate above or below one-third from time to time, we should not indefinitely increase our dependence on foreign labour.

We have introduced several measures since 2010 to reduce the demand for foreign workers. We announced a schedule of increases in foreign worker levies in Budget 2010, which we extended in last year’s Budget. We are halfway through this process of levy increases, which will be fully phased in for every sector by July 2013.

More recently, we raised the eligibility criteria for Employment Pass (EP) and S Pass holders, to keep pace with the improving salaries of our Singaporean PMETs (Professionals, Managers, Executives and Technicians). This was implemented last month, and new applications for EP are now subject to the tighter criteria and higher qualifying salaries.

It will take time for these measures to have an effect on businesses’ demand for foreign workers. The foreign workforce has in the meantime grown rapidly, by 7.5% per year over the last two years[3], and is now at about one-third of our total workforce. This has happened in an environment of full employment for Singaporeans and shortage of labour in many sectors of the economy.

[3]: The foreign workforce growth of 7.5% per year over the past two years excludes foreign domestic workers.

We have no alternative but to slow down the growth of our foreign workforce. Some sectors, such as construction, will require significantly more foreign workers over the next five years, given our major housing and public transport projects. However, economy-wide, we will have to take further measures to avoid an ever-increasing dependence on foreign labour.

We will therefore introduce a calibrated reduction in Dependency Ratio Ceilings (DRCs) in the manufacturing and services sectors (The DRCs specify the maximum proportion of foreign workers that companies can hire). Firms that are the most heavily reliant on foreign labour will have to find ways to reduce their dependence. Many other firms in manufacturing and services are still well within their DRCs and have headroom to employ foreign workers. However, we should take the opportunity now of a slow growth year to lower the DRCs across the board in both manufacturing and services. All firms can then take this into account in their future hiring decisions. This will help to contain our dependence on foreign workers in the long term.

Depending on the growth of the foreign workforce in the next 12 months, we may also have to consider further increases in the foreign worker levy beyond July 2013.

The DRCs for Manufacturing and Services are currently 65% and 50% respectively. From 1 July 2012, we will reduce:

a. the Manufacturing DRC from 65% to 60%; and

b. the Services DRC from 50% to 45%.

We will also tighten up on the DRC for S Passes. We will reduce the S Pass Sub-DRC from 25% to 20% for all sectors from 1 July 2012.

We will give affected companies time to adjust to the new DRCs. From 1 July 2012, companies will not be allowed to bring in new foreign workers beyond the new DRCs. However, for their existing foreign workers, companies will be given until June 2014 to comply with the new DRCs. This two-year transition recognises that many companies would have already invested in their existing workers.

In total, we expect about 500 manufacturing companies and 8,500 services companies to be affected by the DRC changes. Most are small enterprises which will have to do with one or two fewer foreign workers.

We will also tighten up in the Construction sector. Besides the reduced S Pass DRC, we will further reduce the Man-Year Entitlement (MYE) quotas by 5% in July 2012, and raise levies for basic skilled workers hired outside the MYE quotas.

The Ministries of Manpower and National Development will share more details regarding these changes in a press release.

We will provide significant assistance to help our SMEs adjust to these changes. However, we have to do so in a way that will promote restructuring and upgrading. This means that greater assistance will flow to those that are willing to improve productivity, design better jobs to attract local workers, and innovate in order to grow.

There is in fact significant scope to step up productivity in the services sector, where the labour crunch is most severe. For example, our retail industry lags behind several other global cities – its productivity level is less than half of that in New York, Paris and London and remains behind Hong Kong’s. We will support efforts by our services industry to make the transition to a higher level of quality and skills.

We will also help companies in their efforts to attract local workers. Even the more successful players in the services industry are finding it hard to recruit local workers. We have to do more to tap on the latent pool of local manpower which is still available. Many of our homemakers and Singaporeans who retired early say they are willing to work, either part-time or full-time.

Attracting these Singaporeans will require a few changes. First, jobs will have to be designed with the worker in mind, especially for homemakers and older workers. They will also have to pay enough to attract local workers.

Take Sakae Sushi for example. They have been actively hiring homemakers for the past 15 months, for jobs during meal times. Sakae Sushi gets the manpower it needs during the busy hours, while the homemakers are able to earn an income and still spend time with their children. Employees have spread the word to their friends and Sakae Sushi hopes to employ more homemakers, up to half of its total workforce. Some of these employees, although working part-time, have risen up the ranks to hold supervisory positions as shift leaders.

Better pay and working conditions are necessary but we will also need a collective effort to re-instil pride in every job. Waiters and cooks in restaurants; chambermaids in hotels; crane operators and other construction tradesmen; machine operators and salespersons. Everyone has to play a role – employers, employees and customers – if we are to bring back respect for these jobs, attract locals and develop high-quality and experienced teams. These are good jobs in every developed society.

Helping SMEs Make the Transition

I will introduce several measures to help our SMEs to restructure, attract local workers, and grow. Besides these longer-term measures, I will also provide some temporary assistance to help our companies cope with the current environment of higher business costs.

Special Employment Credit

Older workers will be an increasingly important resource for companies. Compared to a decade ago, our businesses now recognise much more clearly the value of older workers.

I will provide a significant incentive to help them attract and retain older workers. All employers will receive a Special Employment Credit (SEC) for their Singaporean workers who are above 50 years old and earning up to $3,000 per month. The SEC will be 8% of wages. A lower SEC will also be provided for workers with a monthly wage of between $3,000 and $4,000. The SEC will cover almost 350,000 workers, or four-fifths of older Singaporean workers.

The SEC is unlike the Jobs Credit Scheme, which applied to all workers and was a one-off, counter-recessionary measure. The SEC will be in place for the next five years (2012-2016), to enable employers to plan ahead in hiring older workers. Beyond that, depending on labour market conditions, we will consider if the SEC should be retained, and if so in what form.

This is a substantial enhancement to the SEC[4] which I first introduced in last year’s Budget. It will provide employers with benefits of about $470 million per year – more than twice the increase in their wage bill of $190 million as a result of higher employer CPF contribution rates for older workers, the details of which I will elaborate on later.

[4]: In Budget 2011, a one-off Special Employment Credit (SEC) for Singaporean workers aged above 55 was introduced. This previous Special Employment Credit cost the Government an average of $33 million per year over three years.

I therefore strongly encourage companies to make full use of the SEC to hire older Singaporean workers and reward them well. The higher CPF contributions will also encourage older workers to participate in the workforce.

SME Cash Grant

Besides the SEC, I will provide a one-off cash grant to help companies offset higher business costs, which may persist in the business slowdown. The grant is sized to benefit smaller companies more. Companies will receive a cash grant pegged at 5% of their revenues in YA2012, capped at a payout of $5,000. They will receive the grant as long as they have made CPF contributions to at least one employee[5]. The scheme will cost Government around $320 million in FY2012.

[5]: The employee must not be a shareholder of the company.

Transforming through Productivity and Innovation

However, the only lasting solution for dealing with the labour shortage is to improve productivity.

We introduced a number of major new measures to help businesses address this challenge over the past two years. First, we provided broad-based support through the Productivity and Innovation Credit scheme, or PIC, which I will further enhance in this year’s Budget. Second, we set aside $2 billion for the National Productivity Fund (NPF), which will provide more targeted support for industry efforts to restructure and upgrade over the next decade. Third, we are investing significantly in Continuing Education and Training (CET) to help our workers develop new skills and expertise and increase their versatility.

Enhancement of Productivity and Innovation Credit (PIC)

2011 was the first year in which businesses benefited from the PIC scheme, which provides for a 400% tax deduction on up to $400,000 spent on a broad range of productivity-related expenses, such as training or investment in equipment.

Our companies will enjoy tax savings totaling $650 million from the PIC claims they have made in this first year alone. Any company, be it small or large, new economy or old, can take advantage of the scheme. In fact, one in three small companies[6] – those with turnover of $10 million or less – have used the PIC. They will see their taxes come down by 40% on average. And they will also see their benefits quickly because 90% of all PIC claims are processed within three months.

[6]: These exclude companies whose status according to ACRA is dormant, inactive, no business done, in liquidation, receivership or has been dissolved.

