The Straits Times Interview with DPM Tharman Shanmugaratnam: Social Policies, Spending and Taxes

The Straits Times: How did we arrive at 70%, being the optimal...?

DPM Tharman Shanmugaratnam: DPM Tharman Shanmugaratnam: There is no precise figure that we will claim to be optimal. The government share of spending has increased significantly, but we should never get to the pretence seen in many systems, that if the government pays 100%, healthcare is free for the people. Avoid the pretence that if the Government pays more, I’m paying less. Actually if Government is paying more, people are paying more through taxes, and it is the average person who is saddled with extremely high taxes in the traditional welfare states in much of Europe. It will mean much higher GST and income tax rates compared to what we have today.

The critical issue is to maintain a balance between individuals’ paying, risk pooling through insurance, and government paying. That balance is important because it helps prevent over-prescription and keeps costs down.

ST: Given that the balance has shifted over the years, looking ahead, do you think it will have to continue shifting and we have to continue tweaking this?

DPM Tharman: We will continue tweaking it. But what is critical too is not just the overall subsidy level, but the targeting of the subsidies and benefits. That is the second critical issue. That too distinguishes us from many other systems. The traditional welfare state which operates in the European and UK healthcare is one of universal benefits - doesn’t matter if you are rich or poor, healthcare is free at the point of need.

It has a simple emotional and political appeal, but has turned out to have huge consequences as their societies get older. When Aneurin Bevan introduced the National Health Service (NHS) in the UK, in fact exactly 70 years ago, he thought that the system of universal benefits, free at point of need, would lead to a healthier society and healthcare costs going down. The opposite happened. Healthcare costs have gone up tremendously. Now, particularly with an ageing society, the NHS is in trauma, with disorderly rationing and tens of thousands of people having their operations postponed. If everyone rich or poor gets the benefit of free healthcare, as your society ages, it becomes unaffordable.

What’s happening now in Finland is also instructive. They have a universal system, with both rich and poor getting benefits paid by the state. Because their society is aging, it can no longer afford it. But it is very difficult anywhere, politically, to cut back on the benefits from the elderly. So the government is cutting back on other things, including higher education, and the economy and jobs are also getting hurt. Young people are hence leaving, which adds to the problem of an ageing society.

We’ve got to keep our subsidies targeted at the lower income group especially, and with enough support for the middle income group. We do this targeting in the Medishield Life subsidies, and we also do it in the hospitals, SOCs, CHAS and long-term care sector.

The third major issue, which Minister Gan Kim Yong has frequently spoken about, is about keeping costs in check by re-balancing the structure of our system of healthcare - with greater emphasis on preventive care and primary care, and on long-term care in the community. For example, the emphasis we have to place on lifestyles - incentivising people to maintain a healthy lifestyle. That’s the third element in keeping costs in check, keeping medical inflation in check, and ensuring that people are getting value care, not just spending more.

We will need to raise taxes as healthcare spending goes up, but must keep the features of our system that keep costs in check. We must keep our subsidies targeted at the poor, with some support for the middle class. Keep the balance between individual co-payment, insurance and the Government paying, and not skew it too much in one direction or the other. And importantly too, continue the healthcare reforms and innovations that will help to keep medical cost inflation down.

Keeping our overall system of taxes and benefits fair, even as we raise taxes

Our fundamental approach is to keep our overall scheme of taxes and benefits fair and progressive. Even as we raise taxes, which we must do in good time, we must keep the system fair. That means those who are better off pay more of the taxes and get less benefits. Those with lower incomes pay some taxes - because everyone must contribute - but they get more of the benefits.

It is the overall combination of taxes and benefits that matters in achieving a fair system, not each individual tax or subsidy on its own. Some taxes are progressive, like income taxes, and some are on their own regressive, like GST without offsets. But what matters in a fair system is the overall mix - when we take all the taxes and their offsets, together with all the subsidies and other benefits, their overall impact must favour the poor and middle-income groups.

Currently, for the lower income group (those in the bottom 20%) for every dollar they pay in taxes, they get $4 back in benefits. For the middle income group, every dollar they pay in taxes, they get $2 back in benefits. That’s the result of the shifts we made in the last ten years, to tilt the balance in favour of the lower and middle-income groups.

Critically too, we must avoid shifting the burden to our children’s generation, and their children’s generation. It’s a basic conundrum in most democracies: governments don’t want to admit that the system requires higher taxes, but they want to provide additional benefits to voters. The only way you can do both of those things is to borrow more today shift the burden to the next generation. And that’s what’s been happening in a whole range of countries.

Our starting point, fortunately, is a strong one. When Singapore was a young society and incomes were going up rapidly, we saved. The Government ran surpluses, and we built up reserves. That’s why we now have an annual Budget where 17% of revenues are drawn from the investment income from our reserves. It is a big advantage we have over other countries. Most developed countries have to do the opposite in their Budget each year. In the U.K and Canada, they take out 5% of their revenues to pay the interest of the debts they have built up. In the US, they use 9% of their revenues to pay interest, and that figure will go up.

Building an inclusive culture: collective and personal responsibility go hand in hand

But very importantly too, beyond taxes and spending, we have to recognise the limits to what social policy interventions can achieve without a supporting social culture. If we look at the experiences around the world in the last 60 years, all the mature societies, there are a few basic lessons, and they will apply to us as well.

First, if you leave things to the market or leave it to people to fend for themselves, you get widening disparities. You widen life’s inequalities. And those inequalities will reflect not just differences in abilities and talents, but also the advantages and disadvantages that people start with. So that’s not a fair society.

But we have also learnt from 60 years of largely well-intentioned social policy experiments that it’s very hard to get lasting improvements, very hard to build an inclusive society, through social policy interventions alone. How values shift, how people’s behaviour shifts in response to social policies, and whether our civic culture strengthens or weakens, matters greatly.

