08 October 2008

With recession coming, what social safety nets have we in place?

As a flat tax, the GST has created social inequity. The obvious response should be for the state to set up arrangements to redistribute income and provide social safety nets. Has it done so? Full essay.


Anonymous said...

I heard that to apply for Medifund, all the children and/or family relations of the applicant income must be pooled together for assessment. If the total exceeds a certain (Scrooge) mark, your case is out. This is regardless if your relations have other commitments of their own.

It is self-defeating that the Singapore government wants to follow the Nordic model for improving birth rates without providing the corresponding socio-economic policies. Having children in this Scrooge government policies means burdening them with your medical bills should calamity befalls.

Of course, a certain Lee mentioned how his family network supplied him with free birds nest and other goodies when he had cancer. The common man is lucky if he/she can afford the required rounds of chemotherapy. Leaders out-of-touch with the common man design policies that do not work for the common man.

Anonymous said...

Singapore is nothing like America. The US is less socialist than European countries, but allow me to point out some glaring differences between US and Singapore-style "capitalism".

1. Social security in the US pays retirees until they die- in Singapore CPF only pays until an individual's account is dry.

2. Poor Americans qualify for Medicaid and elderly Americans qualify for Medicare. Both are hugely expensive government-run systems. In Singapore there are few options for the old and sick.

3. Individual income tax rates are significantly higher in the US than they are in Singapore.

By the way, you don't see elderly cleaners in the US like you do in Singapore. The suicide rate in the US is lower than Singapore's, and lower than Finland's too. So much for the European system!

Buttressing arguments with a bit of America-bashing is a good idea. I found that people will believe me more readily if I can convince them first that my position on any issue is opposite that of America's!

Anonymous said...

Good Question.

Answer : None

In Singapore the safety net is a incidental act of 'sympathy' on the part of the essential service providers or 'share' of 'growth dividends'. Once you are out of work, you are on your own even though you have have you house paid up and 1 million dollars in CPF. Worse if you have a house not fully paid.
It's a joke ths CPF rules.. its time to review this. Alowing people to draw some of the CPF if the are jobless is not asking too much even if it means the guy has to sell his house/flat. Not even asking for hand outs... whose money is it anyway. I suspect we will have more people in this delima very soon !

Yawning Bread Sampler said...

Anon, 9 Oct 02:24 -

Yes, I stand corrected. On second thoughts, your points are valid, and only make Singapore look worse.

I am a chicken said...

CPF of 33% should be considered a tax. In other countries, people pay tax and receive retirement benefits, housing subsidies, unemployment benefits, health care etc. In Singapore, the poorest of poor pay a 40% tax (CPF +GST) and receive nothing. One would do well to ignore the names given by PaP to various schemes and focus on the amounts paid by individuals and what they receive in turn.

Xtrocious said...

Great article as usual Alex...

Whatever "social safety nets" we have in place are not for us but they seem to be for the government...

Sorry for being so cynical but the situation bears me out :(

Chee Wai Lee said...

After hearing people discuss the CPF, I would like to ask a couple of questions about our CPF scheme:

Am I correct to say that our CPF scheme works like a giant bank, the only exception being that a bank-run is impossible since deposits and withdrawals are highly regulated?

Now in typical banks, a portion of the pooled money is used for investments or given as interest-earning loans (which is how the bank earns it's profits). The remaining cash is used to ensure sufficient liquidity so that typical depositor behavior of deposits and withdrawals can be managed (and in the case of the CPF, this behavior is more predictable than is usual).

As I understand it, to ensure customer confidence in the banking system, the FDIC in the US insures much of the deposited capital. That way, if more withdrawals occur than is expected (i.e. the bank overextends itself), money can be injected to help the bank maintain it's liquidity and fulfill it's obligations to its depositors. I am uncertain what is the CPF's equivalent. Or does it not require any? The liquidity requirement can be looked-ahead by considering the only the people who will be of the appropriate age and eligible for access to their funds.

Does the CPF publish data on the ratio of liquidity maintained? Do we have underwriters who would guarantee our deposits should the CPF over-extend itself? (The liquidity ratio should give us a good hint, I think).

The scary scenario is that if there is a risk that CPF funds can be over-extended and a meltdown hits the portion of the money that was invested, who would underwrite the cash to guarantee that the CPF can still fulfill its obligations to of-age depositors?

Does what I have said above make sense? I do not have any details about how the CPF works and in fact, it was the mortgage crisis in the US that helped me understand the general principles of how a bank works. Anyone knows the details?

kayangmo said...

In Italy, the healthcare is free of charge. Even a friend who was not Italian but there for a holiday, had to send his son for an emergency hospital stay got it free of charge.

Contrasting Singapore, where wages are less than half of 1st world countries, and designed to be so, in order to lower operating costs for foreign investors and companies, the government should continue and even improve free basic healthcare to all Singaporeans.

Co-pay? When there is an amount to pay, the art of inflating prices to get the actual real money back into the pockets of the govt or hospitals.