We have received useful suggestions on how we can improve the PIC further, from business groups such as the Singapore Business Federation – SME Committee. I will introduce a few changes in this Budget:

a. To give businesses more cash upfront for their investments, I will enhance the PIC scheme to provide a 60% cash payout for up to $100,000 of firms’ PIC expenditures. This means a $60,000 payout from the Government, compared to the $30,000 given previously. This is a substantial subsidy for any SME investing in its workers or its operations. It is especially useful to companies with limited taxable income, which would not be able to benefit fully from the PIC tax deduction.

b. Next, they will get their cash payout faster, to help them with their cash flow. From 1 July 2012, companies will be able to apply for and obtain their cash payouts on a quarterly basis instead of having to wait till the end of their financial year.

c. I will also make it easier for companies to claim PIC benefits on their in-house training costs, by removing the requirement to have these training programmes certified by the Singapore Workforce Development Agency (WDA) or Institute of Technical Education (ITE). This will be for in-house training costs of up to $10,000 per year, which will cover the majority of training initiatives by smaller companies.

d. I will make other refinements to the PIC scheme which are contained in Annex A-4.

Enhanced Training Support for SMEs

I will introduce three further enhancements to support worker training.

First, more help will be given for SMEs who upgrade their workers through all courses certified by WDA, and Academic CET programmes at the polytechnics and ITE. They will henceforth get a 90% course subsidy. Together with the enhanced cash payout under the PIC, our new subsidies will effectively cover almost the full cost of training for SME-sponsored employees[7]. Further, we will increase the absentee payroll cap from $4.50 to $7.50 an hour. This is therefore a very generous scheme, and we will let it run for three years. About 8,400 courses could potentially come under this scheme. More details will be announced by the Ministries of Manpower and Education in the Committee of Supply (COS) debate.

[7]: For example, for a training course that costs $1,000, the SME will only pay $40.

We will provide similar training benefits for self-employed persons. WDA will work with our industry associations and agencies, such as the National Taxi Association and Media Development Authority (MDA), so that self-employed individuals such as taxi-drivers and freelancers in the creative sector can benefit.

Grants to Support SME Upgrading and Productivity

Second, we will step up grants to help SMEs transform their operations and raise productivity. L.S. Construction is an example from an industry with significant scope for improvement. We have all seen the traditional scaffoldings, covering the whole façade of a building and with working platforms at every level. Erecting such structures is labour-intensive. Their solution, using a grant from the Productivity Improvement Project (PIP) scheme under BCA’s Construction Productivity and Capability Fund, was to replace the current system of scaffoldings for high-rise building construction. L.S. Construction has introduced an integrated climbing scaffold and safety screen system commonly used in developed countries. This system moves up via cranes as the building construction progresses. The benefits – only 40% of the manpower required previously is needed to construct the scaffold.

This is not an example that involves major breakthroughs in technology. But I mention it to illustrate how companies can take advantage of our schemes to bring in existing innovations that can make a meaningful difference to their daily operations.

Third, we will increase grants for capability development amongst our SMEs from the current 50% to a 70% subsidy rate for the next three years under schemes managed by SPRING and IE Singapore. This will provide a $200 million boost over the next three years, which will help SMEs attract local talent and automate or upgrade.

Taking all these schemes together with those introduced in the last two Budgets, we will be providing substantial support to our businesses, mainly to help them upgrade and to hire older workers. This amounts to a total of about $1.4 billion this year, which will more than offset the additional amount businesses will pay due to increased foreign worker levies. This is true for our small businesses as well.

Renovation and Refurbishment Deduction Scheme

The next scheme is targeted especially at companies in the services sector. We introduced the Renovation and Refurbishment Deduction Scheme in 2008 to help businesses renew and refresh their premises, such as showroom displays or the décor for a restaurant. The scheme is due to expire next year.

Our service sector SMEs have found the scheme helpful. I will therefore make the scheme a permanent feature of our tax system, just like our capital allowance regime which our manufacturers have found helpful. I will also double the amount of expenditure that may be claimed from $150,000 to $300,000.

Mergers and Acquisitions

Another dimension of the restructuring of our economy will be through business consolidation or acquisition. It is how many of the more efficient and competitive players in each sector can gain economies of scale, acquire new capabilities, and raise overall industry productivity.

In Budget 2010, I introduced the Mergers and Acquisitions (M&A) Allowance scheme to support this. Companies are able to enjoy tax allowances of 5% of up to $100 million of the value of the acquisition. To provide further support to SMEs contemplating business consolidation, I will grant a 200% tax allowance on the transaction costs incurred, such as legal and tax advisory fees, subject to an expenditure cap of $100,000. More refinements to the M&A Allowance scheme are provided in Annex A-4.

Capturing opportunities for growth

Let me go on to speak about the support we will provide for companies to capture new opportunities for growth. This too is part and parcel of restructuring our economy. Our companies must seize opportunities to grow in markets abroad or move up the value chain in their Singapore operations, so that we can sustain economic growth.


The demand for urban services and infrastructure in emerging markets is growing rapidly. Many of our companies are well-placed to benefit from these opportunities, in areas such as water and sanitation, and construction and engineering works. In last year’s Budget, I mentioned that the Government was working with Temasek Holdings to develop a specialised institution that will plug gaps in financing for larger, long-tenure projects overseas. Temasek has since put together a consortium of reputable financial institutions to establish a specialised project finance company (PFC).

The PFC will aim to have about 80% of its portfolio comprising cross-border projects with significant Singapore-based corporate participation. Once it has built up its operations and market presence, the PFC is expected to provide about $400 million of financing annually, in turn catalysing an additional $2 billion to $3 billion of projects.

As with similar institutions internationally such as the EXIM banks, some government support is necessary to ensure its viability, whether in the form of direct government loans, capital injections or guarantees for fundraising by the institution. The Government has decided that the best approach is to provide a guarantee on the debt instruments issued by the PFC, rather than to get more directly involved in the business through capital injections or direct loans to the PFC. This more arms-length approach is a better way of ensuring commercial discipline and sustainability in this project finance company.

The guarantee will allow the PFC to raise funds competitively, and thereby also offer terms to our companies that will help them compete internationally on a more equal footing. However, losses on any of the loans made by the PFC will have to be met in the first instance from its overall revenues and the consortium’s equity. This substantially reduces the risk of the guarantee being triggered.

The PFC is expected to be operational by the second half of this year, by which time more details will be made available.

Trade Financing and Political Risk Insurance

Another gap in cross-border financing that we had identified earlier was in trade financing for SMEs dealing in emerging markets.

We will expand the current suite of trade financing schemes under IE Singapore. This will include helping companies secure insurance coverage for political risks for projects overseas, especially in emerging markets.

The Ministry of Trade and Industry will elaborate further on this in the COS.

Double Tax Deduction for Internationalisation

I will also provide further help for companies to meet the direct costs of overseas marketing and business development by simplifying the Double Tax Deduction (DTD) for Internationalisation scheme. The details are in Annex A-4.

Developing New Competitive Strengths

In this year’s Budget, I am also providing further support to some of our growth industries so as to help them develop capabilities and to align the tax rules applying to them with international norms.


To develop distinctive and high-quality tourism offerings, and thereby attract higher visitor spend, we will inject an additional $905 million into the Tourism Development Fund (TDF).

Further, to capitalise on the vibrant growth of international cruise tourism, I will extend the GST Tourist Refund Scheme (TRS) to international cruise passengers departing from the Singapore Cruise Centre and the upcoming International Cruise Terminal.

I will also simplify and enhance the GST relief for goods brought in by travellers and residents returning from abroad, so as to keep pace with rising expenditures and bring the relief quantums closer to international practices. The details are in Annex A-4.

Marine and Offshore

Our Marine and Offshore industry, already a leader internationally, is developing new capabilities to take advantage of new growth opportunities. We will allocate $150 million from the National Research Fund to A*STAR and EDB to help our companies build R&D capabilities to develop solutions for deepwater oil production.

Gold Trading Hub

We will facilitate the development of gold trading, which can draw on Singapore’s strengths as an international financial centre and trading hub, to meet strong demand for investment-grade gold in Asia.

Investment-grade gold and other precious metals are essentially financial assets that are actively traded and are just like other financial instruments that do not attract GST. I will therefore exempt them from GST. This change brings our tax treatment of investment-grade gold and precious metals in line with the practices of many developed economies, like Australia, UK and Switzerland.

Providing Tax Certainty

One of the concerns of our business chambers in recent years has been the treatment of capital gains. Although Singapore does not have a capital gains tax, businesses face some uncertainty about whether the gains from the disposal of their investments would be subject to income tax. I will set out clear guidelines specifying when a company will not be taxed on their gains from disposal of equity investments. Details on this and other tax changes are in Annex A-4.

Tobacco Tax

Finally, a quick word on sin taxes. I will raise the excise duties for beedies, “ang hoon” and smokeless tobacco by 20%, and unmanufactured tobacco by 10%. This is a continuation of our policy to harmonise tax rates on cigarette and non-cigarette tobacco products which we started last year.

