SINGAPORE - Is Prime Minister Lee Hsien Loong moving to soften the island state's time-tested capitalist credentials with state welfare policies for the poor?
Growing economic inequality has put Lee to the political test, one that is challenging his economic lieutenants to devise ways to redistribute national wealth consistent with Singapore's strong laissez-faire capitalist tradition. The formula they've arrived at, however, seems likely to widen rather than bridge the divide.
In mid-November, Lee announced government plans to raise the goods and service tax (GST) from 5% to 7%. The tax hike is designed to generate about S$1.5 billion (US$960 million) annually, funds that will be earmarked to develop a more generous social safety net. "It's essential for us to tilt the balance [of spending] in favor of lower-income Singaporeans because globalization is going to strain our social compact," Lee said upon announcing the policy.
It was an unusually candid admission for the leader of the ruling People's Action Party (PAP), the political machine that Lee's father, former premier and current Mentor Minister Lee Kuan Yew, founded and that has ruled Singapore uninterrupted since the country's founding in 1959. Strict adherence to neo-liberal economic prescriptions and policy promotion of an export-oriented economy contributed to Singapore's emergence as one of Asia's richest countries in the 1980s and 1990s.
Now, it appears those same policies are disproportionately lifting the top tier of society while leaving a growing number of lower-wage earners in the economic lurch. That trend arguably began with the 1997-98 Asian financial crisis when, government statistics show, the wages of lower-skilled workers fell by about one-third.
Despite economic recovery, the income gap has continued to widen as Singapore's past advantage in manufacturing industries has been eroded by China and other lower-cost countries in the region. Over the past five years, about 20% of Singapore's households have suffered from declining incomes. And that's arguably starting to take a toll on the PAP's popularity.
Prime Minister Lee's pronouncements and policies are clearly a reaction to those shifting perceptions. Details of the various proposed new welfare schemes - known provisionally as "offset packages" - will be announced in February along with the state budget. Indications are that existing modest schemes to subsidize elderly health care, housing and education will be topped up and many new welfare schemes introduced.
Lee has said that the so-called "workfare bonus" - an unprecedented cash payout to low-wage earners introduced as a one-off measure just weeks before last May's general election - would be employed to redistribute government budget surpluses back to taxpayers.
The PAP in the run-up to the polls doled out S$150 million of bonuses to about 330,000 low-wage earners, representing about 9% of Singapore's population of citizens and permanent residents. That payout anticipated but didn't blunt opposition parties' class-oriented attacks against the PAP-dominated government, claiming it systematically neglected the island state's many low-wage earners.
The PAP won those polls handily, capturing 82 of 84 parliamentary seats - though the weak opposition has since the 1980s claimed that the election system is structured and regulated in ways that inhibit small parties from fielding candidates, including the requirement that parties must assemble an ethnically balanced six-member committee to contest some electoral constituencies.
Yet the prickly income-inequality issue was quickly resurrected one month after the elections when a blogger writing under the pseudonym Mr Brown pointedly asked why official data that showed that 20% of national households were suffering from declining incomes were released after rather than before the general polls.
For his pains, Mr Brown's regular column in the government-owned Today newspaper was brusquely terminated - fueling outrage in Internet chat rooms about the government's heavy-handedness and apparent lack of transparency. Meanwhile, the PAP-led government proposed this month to tighten laws that govern the Internet as part of an overhaul of the national penal code.
The proposed amendments would hold Internet users liable for statements the government deemed to "cause public mischief" or "wound racial feelings". If passed, the legislation would appear to institutionalize the ban on posting inflammatory political content the government enforced temporarily in the run-up to this year's polls and would give it broad new powers to curtail freedom of expression.
It's unclear whether public debates over the Internet about the GST rise would be considered "mischievous" under the proposed new rules. Some commentators have already dared to note that raising the consumption tax is by definition regressive and will hit poor households harder than rich ones as they are forced to spend a greater proportion of their income on tax-inflated necessities.
The Singapore Chinese Chamber of Commerce, a grouping of about 4,000 mostly small businesses, likewise took the chance to express its "great concern and disappointment" about the tax hike. That's because the policy has the dual purpose of also covering the expected shortfall in tax revenues that will occur when the government cuts corporate-tax rates from their current level of 20%. It has not yet been announced when the new lower tax rate will take effect, but Singapore is under growing competitive pressure to reduce its tax rates to remain attractive to foreign investors.