I agree the govt should be real and give back the people more perks.

yuen said...

chee wai:

CPF is more like a mutual fund, except that you cannot withdraw your money unless you get old or leave singapore/malaysia permanently, and that it does not publish its investment holdings; a large part of the money is "lent" to the members themselves to buy property and shares, and I guess most of the remaining money is invested in singapore government bonds

you might like to take a look at


Chee Wai Lee said...

Prof Yuen,

Thanks for that informative article about how CPF might work. Had to check out wikipedia for mutual funds first though, heh.

imho, that part involving the lack of transparency on what happens to the money is something I feel the government should fix.

I mean, what's there to hide? If they can guarantee servicing withdrawal requirements (and with the exception of foreign employees leaving, they pretty much control those, so it is not some highly unpredictable metric vulnerable to investor confidence), I don't see why it shold be a problem. It is also not as if they *must* make good returns on CPF savings.

yuen said...

Self reliance, Market forces and Meritocracy

The philosophical basis of CPF, with each person being responsible for funding his own retirement, rather than on government handouts in one's old age, is self reliance. By providing mechanisms whereby some CPF money could be taken out to other investments of an account holder's own choice, personal enterprise of a sort and market forces are brought into play. Those who do it well stand to gain more, hence we have an element of meritocracy as well.

"Self reliance", like "justice", "development" and "democracy", is a good word, easily accepted by any audience, and good words are liable to be overused, with the speaker deliberately conveying his own particular meaning, and it is always necessary to look into it a bit further. Does self reliance eliminate the need for social welfare of any kind?

Some selfs are easier to rely on than others. Some people are born smarter, calmer, healthier, richer, etc, than others, or are simply luckier. Just as social welfare has its limitations, so does self reliance. We might have a meritocratic system, but this does not mean every benefit one enjoys is due to merit and is well deserved.

Market forces might in the most cases operate towards the optimal deployment of resources, but there are also cases beyond its reach, e.g. in a totally free market for health services, a doctor would probably get paid a lot more for wart removal or breast enlargement for wealthy clients, than for saving the life of a poor person, but it would be hard to argue that the former has more merit than the latter. It is usually necessary for governments to step in and fill gaps market forces miss out.

Similarly, pornography and prostitution are easy ways for a girl to make money because there is constant demand, but governments usually would place some restrictions on such self reliance and market forces.

Taken to extreme, you could say both annuity and life insurance are anti self reliance: in life insurance, the people who pay premium but do not die are subsidizing those that die early; in annuity, those who pay premium but die soon are subsidizing those that live long. You see how essential it is to define the exact content of the words you use

KiWeTO said...

Your money is the government's (CPFed), the government's money is the government's.



Anonymous said...

I remember when i started driving in 2006, the pump price was around 1.20 to 1.40 and oil price was hovering between 60 to 70 dollars. currently, after seeing oil price drop from a high to around 70+, the pump price for shell 92 is around 1.80

Any logic to this huge difference? or are we taken for a ride by those greedy oil company and our government? I believe our government is taxing a very high percentage on our pump price, thus they do not really mind that the pump price is more expensive as compare to previous senario.

Has they lost so much money in their foreign and local investment that they had to resort to this kind of relatively unknown taxes to recoup their losses, as in the increase in everything ranging from public transport, taxi, ERP, utility bills, telephone bills, newspaper... basically anything that they can lay their hands on.

Even after the increase, all sort of reason is given to justify for it, thinking that singaporean are just a bunch of stupid idiots who will accept whatever is being thrown to them.

Take for example the case of guarantee for bank deposits, when the governement around the region started to guarantee bank deposits for their people, our government initially stated that this action is not needed as they are confident that our banks are relatively safe from the financial crisis. I personally find this reasoning absurd as in, if they are so confident, why don't they dare to guarantee in the first place? This goes to show that they have absolutely no confidence in our banks at all. In the end, when they find out that they might lose some big ticket depositors to regional country because of this decision, they quickly change their stand.

Another example is when the world economy starts to decline a year ago, our all hail amighty million dollars cream of the crop ministers keep telling us that Singapore is safe from this turmoil as we got China, India to support us, IR, F1, etc... and we still hear these comment even up till a month ago. Then out of a sudden, WHAM and Singapore is heading towards a recession. Can't they see this coming? Or is it that they are making so much that they do not know what is a downturn, as it will not affect them anyway.

or the case of 20 to 30 years long term investment in citigroup and merril lynch after a bad decision by those "you know who"? heck nobody knows what will happen in 20 to 30 years, and I won't be surprise if citygroup got nationalise in the future and all the long term investment goes down the drain. Since they think Singaporean are stupid, they should be more extreme and say they are looking at 200 to 300 years investment instead.

What I cannot stand is that non of them has a mind of their own as they are just echoing what each other has said, after being paid so much. If thats the case, I do not know why we need so many of these ministers, when just a few of them can still do the same job, with less echo thats all.

Another thing they just can't do is to admit their mistakes. Everyone makes mistakes as nobody is perfect, just apologies and try to salvage the situation and move on. Don't tries to cover your mistake by twisting and turning, and sweeping it into the carpet. If its a bad investment, cut loss and move on, simple and straight forward. don't load us with crap about long term investment.

Just my 2 cents worth...

T__T said...

Interesting article. It got me thinking more about our sad healthcare system as well as cpf