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

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.

Budget 2012 Speech (Part 1): Economic Performance

An Inclusive Society, A Stronger Singapore. -AsiaOne
Fri, Feb 17, 2012

A. Economic Performance

Mr Speaker Sir, I beg to move, that Parliament approve the financial policy of the Government for the Financial Year 1st April 2012 to 31st March 2013.
Our economy grew by 4.9% in 2011, within the 4% to 6% range that we had expected at the start of the year. However, our Budget for FY2011 is expected to have a surplus exceeding what we estimated a year ago.

FY2011 Fiscal Position

Our economy grew by 4.9% in 2011, within the 4% to 6% range that we had expected at the start of the year. However, our Budget for FY2011 is expected to have a surplus exceeding what we estimated a year ago.

We had originally estimated an Overall Budget Balance of $0.1 billion or 0.02% of GDP. We now expect higher corporate income tax collections, reflecting stronger corporate profits, and lower than expected claims for capital allowances. In addition, property-related taxes such as stamp duties increased sharply in the buoyant market. These temporary boosts to our revenues led to a larger Overall Budget Surplus for FY2011 of about $2.3 billion or 0.7% of GDP.

The Economic Context in 2012

For 2012, MTI expects Singapore’s GDP growth to be between 1% and 3%. We are already seeing weaker demand in our manufacturing sector, reflecting sluggishness in the developed markets. However, prospects remain positive for companies with markets or investments in Asia. They are continuing to hire and expand, although with some caution given the unpredictable global conditions. There will also be continued demand from the region for our services – in finance, logistics and tourism. Taken as a whole, Asia is providing some lift to our economy at a time of continuing economic weakness in the US, Japan and Europe.

Our economy will slow down this year, but we should look at this in perspective. We enjoyed an exceptional rebound in 2010. By the middle of that year, we had recovered the lost output from the 2008-2009 crisis[1]. Growth in 2011 too was healthy, at about 5%. Against this backdrop, a slowdown to 1% to 3% growth in 2012 is still consistent with our medium-term growth potential of 3% to 5%.

[1]: The economy is estimated to have recovered its potential GDP level within the first half of 2010. This is the level of GDP that would have been attained if the economy had been following its medium-term growth path, without cyclical ups and downs.

Our labour market is still very tight currently. Job creation remains positive overall, although we expect some easing in our export industries.

The principal focus of this year’s Budget is therefore not on providing a countercyclical boost to the economy, but on addressing Singapore’s longer-term challenges and building a better future for our people. It is a Budget for the future.

Nevertheless, we are monitoring global developments closely. There are still threats hanging over the world economy – in the Eurozone’s unresolved problems, in the tensions over Iran’s nuclear programme and in a US economy which remains vulnerable to setbacks. Should events take a sharp turn for the worse, we will be ready to act decisively, just as we have done in the past.

B. BUDGET 2012: An inclusive society, a stronger Singapore

Our mission is to build an inclusive society and a stronger Singapore.

A whole array of social and economic strategies is aimed at achieving this defining goal. It means upgrading our economy and developing deeper skills, so that we can sustain growth, create better jobs in every vocation and enable Singaporeans to earn better incomes. It means doing more to help children from poorer homes overcome early disadvantages, find their strengths and develop to their fullest potential, so that we keep social mobility up. Equally, we have to help our elderly live well, and provide stronger support for Singaporeans with disabilities – they all have a part in our nation’s progress and must share in its fruits.

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. B.5. 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.

Singapore Budget 2012

I guess this is one of the pretty hot news these days, since 17 February 2012. I will do a summary of the lengthy Budget Day 2012 Speech. Meanwhile, for those who wants the details about the Budget Day 2012, do read the above articles that I have posted.

I promise to get the summary up asap, possibly by Wednesday night (I hope?).

-To be continued-


Can World Poverty End?

Leading economist and director of the UN’s Millennium Development Goals Jeffrey Sachs was our special guest on Talking Point to discuss world poverty.Around 30,000 people in the world die every day because they are too poor to stay alive.The United Nations has vowed to help the impoverished through their Millennium Development Goals which aim to halve world poverty by 2015.

The man in charge of delivering these goals is Jeffrey Sachs. He argues that extreme poverty can be eradicated by 2025.

He believes that richer nations need to urgently increase the quantity and quality of aid to poorer countries for this to happen.

However, he says the responsibility lies with individuals as much as with governments and international bodies.

Is more aid the answer? Do you think it’s possible to end world poverty? Should governments and big businesses do more? Are the Millennium Goals achievable?

This debate is now closed. Read a selection of your comments below.

The following comments reflect the balance of opinion we have received so far:

The dreams of supremacy are always at the expense of other nations. A few bellicose states should divert part of their military budgets to help developing countries.
Michel, Geneva

Yes, it is possible to end world poverty. We just have to ensure that we use the correct tools. The substantial increase in aid levels proposed by both Professor Sachs in his Millennium Project Report and by the Commission for Africa are important but are no panacea. The private sector, both domestic and international, has to be engaged in the process. This will ensure the improvements in infrastructure are fully utilised when complete, and provide expertise and funding in the first place.
Tim, London, UK

The causes of poverty are multi-faceted and therefore require different approaches. Even in the rich and developed countries there are poor and homeless people. The developing nations need political and economic policies that will aid their growth and lessen their dependence on outside charity.
Janet, Edmonton, Canada

“ Education is the only solution to poverty 
Drew, Philadelphia
Education is the only solution to poverty. Donations can build infrastructure, but there needs to be an educated and motivated population to maintain it.
Drew, Philadelphia, USAWhat is not discussed is the role the West has played in creating the conditions that people are facing in other parts of the world. Look at the Democratic Republic of Congo and Mobutu; or Indonesia and Suharto. Had The US and Belgium not supported Mobutu for all those years than maybe the destruction that all those people are facing would not exist today. Corruption and dictatorship around the world are protected by powerful interests in the US and Europe. This needs to be explored further.
Yonathan, Los Angeles, United StatesMore than half the people in developed countries haven’t seen or don’t understand what poverty is. It is events like the tsunami that bring out the gravity of the situation and throw light on the living conditions of the poor. Awareness in the developed countries could help. For instance, people could help by sponsoring a child’s education in a developing country.
Karthik, Singapore

If everyone only had the children they could afford to feed, clothe and educate world poverty would practically disappear within a generation.
Fiona, UK

It will never be the end until people begin to really concern about it. Most people spend more time to think about what to wear than the poverty in their own country.
Leonard, Vancouver, Canada

“ The best way to reduce world poverty is to stabilise and eventually reduce the world population 
Brian Whitmore, Alicante, Spain
I think the best way to reduce world poverty is to aim to stabilise and eventually reduce the world population. To provide more aid so that sufficient food can be bought will increase the population that will then need more food.
Brian Whitmore, Alicante, SpainMore aid, of course, is the answer. As of last year, the United States gave a scant $16 billion in developmental aid to the Third World. That’s pathetic. We spent many times that amount in Iraq. If the United States (and the rest of the developed world) would spend even half of what they now waste on arms on eliminating Third World poverty, the 2025 goal could be easily reached. The problem, however, will be in finding a leader who has the mettle to implement any such redirection of public money.
Sean, Nashville, USA

Everyone loves to have a pop at ‘Big Business’ and ‘Capitalism’ as things which somehow undermine efforts to help the poor and implement social policy. But the ironic truth of the matter is that most countries that have a welfare state have them mainly funded from the profits of the big companies that do best under capitalism. We can look at China as a clear example of this. Switching to a capitalist system has bought them vast benefits, and it’s time other countries that want to develop followed suit.
MK Ali, London

This has absolutely nothing to do with the richer countries giving money to the poorer countries. That is socialism on a global scale and if the Soviets taught us anything, it was that socialism isn’t economically viable. When a country puts serious effort into improvement and the West helps in a technical way, rather than financial, then there will be a solution. Look at China – they weren’t given a bunch of Western money, they just used what they had.
Daniel Boggan, Birmingham, AL, USA

“ These people die because of the corrupt regimes that starve them 
AR, London
No – it will always be there. These people die because of the corrupt regimes that starve them, whilst exporting food for their own bank accounts. Until you sort out that, all the money and food in the world won’t do any good.
AR, LondonNo “rich” country got rich by receiving handouts from another country, yet the idea that the solution to the problem of poverty lies in rich nations transferring their wealth to poorer nations seems to be an article of faith in many of the comments. World poverty will only be eliminated when poor nations follow in the steps of countries like India, China, Indonesia, and Hong Kong.
Sam, Sterling, MA