To justify his government's corporate-tax cut, Lee recently said in parliament that developing Baltic nations such as Latvia and Lithuania levy a flat 15% tax on corporations. More to the competitive point, Hong Kong's top personal income-tax rate is currently 16%, a full 4 percentage points lower than Singapore's rate.
"Such a reduction would only benefit profitable companies and not the significant majority of small and medium-sized enterprises which have to contend with high business overheads and a dwindling bottom line," the Singapore Chinese Chamber of Commerce said in a statement.
The unspoken subtext is that raising the GST while cutting corporate taxes will in effect shift the tax burden from big companies to ordinary citizens, particularly lower-income Singaporeans, some commentators say.
While the details of the promised new welfare schemes are still pending, the PAP-led government is headed into an uncharted and difficult interventionist direction.
On the surface, Lee's government appears to have shaken its historical aversion to welfare schemes and taken on board providing long-term state assistance to a large cross section of the population. Singapore currently does not impose minimum wages, nor are there state-backed pension plans as in many Western countries. In nanny-state fashion, each Singaporean is currently compelled by law to set aside a certain proportion of his or her income for retirement purposes.
The government insists it will fashion the new assistance schemes in a way that avoids institutionalizing the economic lethargy and dependence inherent in Western welfare systems. Lee recently told parliament: "I would like to caution members that we should proceed with care ... it is a real slippery slope. And many, many social-welfare schemes which have ended up in serious trouble have started off with good intentions."
Notwithstanding those words, the scale of the proposed changes suggests a fundamental philosophical shift for the PAP. That's largely because the growing chorus of complaints about the widening income gap has grown politically too loud to ignore.
The issue is also significantly tied to growing public perceptions about elitism among PAP members of parliament (MPs) and their family members - a perceived social arrogance and economic selfishness that increasingly sticks in the craw of many Singaporeans, particularly among low-wage earners.
Sin Boon Ann, a PAP MP, recently highlighted the danger of class conflict in a speech to parliament. "The perception exists that Singapore is a society bifurcated between the elites and the commoners, the scholars and the normal streams, the gifted and the ordinary, the [public housing] dwellers and the private property owner, the rich and the poor," the parliamentarian said. It is necessary to "break down the institution of snobbery within our society", he said.
He spoke amid a surge in cyber-criticism aimed at PAP MP Wee Siew Kim. In a now-famous exchange in Singapore's vibrant blogosphere, Derek Wee (no relation to the parliamentarian) wrote in his blog on October 12 about his economic insecurities as he approached middle age. He opined that Singapore's liberal immigration policies were putting his job at risk, and he urged the government to be more understanding of ordinary citizens' plight.
An 18-year-old girl in her own blog replied and disparaged Derek Wee's concerns, saying, "If you're not good enough, life will kick you in the balls ... There's no point in lambasting the government for making our society one that is, I quote, 'far too survival-of-fittest'.
"If uncertainty of success offends you so much, you will certainly be poor and miserable," the young blogger added. She went on to refer to Derek Wee as "one of many wretched, under-motivated, over-assuming leeches in our country", and rounded off her attack by telling him to "get out of my elite uncaring face".
It was quickly discovered that the girl, Wee Shu Min, was the daughter of a less-known PAP MP, demonstrating to many Internet users that Singapore's highly touted meritocracy was being undermined by an intolerant elitism at the top. Her name, "Wee Shu Min", rocketed to the top of keyword searches in Singapore as measured by Technorati.com.
Her father, Wee Siew Kim, later unapologetically waded into the controversy. "I think if you cut through the insensitivity of the language, her basic point is reasonable," he told the government-controlled Straits Times newspaper, adding: "Some people cannot take the brutal truth and that sort of language, so she ought to learn from it."
It is against this ferment that Lee's government is now emphasizing the need for long-term social support for the poor, and at the same time moving to curtail political debate over the Internet. Yet Lee's tax reforms and welfare promises are unlikely to bridge quickly the divide between his government and its low-income constituents. It's an issue that promises to dominate Singapore's popular discourse and give Lee political headaches for years to come.
Alex Au is an independent social and political commentator and freelance writer based in Singapore. He often speaks at public forums on politics, culture and gay issues.
22 Nov 2006
By Alex Au