(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Andy Mukherjee
SINGAPORE, June 12 (Reuters Breakingviews) - Singapore is confronting the perils of please-all economics. Ageing citizens are pushing the government for bigger nest eggs and more subsidised healthcare and housing. There is also popular resentment against letting more foreigners in, and not much appetite for increasing the 7 percent consumption tax. Squaring this fiscal circle will be a long-term challenge.
Already, there’s simmering anger in the city-state about overcrowded trains and costly public housing. About 2,000 people gathered recently to demand that the state-run retirement plan raise its 4 percent annual interest rate. People protested last year, too, when the government unveiled a plan to boost the resident population by 30 percent to 6.9 million by 2030, with immigration compensating for a drooping birth rate.
The multifaceted discontent puts Singapore’s fiscally conservative government in a quandary. Expanding the economy - and the tax base - with less foreign labour will mean improving the productivity of the local workforce. That’s a long shot.
Another way to pay for everything people want is to tax companies more heavily. But Singapore’s business costs are already quite high. A third strategy could be for the city-state to try to earn more on its substantial sovereign wealth by buying riskier assets. That could backfire, leaving less money for welfare.
Alternatively, the government could skimp on investing. The outlay on the city’s development budget in the most recent five-year period has jumped by a third. Slowing the pace might be a mistake, however. Pricey real estate would swoon if Singapore loses its urban buzz and stops attracting investors and tourists. That will make Singapore’s property-loving citizens less wealthy and more miserable.
The trade-offs are difficult. But Singapore has some advantages. Rival Hong Kong is facing an existential threat as China tightens its grip on the former British colony and boosts alternatives like Shanghai. By contrast, Singapore offers investors proximity to India and Indonesia, neither of which will boast a global city soon.
For all the grumbling, the majority of Singaporeans are too pragmatic to opt for unbridled welfarism at the next elections, which will take place by 2016. Still, please-all economics is scratching at the door. If it finds a way in, prosperity could be in jeopardy.
- About 2,000 people gathered in Singapore on June 7 to protest against low returns and lack of transparency in the state-run Central Provident Fund, the city-state’s main retirement plan.
- The CPF pays 4 percent on amounts contributed by employers and employees, a rate that the protestors say is not enough to build an adequate savings pool for old age.
- The number of people in Singapore over the age of 65 is projected to triple to as many as 900,000 by 2030. By then, the resident population may be 6.9 million, up 30 percent from 5.4 million now.
- Reuters: Pension fears prompt rare protest in tightly regimented Singapore
Apples and durian
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(Editing by Peter Thal Larsen and Katrina Hamlin)