If the developed nations learnt to stop wasting all that food there would be enough for all of us.
Akku Chowdhury, Dhaka, Bangladesh

For anyone to suggest that poverty can be eradicated in a few years is crass. The divisions within countries and societies make the task virtually impossible. Each country has to begin somewhere to decide how its people can exist on what is readily available in terms of natural and mineral resources. But dealing with poverty in each individual country demands political and human will.
Kenneth Armitage, Ipswich, Suffolk

“ The end of world poverty is like world peace, it only exists in the speeches of politicians and beauty pageant participants 
Richard Read, London
The end of world poverty is like world peace, it’s a thing that exists only in the speeches of politicians and beauty pageant participants. In reality the world’s economy relies on inequalities and those in power have no incentive to change it.
Richard Read, LondonAll we need to do is keep breeding and abusing our planet for a while longer and nature will solve the problem for us. This world cannot support its existing population and also provide a satisfactory level of living standards.
David, Dubai

I believe that investment in health and education is the key to eliminating poverty. Unless we do something about this, thirty years from now, we will still be talking about the same problem.
Endalamaw, Addis Ababa, Ethiopia

The issue is the “gap” between the poor and the rich. Progress of the rich is all very well, but humanity towards the poor has to be a part of the resulting riches. This is the challenge of the world’s leaders.
Antony Watts, Kemer, Turkey

“ We cannot say the problems of poverty and hunger are not able to be solved unless we have tried 
Mark Emanuelson, Buckinghamshire, United Kingdom
Those of us in the developed world need to do our part to help the developing world. We can all participate. Donate money to worthy causes. Buy fair trade goods. Be informed. Write to your legislative representatives. We cannot say the problems of poverty and hunger are not able to be solved unless we have tried.
Mark Emanuelson, Buckinghamshire, United KingdomProfessor Sachs’ belief that extreme poverty can be eradicated by 2025 does raise hopes among those crushed by poverty and every right thinking person in the rest of the globe. But such eradication can only occur if the Western developed states loosen their purse strings. They did not do so during previous development decades, with notable exceptions, why should they do so now?
Ronald Austin, Georgetown, GuyanaPopulation is the issue. The poorest of nations continue to grow at a rate that cannot be sustained based on their resources. Donations from richer countries will do nothing unless those donations go towards investments to help these countries become self-sustaining. It’s amazing that we can look at animals in the wild and make the determination that over-population of certain species in certain areas are the cause of imbalance and yet we will not look at the human race in the same light.
Jeff, Tucson, AZ, USA

Yes, we will eliminate poverty when we rid the world of war, disease, and environmentally and politically-induced famine, and also halt the disproportionate consumption of goods by industrial nations. In other words, when hell freezes over.
Gregory Powers, Kansas, USA

It occurs to me that completely eradicating poverty is not going to happen. One poster made the comment that Capitalism needs it to survive, I find it hard to argue with this. So instead of distributing the wealth, lets distribute the poverty, so that every nation has the same percentage of poor to rich!
Gabe Gumbs, NY, USA

“ If the politicians were really organised, poverty could end in five years 
John F, Toronto, Canada
People are pessimistic because they are deluded about the ability of politicians. If the politicians were really organised, poverty could end in five years. If a nation can try to conquer Europe during World War II, then poverty can be eradicated. The only problem with extremely organised politicians is that they eventually trample on human rights but the third way of moral activism is possible.
John F, Toronto, CanadaNo, it will not end unless debts are cancelled and free education is provided for all. Solid education is the main tool to eradicate corruption and dictatorship. It is unbelievable that rich nations fail to see heavy financial support for education in the Third World as a solution to illegal migration and terrorism.
Allen Aramide, PolandThere will always be poverty as long as humans maintain one important trait, greed! All governments and all peoples of the world thrive on competition and the need to acquire. In the past, countries dabbled in Communism but they failed because they still had greed and a need for class separation. There is no Utopia, just dreams. All we can do is try to make our own homes better places, the governments won’t do it!!!
James, USA

No, we cannot end world poverty. Human nature won’t allow it because, as harsh as this sounds, as long as there are winners there must be losers. It’s almost a form of Darwinian law when you think about it. I don’t believe that can be changed.
Dan Braverman, Minnesota USA

World poverty will never end until greed is eradicated first!
Daniel, Kent, UK

“ In no way does the responsibility for ending poverty lie with individuals 
Robin, Herts, UK
In no way does the responsibility for ending poverty lie with individuals. Like it or not, independent individuals have no power in these matters. Charities exist more for the well-being of donors and volunteers than for the purpose of actually doing good. The powerful are responsible for creating such messes, and are the only ones who can help things. The weak supporting the weaker will not help. The responsibility of the people is to ensure the powerful do what is right. Or are we the ones working for them now?
Robin, Herts, UKYes, poverty can be eradicated. If only impoverished people can say no to bad governance and money politics.
Jaiyesimi Oludotun Olusegun, Ikeja, NigeriaPoverty can be eradicated but it required mutual effort. Aid is not the only solution. Proper and transparent utilisation of aid is mandatory. If Western governments and multinationals are expected to assist the African countries in eradicating poverty, then African governments should also shun corruption and be more transparent in their functions. The local public of African countries should reject and defunct the corrupt governments which govern them.
Murad Ali, London, United Kingdom

Agriculture, I think, will bring poverty levels down. We need worldwide serious programmes. Children don’t even think about it, because we want them to achieve in maths, physics and IT subjects to have the right job in the future. Again we humans, poor and rich are the problem.
Nada, New Zealand

Corrupt dictatorships must give way to democratic governments; people must recognize their individual responsibilities in making democratic governments functional.
Mark, Arizona, USA

“ Why is it, when it comes to things like poverty, people just want more money to solve the problem? 
Nicholas, Saratoga Springs, NY, USA
Why is it, when it comes to things like poverty and education, people just want more money to solve the problem? You keep giving more money to the poor and they don’t get any less poor – so SOMETHING is wrong. The answer is FREE-TRADE and non-intervention between all countries (Capitalism), and especially those that are poor. Give a man a fish and he’ll eat for a day, TEACH a man to fish and he’ll eat for a lifetime.
Nicholas, Saratoga Springs, NY, USAPoverty will never end as long as there are politicians and professional charity workers to make their livings from it.
Alex Swanson, Milton Keynes

There is a big poverty gap in my country. I don’t think it’s the authorities’ responsibility. Everyone in this country should have the duty to improve the poverty gap, especially poor people themselves.
Wenchi, Taichung, Taiwan

I totally disagree with Jeffrey Sachs. Although I agree that it is possible to end world poverty, I am absolutely sure that the rich countries will not let this happen because of their proper interest in keeping the poor countries the way they are right now.
Valentin Rimdjonok, Ottawa, Canada

Poverty cannot be eradicated. I just don’t think it’s possible. Its true that some of us have more than we need, and that if everything was shared equally, then everyone would be OK. But its never going to work that way. There will always be poverty in some way. But just because it will never be completely eradicated, that doesn’t mean we should give up. The main thing is to make a difference, even if we can’t change everything.
Keziah, Derbyshire

The third world countries are the worst hit by poverty; here, we mean that they don’t have the basic amenities of food, clothing, and shelter. I think the African continent and countries like India will need another 50 years to do away with poverty. Foreign aid is definitely not the solution, because here corruption is rampant, and has become part and parcel of daily life. I think education can solve some of the problems; literacy can play a pivotal role in changing the overall scenario of underdeveloped countries.
Nawal Thorat, Aurangabad, India

Every human being has the potential to create wealth and improve his well being. What the developing world and especially Africa needs is proactive intervention to create an enabling environment for the creation of wealth. Africa needs to change its perception that it will develop on handouts from the developed nations to a mind set of aggressively enabling its citizens to develop in entrepreneurship. There are far too many roadblocks to self development in Africa. This is the cause of most of the poverty.
Kimani Ndungu, Lusaka, Zambia

“ Capitalism needs a third world in order to survive 
Sally, Brooklyn USA
Yes and no. If the third world is waiting for the assistance of the wealthier nations to end their poverty, then this alone is not enough. Unfortunately, in order for the wealthier nations to continue manufacturing goods for their over consumption at such a low cost they need poverty. Capitalism needs a third world in order to survive.
Sally, Brooklyn USAIt took us hundreds of years, and a great deal of bloodshed to get from where they are now to where we are now. Is it realistic to expect such change in a couple of generations?
Malcolm McMahon, York

Top scientists have reported that if we continue as we are, or develop any further, we will run out of natural resources within sixty years. World poverty will never end.
Alastair, Perth

“ No positive results will take place as long as the culture of corruption and caste systems in the developing world continue to flourish. 
Jason Harris, Dallas, TX
I don’t think poverty will ever been eradicated. The first problem is people are blaming the rich countries. Developed nations can throw all the money in the world into poor nations but no positive results will take place as long as the culture of corruption and caste systems in the developing world continue to flourish.
Jason Harris, Dallas, TXWorld poverty can only be properly addressed when political correctness is removed from the argument. There are two main things that keep the third world where it is – Western subsidies and thuggish third world so-called governments. It is well past time for the West to end subsidies and bring these ‘governments’ down en masse. If the UN can’t or won’t do it – then a confederation of democratic Western countries should. The problems of decent people in the third world problems cannot be solved by comfortable westerners walking on eggshells.
Derek S, UKThe first step would be for undeveloped nations to overcome some of their own social obstacles, including ethnic violence, civil war, corruption, overpopulation, AIDS, etc. Human nature and cultural beliefs, whether it be in developed or undeveloped nations, is difficult to overcome. It should start through a reduction of agricultural subsidies in developed nations, however until there is some indication of change I won’t rely upon impoverished peoples to put food on my table.
Rob G., Kansas City, USA

“ There will be fewer poor people when there are fewer people. 
Jen, Astoria, NY
There will be fewer poor people when there are fewer people. When Churches stop pushing their anti-contraceptive policies, and women are empowered to space their children, you won’t have so many people starving to death. It’s not the citizens of the rich world who are causing women to have huge broods of children overseas.
Jen, Astoria, NYYes, but the focus must be on good governance and social responsibility. In many instances capitalism has generated adequate resources to eradicate extreme poverty, but is continually undermined by corruption, self interests and nepotism. It is an unfortunate truth that the poorer the country, the more difficult it is to put aside these unwanted by-products of economic and social growth.
James, Maputo, MozambiqueIf most of the poor are ‘non-cash crop’ farmers how will “opening up markets” help? I (along with most other westerners) don’t really need cassava or millet much.
Peter, Notts.

I think it’s important that the Developing world understands that no permanent solution will be found to their problems by someone else. If the global trade system is failing you then change to another system. Work at your own pace and develop slowly but steadily. People only ever deal equally with equals.
Iain Howe, Amsterdam, Netherlands

Rich countries will have to open up their markets to exports from poor countries, especially in the agricultural and labour-intensive manufacturing sectors. I think this is the only sustainable way to eradicate poverty. Most of the poor in the world are non-cash crop farmers and have minimum education.
Daniel, Boston, USA

Poverty can be eradicated – no nation in this world is poor, it’s just that the money and the resources in the country is not distributed evenly! Take India, for instance. We have natural resources, manpower and cultivable land – everything that will help a country prosper. But we also have a certain breed of species called the politicians, who see to it that the people below the poverty line stay that way! Jeffrey Sachs’ endeavour is indeed laudable, but will the individuals and governments share his thoughts and shoulder the responsibility?
Kavitha Viswanath, Palakkad, India

“ To eradicate poverty will require a change in priorities and thinking of people worldwide 
Jason Carter, Melbourne, Australia
Of course eradicating poverty is theoretically possible. This does not mean it will be easy or that it will happen. To eradicate poverty will require a change in priorities and thinking of people worldwide. As global citizens we must start seeing the bigger picture and the consequences of our actions and be prepared to commit to changes in lifestyle to bring about a reduction in poverty. These changes in themselves will not be overly difficult or severely affect our quality of life. The biggest challenge will be to realise this and commit to understanding the role we all play in reducing poverty.
Jason Carter, Melbourne, AustraliaEradicating poverty under the current capitalist economy is a pipe dream. Poverty was created and has actually been enhanced by this form of economic ideology which encourages competition for world resources, the richer you are the powerful hence being in a position to influence or dictate to the poor. Poverty was therefore created as a political whip to be used for intimidating those who do not have to accept whatever proposals from the rich. So poverty will continue to exist until the end of time, the rich will continue getting richer and the poor more poor.
Walter, Dili, Timor LesteUnfortunately, some tend to characterize poverty as having less than your neighbour. This can never be ended, nor should it – it is the way of the world in which we all have different abilities, talents and energy. Objective poverty, however, can be eliminated. The path to doing so is very clear – freeing the world’s economy of inefficient market distortions caused by such factors as corruption, regulation, subsidies, tariffs, and various other inhibitors. The problem is convincing those that have a stake in the current system (the corrupt, the bureaucrats, the first world farmers, groups that owe their very identity to certain philosophies (e.g. anti-globalization), etc.) that they need to cease their activities for the good of all.
Jeff, Charlotte, NC USA

Yes if the rich nations are prepared to put people and the environment before profit and big business
Darren, Basingstoke, UK

I have come to the conclusion that too many people are too selfish for poverty to be eradicated. Even in the richest nation on earth, the US, some people still live in abject poverty.
Tim Bolshaw, Bangkok, Thailand

Poverty will never be fully eradicated, but it can certainly be limited and that is something all governments should be working seriously to achieve.
Sam, Arlington, US

“ Poverty can be eradicated, but it demands sacrifices from the richer parts of the earth 
J Jensehaugen, Oslo, Norway
Yes, poverty can be eradicated, but it demands sacrifices from the richer parts of the Earth. Most of us are not even aware of the damage we are inflicting with our over consumption. To create a sense of global fairness we must buy less, yet be willing to spend more on each thing. Until the real producers get a reasonable pay, that is until the conglomerates and the costumers make sacrifices, change is hard, if not impossible.
J Jensehaugen, Oslo, NorwayYes, word poverty can be a thing of the past if world leaders put their money to it.
Aman Sinha, Bethlehem, PA, USAI’m encouraged to see the fair trade movement picking up steam in the US. Endless charity, while well-intentioned, does not have the impact that free and fair trade have on developing nations. It’s time to send things like tariffs, quotas, and subsidies to the dustbin of history and give developing nations a fighting chance.
Roger, Illinois, USA

“ I don’t see how it can be eradicated while the world population continues to grow 
Sally-Ann Smith, Leicester, Leics.
I don’t see how it can be eradicated while the world population continues to grow. Unless the population and its distribution more closely reflect the resources available to sustain a healthy life, how can we remove poverty in countries suffering from problems with their climate, natural resources and prevalent diseases? I don’t see how the current trend of wealthy countries blindly throwing money & labour aid will make much difference in the long term.
Sally-Ann Smith, Leicester, Leics.No, there will never be an end to world poverty. The “haves” and the “have nots” are a function of the way the world economy works. The least we can hope for is to aid these people to eliminate their hunger.
Charles, Montreal, CanadaWorld poverty will be eradicated as soon as greed is eliminated. Can that happen? No.
Franc, Philadelphia, PA USA

Poverty will never be eradicated, or even reduced, until the world’s population stops growing – especially in countries in the “developing” world.
Elizabeth van Rijssen, Cape Town, South Africa

I think extreme poverty can be eradicated but it will take organisations like the UN stepping in and resolving political conflicts to make it happen. Most starvation and poverty in the world is in the nations which do not make there citizens a priority. This mentality of corrupt leaders could easily be put in check by a strong UN which is willing to go the extra mile to protect human life.
Dwayne Chastain, West Jefferson, Ohio

“ Charity and aid will never change anything. 
Debessay Gabriel, USA
Poverty can only be won through self-reliance and if the rich countries would only stop exploiting the poor and returning ownership of the natural resources to the people. Charity and aid will never change anything.
Debessay Gabriel, Alexandria, USAExtreme poverty that leads to mass starvation can and must be eliminated. Some previous people have said that poverty has to exist, but there simply is no good economic reasoning behind that degree of suffering. In fact, wouldn’t corporations prefer it if these people had the capital to create new markets and consume more?
Vincent Nguyen, Vancouver, CanadaNo, no and no. Corruption and tribal hatred is the staple diet of the developing world. Address these issues first and then the developed world can help. A doctor who sells his patients medicine won’t cure the illness.
RC Robjohn, UK

World hunger can be eradicated if governments in poorer countries sort out their distribution problems. Many of them receive aid or help from nations that are better off but unfortunately this is not passed down the line to the needier sections of the population. Having said that, richer nations tend to be wasteful and spend far too much of their GDP on areas such as defence.
Etienne Hoffland, Chafford Hundred, Essex

“ We in the West can reduce poverty by fairer trade, and higher consumer ethics 
Agnes Clarke, The Netherlands
Poverty is intentional. People deliberately keep other people poor and marginalised. Poverty cannot be solved with aid and charity, because there are people actively working to keep the starvation and deprivation going. I think we in the West can reduce poverty by fairer trade, and higher consumer ethics. But people will continue starving until we get rid of an economic order based on hoarding, control, and ever-escalating competition.
Agnes Clarke, The NetherlandsPerhaps if people realised how important the farming industry was and more help was given to them to produce food then the problem would be greatly improved
Margaret Lawrence, Newport, South WalesAbsolute poverty, meaning people not being able to afford the essentials of living, can be ended, but relative poverty (some being poor as compared to others) will always exist. There will always be rich and poor in the world, but it is feasible to keep a minimum level of living standards such that no one should be forced to starve.
Jonathan Ring, Coventry, UK

If everyone contributes a little, it will be possible to eradicate poverty provided that there’s no corruption or any illegal activities in between the process. It is imperative that every child, regardless of being poverty-stricken or not should have basic education. By doing so, the vicious cycle could be broken in one way or another.
Kishen Raj, Singapore

“ Those who have the most will never give up enough to balance the needs of the world 
Kevin, CA, USA
In order for the world to end poverty the world would have to end its opposite. Those who have the most will never give up enough to balance the needs of the world. But it makes us feel good to wish it to be true and it’s another to make it happen.
Kevin, CA, USAYes, it is possible if rich country governments give generously, and recipient countries spend the money well, and poor country governments pursue good policies. It’s possible, but it’s certainly not likely. As long as there are people like Mugabe in power, there will still be poverty, but where possible, it’s well worth investing as much as possible to reduce poverty as far as possible. I hope Jeff Sachs is right, and I hope the world steps up the challenge he has laid out. Even if poverty is not eradicated, significant reduction is very desirable.
David, Bristol, UKThere is currently enough food grown in the world to adequately feed everyone. Unfortunately, the vast majority of corn grown in nations like the US goes to feeding our cattle, which is then distributed unevenly to richer people. Poverty could greatly be alleviated if we could work to reduce human population and reduce meat consumption/feed the cows grass so that more land could be devoted to crops for poorer nations.
Bryan Short, Bemidji, USA

Yes, considering how much is wasted on a daily basis on weapons alone. I mean look at the huge debt America is in from weapon expenditure. That will not really affect them for about 10 years or so. But of course that is just an idealised idea. Humanity will have to grow quite a bit before it ever thinks that far ahead.
Robb Dunphy, Dublin, Ireland

“ Poverty, disease and poor health are all parts of a vicious circle 
Pancha Chandra, Belgium
Poverty is a global problem and has to be tackled by governments, big businesses and tycoons in consultation with experts from the United Nations and the World Bank. Eradicating poverty by 2025 is a laudable objective. Unfortunately poverty, disease and poor health are all parts of a vicious circle, very difficult to eradicate if one does not have the clout, resources, education or the know-how.
Pancha Chandra, Brussels, BelgiumAs long as the world is run for profit, by the people that are in power now, poverty will not disappear, it will only increase. The only way to eradicate poverty is to eradicate the inequalities in the world. Change societies globally to cherish human life, instead of money.
Jennifer Hynes, Plymouth, UKOnly if Western countries (such as the US) reduce military spending and start helping those less fortunate than us.

Yes, world poverty can be brought to an end if we provide the platform. The first step is that governments of nation should stop the increase of basic essential goods especially in third world counties, they should be compel to reduce affordability according to at least a moderate rate. Providing employment to keep every hand busy and removing restrains through unnecessary tax will tackle poverty. The United Nations should enter into partnership with individuals and governments of nations with conditions, these conditions should be affordability of the concern – whatever area of investment they enter into, those affected by poverty should be able to afford it.
Abba Gabriel, Otukpa, Nigeria

“ Because of the greediness of the world people will continue to die until something happens 
Sarah Wright, USA
If people are made aware of the severity of the situation and are compelled then of course it can be prevented. But the problem is getting people to care. There are too few people who are willing to help. And because of the greediness of the world people will continue to die until something happens.
Sarah Wright, Woodland, California, USAWorld poverty can only be eradicated by strong governments. China is a text book case. Only 30 years ago they had massive famines and poverty. Due to birth control (two kids per family), industrialisation and strict government the country now is under control. If the same thing was applied to India, Africa and South America you would solve this issue. The world’s population has doubled since 1960 and what with global warming we can expect disasters on an unprecedented scale. Hurricanes, flooding, climate change. But remember rule number one, never do anything until it’s too late.
David Perry, UKWorld poverty will not be ended through the efforts of governments and big businesses. Money and free food will not end poverty. Individuals must take more responsibility for themselves and their environment. It is imperative that people be educated sufficiently to help themselves. Without self respect, there will always be poverty.
Linda McCullough, Texas, USA

We could live in a money free world, we have the intelligence, just not the will power. You all agree you can’t take money with you, and everything on this planet is owned by the creator, therefore we the gardeners of the planet just pass through. The oil, the gold, whatever was put here by the supreme power. We spent billions on sightseeing rocks in the sky, when we can’t spend a pound on another human life, we are a sad lot.
Yrag, Thailand

BBC News

Can Technology End Poverty?

The international development community has high hopes that the spread of information and communication innovations can lift millions of people out of poverty. But technology – no matter how well designed – is only a magnifier of human capacity, not a substitute, says Kentaro Toyama.
A ten-year-old boy named Dhyaneshwar looked up for approval after carefully typing the word “Alaska” into a PC.

23rd November 2010 – Published by the Boston Review

“Bahut acchaa!” I cheered—“very good.”

It was April, 2004, and I was visiting a “telecenter” in the tiny village of Retawadi, three hours from Mumbai. The small, dirt-floored room, lit only by an open aluminum doorway, was bare except for a desk, a chair, a PC, an inverter, and a large tractor battery, which powered the PC when grid electricity was unavailable. Outside, a humped cow chewed on dry stalks, and a goat bleated feebly.

As I encouraged the boy, I wondered about the tradeoff his parents had made in order to pay for a typing tutor. Their son was learning to write words he’d never use, in a language he didn’t speak. According to the telecenter’s owner, Dhyaneshwar’s parents paid a hundred rupees—about $2.20—a month for a couple hours of lessons each week. That may not sound like much, but in Retawadi, it’s twice as much as full-time tuition in a private school.

Such was my introduction to the young field of ICT4D, or Information and Communication Technologies for Development. The goal of ICT4D is to apply the power of recent technologies—particularly the personal computer, the mobile phone, and the Internet—to alleviate the problems of global poverty. ICT4D sprouted from two intersecting trends: the emergence of an international-development community eager for novel solutions to nearly intractable socioeconomic challenges; and the expansion of a brashly successful technology industry into emerging markets and philanthropy.

The latter prompted my own move to India. I was working as a computer scientist for Microsoft Research in the United States during a time when India’s rise as an information-technology superpower drew to that country increasing investments from multinational firms. In 2004 I was asked to help start a lab in Bangalore, and I jumped at the opportunity. While the lab’s broader mission was to engage India’s science and engineering talent in computer-science research, I would have the chance to start an ICT4D research group, where I hoped to devote my expertise to something of wider societal value.

At the time, telecenters were the poster children of ICT4D. Telecenters are like Internet cafés, except they are placed in impoverished communities with the intention of accelerating socioeconomic growth. The telecenters are often sponsored wholly or in part by outside agencies—governments, NGOs, academia, industry—harboring a variety of secondary aims, from profits and publicity to increased interaction with a voting constituency.

In Retawadi the telecenter was created jointly by a for-profit start-up company and a local nonprofit. The partners believed that the telecenter would provide social services to the community and income for a local entrepreneur, and, in fact, it did a bit of both. When I visited, the telecenter had two students. Occasionally, a college-aged youth would come in to use the Internet for the equivalent of $0.25 per hour. And the owner boasted that he earned additional income by using the PC himself to provide a local hospital with data-entry services.

Some telecenters have been successful. One operator in South India reported saving a farmer’s okra crop by enabling a timely video teleconference between him and a university agriculture expert. Another boasted a threefold increase in income after opening a computer-training center. The press headlines have been unabashedly flattering: “India’s Soybean Farmers Join the Global Village” (The New York Times); Village Kiosks Bridge India’s Digital Divide” (The Washington Post); “Kenyan Farmer Lauds Internet as Saviour of Potato Crop” (BBC).

These stories have sparked high hopes for telecenters: distance education will make every child a scholar; telemedicine can cure dysfunctional rural health-care systems; citizens will offer each other services locally and directly, bypassing corrupt government officials. Ashok Jhunjhunwala, a member of the Indian Prime Minister’s Science Advisory Council, suggested that telecenters could double incomes in rural villages. M.S. Swaminathan, widely credited with India’s “Green Revolution” in agriculture, called for a telecenter in each of the country’s 640,000 villages. Other countries have followed suit, proclaiming their own national telecenter programs.

The excitement around telecenters has spread to the rest of ICT4D. Prominent people in both the technology and development sectors eagerly fan the flames, and proponents of ICT4D increasingly wrap it in the language of needs and rights. Nicholas Negroponte—founder of One Laptop Per Child (OLPC), a project devoted to getting inexpensive laptops into the hands of every poor child—claims, “Kids in the developing world need the newest technology, especially really rugged hardware and innovative software.” Kofi Annan has publicly backed the project. Edward Friedman, director of the Center for Technology Management for Global Development, epitomized engineers involved in ICT4D when he wrote, “There is a pressing need to employ information technology for rural healthcare in sub-Saharan Africa.” One recent worldwide survey commissioned by the BBC found that 79 percent of the nearly 28,000 adults polled—mainly from richer countries and those with Internet access—strongly agreed or somewhat agreed with the statement, “Access to the Internet should be a fundamental right of all people.”

Yet the successes of ICT4D are few, fleeting, and very far between. In Retawadi the telecenter owner made approximately twenty dollars per month, but monthly costs of hardware, electricity, connectivity, and maintenance were a hundred dollars. The telecenter closed shortly after my visit.

Over a span of five years I traveled to nearly 50 telecenters across South Asia and Africa. The vast majority looked a lot like the one in Retawadi. Locals rarely saw much value in the Internet, and telecenter operators couldn’t market even the paltry services available. Most suffered the same fate as the Retawadi telecenter, shutting down soon after they opened. Research on telecenters, though limited in rigor and scale, confirms my observations about consistent underperformance.

As I soon discovered, these mostly failed ventures reflect a larger pattern in technology and development, in which new technologies generate optimism and exuberance eventually dashed by disappointing realities.

Academic observers have deconstructed telecenters and other ICT4D projects, enumerating the many reasons why the initiatives fail: ICT4D enthusiasts don’t design context-appropriate technology, adhere to socio-cultural norms, account for poor electrical supply, build relationships with local governments, invite the participation of the community, provide services that meet local needs, consider bad transportation infrastructure, think through a viable financial model, provide incentives for all stakeholders, and so on. These criticisms are each valid as far as they go, and ICT4D interventionists sometimes focus narrowly on addressing them. But this laundry list of foibles ultimately provides no insight into the deeper reasons why ICT4D projects rarely fulfill their promise, even as their cousins in the developed world thrive in the form of netbooks, BlackBerrys, and Facebook.

Nothing would have pleased my group more than finding a way for technology to advance the cause of poverty alleviation. But as we conducted research projects in multiple domains (education, microfinance, agriculture, health care) and with various technologies (PCs, mobile phones, custom-designed electronics), a pattern, having little to do with the technologies themselves, emerged. In every one of our projects, a technology’s effects were wholly dependent on the intention and capacity of the people handling it. The success of PC projects in schools hinged on supportive administrators and dedicated teachers. Microcredit processes with mobile phones worked because of effective microfinance organizations. Teaching farming practices through video required capable agriculture-extension officers and devoted nonprofit staff. In our most successful ICT4D projects, the partner organizations did the hard work of real development, and our role was simply to assist, and strengthen, their efforts with technology.

If I were to summarize everything I learned through research in ICT4D, it would be this: technology—no matter how well designed—is only a magnifier of human intent and capacity. It is not a substitute. If you have a foundation of competent, well-intentioned people, then the appropriate technology can amplify their capacity and lead to amazing achievements. But, in circumstances with negative human intent, as in the case of corrupt government bureaucrats, or minimal capacity, as in the case of people who have been denied a basic education, no amount of technology will turn things around.

Technology is a magnifier in that its impact is multiplicative, not additive, with regard to social change. In the developed world, there is a tendency to see the Internet and other technologies as necessarily additive, inherent contributors of positive value. But their beneficial contributions are contingent on an absorptive capacity among users that is often missing in the developing world. Technology has positive effects only to the extent that people are willing and able to use it positively. The challenge of international development is that, whatever the potential of poor communities, well-intentioned capability is in scarce supply and technology cannot make up for its deficiency.

This point may sound reasonable enough when stated in the abstract, but it has an important consequence for anyone expecting to save the world with technology: you can’t . . . at least, not unless the technology is applied where human intent and capacity are already present, or unless you are willing also to invest heavily in developing human capability and institutions.

The converse belief—accepted as faith by technocrats and techno-utopians—is that the large-scale dissemination of appropriately designed technology, per se, can provide solutions to poverty and other social problems. Believers jump to address the scale of global problems before confirming the value of the solution. They equate technology penetration with progress. For example OLPC seeks to enable “self-empowered learning.” Teachers can be altogether absent; OLPC has consistently sold its technology with little discussion of the realities of pedagogy—training teachers, redesigning curricula, strengthening weak school systems. As for technical maintenance, the students are supposed to provide it themselves. OLPC’s very name implies that its goal is, primarily, widely disseminated technology. Yet, few of us would choose PC-based education for our own children.

This myth of scale is the religion of telecenter proponents, who believe that bringing the Internet into villages is enough to transform them. Most recently, there is the cult of the mobile phone: one New York Times Magazine headline ran, “Can the Cellphone Help End Global Poverty?” The article went on to assert, “the possibilities afforded by a proliferation of cellphones are potentially revolutionary.”

“Revolutionary.” The myth of scale is seductive because it is easier to spread technology than to effect extensive change in social attitudes and human capacity. In other words, it is much less painful to purchase a hundred thousand PCs than to provide a real education for a hundred thousand children; it is easier to run a text-messaging health hotline than to convince people to boil water before ingesting it; it is easier to write an app that helps people find out where they can buy medicine than it is to persuade them that medicine is good for their health. It seems obvious that the promise of scale is a red herring, but ICT4D proponents rely—consciously or otherwise—on it in order to promote their solutions.

Estimates of annual, worldwide ICT4D expenditure are hard to come by, but they range from hundreds of millions to tens of billions of U.S. dollars, depending on what is counted. Given the extent of the investment, the opportunity costs become significant. OLPC’s target cost of a hundred dollars or less per laptop (in practice, the machines have been more expensive), sounds affordable, but that’s about half of India’s per-student education budget, most of which is currently devoted to teachers’ salaries. Does a hundred dollars for a computer make sense when $0.50 per year, per child for de-worming pills could reduce the incidence of illness-causing parasites and increase school attendance by 25 percent?

Despite critical needs in all areas of development, ICT4D proponents tend not only to ignore the opportunity costs of technology, but also to press for funding from budgets allocated to non-technology purposes. Presumably, this was one of the reasons behind OLPC’s brazen doublespeak in claiming to be “an education project, not a laptop project,” while expecting governments to spend $100 million for a million laptops, the original minimum order. In a fine example of the skewed priorities of ICT4D boosters, Hamadoun Touré, secretary-general of the International Telecommunications Union, suggests, “[governments should] regard the Internet as basic infrastructure—just like roads, waste and water.” Of course, in conditions of extreme poverty, investments to provide broad access to the Web will necessarily compete with spending on proper sanitation and the rudiments of transportation.

Disseminating a technology would work if, somehow, the technology did more for the poor, undereducated, and powerless than it did for the rich, well-educated, and mighty. But the theory of technology-as-magnifier leads to the opposite conclusion: the greater one’s capacity, the more technology delivers; the lesser one’s capacity, the less value technology has. In effect, technology helps the rich get richer while doing little for the incomes of the poor, thus widening the gaps between haves and have-nots.

Technology widens the gap through three mechanisms. First, differential access. Technology is consistently more accessible to the rich and the powerful. Technology costs money not only to acquire, but also to operate, maintain, and upgrade. And this “digital divide” persists even when the technology is fully sponsored. For instance, most public libraries in the United States provide free access to the Internet, but poorer residents have less leisure time in which to visit them and a harder time reaching them because of transportation costs. There may be social barriers, too: many of the rural telecenters I’ve visited in the developing world were not accessible to the least privileged people in their villages due to social injunctions against comingling of caste, tribe, or gender.

Technology producers also reinforce the digital divide. As for-profit companies, by and large, they naturally cater their products toward larger groups of richer customers, who are more likely to buy. Technology amplifies shareholder interest in profit, and, globally, this means hardware tends to be designed for people working in climate-controlled offices with stable AC power; software tends to be developed in languages understood by the world’s largest, wealthiest populations; and content tends to be written for audiences with the greatest disposable income. Even when products appear to be free, as with TV or Google, they are frequently supported by advertisers who seek consumers with more disposable income. The result is, again, that the disadvantaged are further disadvantaged. India has more than twenty nationally recognized languages, yet almost all of the software in use there is in English, making it difficult for those literate only in their local languages to use computers. And this inclination reinforces itself: if a technology is not designed for someone, she won’t buy it; and if she doesn’t buy it, the producers won’t design for her.

It is possible to fight against this differential access. Telecenter projects, in fact, typify such efforts, as the centers are always targeted at poorer clients. But progressive practices with respect to technology are not particularly effective on their own because of other differentials that technology doesn’t undo. A level playing field doesn’t address the underlying issues, which are the inequalities among the players themselves.

This brings us to the second mechanism: even if differential access to technology could be countered through universally distributed technology, differential capacity—in terms of education, social skills, or social connections—remains. Consider the following thought experiment. You and a poor farmer from a remote village are each given 24 hours to raise as much money as you can for the charity of your choice. You are both provided unfettered access to an Internet-connected PC, and nothing else, with which to fulfill the task. Who would be able to raise more money? You would, because of your education, social ties, self-confidence, and organizational capacities. The technology is exactly the same in both cases, so the difference is due to qualities associated with the person. It could be argued that telecenter projects are not far off from a real-life version of this experiment. Clients of telecenters are limited in literacy, education, social ties, political influence, etc., and are therefore constrained in the value they can extract from the Internet. With limited capacity, technology’s value is minimal.

Along with differential access and capacity, a third mechanism—differential motivation—contributes to the widening divergence between the privileged and the marginalized. What do people want to do with the technology they have access to? Those of us who have worked in interventionist ICT4D have often been surprised to find that poor people don’t rush to gain more education, learn about health practices, or upgrade vocational skills. Instead, they seem to use technology primarily for entertainment. Telecenter surveys find that when a village has ready access to a PC—connected to the Internet or otherwise—the dominant use is by young men playing games, watching movies, or consuming adult content. Many become proficient at the software incantations required to download YouTube videos from a PC onto a mobile phone. But these same users typically forsake software-based accounting and language lessons. What interventionists perceive to be “productive” use of technology is trumped by the “frivolous” desires of users. Even users in the developed world rarely take advantage of their technologies for purposes of self-improvement—the most popular iPhone apps are games and other entertainments, nothing that would improve productivity or health—but this tendency is exacerbated among those who have grown up with lessons of learned helplessness and low self-confidence.

I’m not blaming the victim. None of the three mechanisms necessarily speak to failures on the part of those who are poor or poorly educated. Blame, if it must be attributed, falls readily on historical circumstances, social structures, and the rich world’s unwillingness to invest in high-quality, universal education. In fact, one reason for valuing education is that it generates the appetite for and capacity to use modern tools—all the more reason to focus on nurturing human capability, rather than trying to compensate for limited capacity with technology.

* * *

The problem is that ICT4D assumes the very results it seeks to achieve. The human intent and competence ICT4D aims to generate must already be in place for the technology to work. But if developing economies had the capacity, there would be no need for an external technology push: capable people attract, or develop, their own technology.

North America, Western Europe, Japan, and several other economically blessed regions are cases in point. They attained their status as economic powerhouses well before digital technologies had a measurable impact of any kind. Their advanced production and consumption of information technology can be interpreted more as a result of economic advances than as a primary cause.

There is also evidence that previous applications of information and communications technology in developing countries have not led directly to socioeconomic progress. Consider television. In 1964 Wilbur Schramm, the father of communications studies and a cofounder of Stanford University’s Department of Communication, wrote a book eerily prescient of ICT4D discourse, though its focus was on the technologies of its day—print, radio, and television. In one section of Mass Media and National Development, Schramm highlights the potential of television:

“What if the full power and vividness of television teaching were to be used to help the schools develop a country’s new educational pattern? What if the full persuasive and instructional power of television were to be used in support of community development and the modernization of farming?”

Since then television has had some positive impact. Economists Robert Jensen and Emily Oster have found that exposure to cable television empowers rural women in India. Anthropological evidence suggests that television shows depicting urban values can shift social attitudes in rural areas. One nonprofit organization, the Population Media Center, explicitly applies this principle in order to influence birth rates and health-care practices in developing countries by running soap operas with positive social messaging. These are encouraging points.

Yet the sum total of television’s development impact comes nowhere near even Schramm’s measured expectations. Half a century later, we find that television has not been consistently beneficial to national education or agriculture, either in the developed or the developing world. A visit to a poor household with a television suggests how appropriate the “boob tube” nickname really is. TV is not an effective guard against illiteracy, poverty, or poor health, as India, where about half of households own TVs, demonstrates. Whatever television’s potential, society—both as producer and consumer of technology—has failed to apply it consistently toward development on a large scale.

My point is not that technology is useless. To the extent that we are willing and able to put technology to positive ends, it has a positive effect. For example, Digital Green (DG), one of the most successful ICT4D projects I oversaw while at Microsoft Research, promotes the use of locally recorded how-to videos to teach smallholder farmers more productive practices. When it comes to persuading farmers to adopt good practices, DG is ten times more cost-effective than classical agriculture extension without technology.

But the value of a technology remains contingent on the motivations and abilities of organizations applying it—villagers must be organized, content must be produced, and instructors must be trained. The limiting factor in spreading DG’s impact is not how many camcorders its organizers can purchase or how many videos they can shoot, but how many groups are performing good agriculture extension in the first place. Where such organizations are few, building institutional capacity is the more difficult, but necessary, condition for DG’s technology to have value. In other words, disseminating technology is easy; nurturing human capacity and human institutions that put it to good use is the crux.

The claim that technology is only a magnifier extends beyond international development and beyond information and communication technology. Nobody expects to turn around a loss-making company with the injection of newer computers, but well-run corporations can benefit from, say, computerized supply chains. A gun in the right hands protects citizens and maintains peace; in the wrong hands, it kills and oppresses. (Alas, the gun lobby is right—“guns don’t kill people; people kill people.”) Modern industrial technology magnifies our ability to produce, but it also magnifies our desire to consume. On a planet with finite resources, the latter could be our ruin. And history suggests that even the political “technology” of democracy is all-too easily subverted in the absence of an educated, self-confident citizenry, willing and able to implement checks and balances against the abuse of power. Computers, guns, factories, and democracy are powerful tools, but the forces that determine how they’re used ultimately are human.

This point seems obvious but is forgotten in the rush to scale. Currently the international-development community is having a love affair with the mobile phone. Rigorously executed research by Jensen and by fellow economist Jenny C. Aker demonstrates that cell phones can eliminate certain kinds of information inefficiencies in developing-world markets. Encouraged by such findings and by the sheer depth of mobile-phone penetration, foundations and multilateral agencies have formed task forces and entire departments devoted to mobile phones for international development. In these circles, it is not possible to discuss microfinance without “mobile money,” or health care without “mHealth” (short for “mobile health”).

The magnification thesis, however, suggests that this is a one-sided view of mobile phones. Certainly talking is something that all human beings, as social animals, not only want to do, but are well equipped for. Phones multiply that intent and capacity, and some of the resulting value is positive—no point in being an indiscriminate Luddite.

But, it’s not just productive intentions that are magnified by technology. When a dollar-a-day rickshaw puller pays a large corporation for the privilege of changing his ring tone, does he generate a net benefit to himself or society? Companies pump out such questionable, “value-added” services, and millions of impoverished consumers readily pay for them. Kathleen Diga of the University of KwaZulu Natal observed that some households in Uganda prioritize talk time over family nutrition and clean water. Sociologist Jenna Burrell found that destructive patterns of gender politics are exacerbated by mobile phones, as men wield phones as tools of sexual exchange. Meanwhile, in the developed world, there is mounting evidence that mobile phones contribute to distracted driving, fractured attention, and reduced cognitive ability.

We are in the midst of the largest ICT4D experiment ever. In 2009 there were over 4.5 billion active mobile phone accounts, more than the entire population of the world older than twenty years of age. The cell phone is overtaking both television and radio as the most popular consumer electronic device in history. Some 80 percent of the global population is within range of a cell tower, and mobile phones are increasingly seen in the poorest, remotest communities.

These numbers prompt suggestions that there is no longer a “digital divide” for real-time communication. Yet any demographic account of mobile have-nots will show them to be predominantly poor, remote, female, and politically mute. Whatever the case, if the spread of mobile phones is sufficient to help end global poverty, we will know soon enough. But, if it doesn’t, should we then pin our hopes on the next new shiny gadget?