So as we step up our social spending, we have to be very mindful of that. As we take more collective responsibility and seek to mitigate the inequities of life, we have to do it in a way that reinforces personal and family responsibility. They don’t have to be at odds with each other - it doesn’t have to be about self-reliance versus government or collective responsibility. The real challenge in social policy is to find ways in which they can reinforce each other.

If we focus the government’s support on helping people get a fair chance - help those with a difficult start to discover their own strengths and move ahead, , help people stay in the workforce through Workfare and to keep building their skills, help people own a home and raise their families - that way, we are not just supporting people but doing it in a way that strengthens personal responsibility, and strengthens the sense of pride people get from contributing to their own lives and to society.

That, I think, is the crucial social ethic that we’ve got to maintain. Step up social spending and take more collective responsibility in a way that strengthens rather than erodes that ethic of personal and family responsibility. That is the Singapore approach, it can be done, and we’ve got to make sure that we sustain that into the future.

ST: I wanted to take this opportunity to ask you about the Trampoline model that you’ve spoken on before. We know that there are times when these people make poor choices because they have poor options. And whether it’s a mother who did not manage to stay on in her job because she had to take care of her children, or whether it’s about students who are trying to study in school but do not have the money for tuition or enrichment and they find themselves falling behind. Given that there are these cases, are there no limits to this metaphor? It is almost akin to these people trying to bounce up but being hobbled.

DPM Tharman: That’s a good point, and I do not mean that people have equal options and will be able to make good choices on their own. The trampoline doesn’t mean you leave people on their own. It means that you don’t just provide a safety net, but help people to bounce back up.

And it doesn’t happen simply by having the right policies. It requires the networks on the ground, the peers, a whole system of support to help people make the right choices. So it’s not about waiting for people to take responsibility for themselves, it’s also actively helping them to take responsibility.

It’s everything from having empathetic teachers and volunteers, starting from early in life, parents’ support groups in schools, where they influence each other, and circles of friends and peers, infecting each other with a positive spirit - rather than the reverse which can easily happen, when a circle of friends gets up to the wrong things. All these things matter. And that’s the quality of the society that we have to build.

It’s not just about the policies, and the grants to give you a leg up. It’s about the empathy, the support, the advice and the influence, so everyone gets caught up in a spirit of aspiration. That’s critical. And that’s the world not just of the government but of the community, of the pre-school and school, of the workplace, and the networks on the ground.

And it has a way of reinforcing itself. Once you have that positive and aspiring culture, and where people help each other, it becomes a self-reinforcing strength of our society.

The reverse is also the case. Once you lose that culture, you’ll depend more and more on government to do things for society. But it eventually breeds divisions, and reaches a limit. If we do not sustain a culture of personal responsibility, you’ll get over time what we see now in several mature societies, which is a hardening of attitudes towards the poor. The cutbacks to welfare that are happening in many countries are not cutbacks of the universal benefits that the rich and the middle-class benefit from, but to the benefits that the poor get.

So that’s why collective and personal responsibility go hand in hand together. With individuals and families taking responsibility, we are more likely to sustain collective support and the majority of people being willing for the state to play an active role to help people in their lives. And with that collective support, that intervention by government and the networks of support and empathy on the ground, it makes it easier for individuals to take responsibility for themselves and make the right choices in life.

ST: Speaking of networks of support, there’s recently the IPS survey that found that people there are not interacting across class divisions.

DPM Tharman: It’s something that’s happened all over the world, as societies become more settled. It means that we have to find every opportunity, early in life and through life to maximise interactions. And even when some people do better than others, we must avoid a culture of elitism. Everyone must take a real interest in others in different stations of life from them. That’s critical.

ST: Is that happening enough in Singapore?

DPM Tharman: There’s a risk that it will get eroded over time, and we have to work harder at it.

Basically, we’ve got to find every opportunity to maximise interactions, as you grow up, in the neighbourhood, through voluntary activities - not just contributing charity dollars, but getting involved.

Our basic model is stronger than in most societies because of housing and education. The way in which housing is organised in Singapore, with a broad span of the population in the same neighbourhoods – that’s a big advantage already. Our public school system for all, rather than a separate private school system for the better off, is also a distinguishing characteristic, if you compare us with Britain or the US for instance. But even in a meritocratic, public school system, you find over time that people cluster together based on their backgrounds. It happens all over the world. And we have to work against that.

ST: Aside from encouraging people to just interact across more actively, are there policies we can look at tweaking to make this a more egalitarian landscape? Whether it’s about the siting of certain schools in the Bukit Timah belt, or whether it’s about the affiliate policies?

DPM Tharman: We have to ensure that schools around the island provide quality, and become pinnacles in their own right. Rulang was not originally a premier school. And there are several Rulangs around the island which have over time become pinnacles, and become sought after. Just assigning brand-name schools around the island doesn’t itself do it.

There’s no easy solution to this problem anywhere in the world. You have to keep tilting against it, keep working actively on it, but there’s no easy solution.

ST: When you spoke on the need to temper inequality, you talked about the need to upskill, and SkillsFuture as one of the key initiatives. But the take-up rate for SkillsFuture has not been so high, and, do you think there’s more that we can do about it?

DPM Tharman: If you are referring to the SkillsFuture Credit, in fact we encourage people not to rush. Everyone has to think about what they really need, for their careers, for their current job or to develop skills that interest them and can help them in future.

But the bigger challenge in the SkillsFuture journey isn’t the use of SkillsFuture Credits by individuals. It’s actually the continuous training of people by employers. That’s going to be the largest part of SkillsFuture. It is a broader, collective journey of investing in people through their lives. That journey is still being developed, and it requires responsibility on everyone’s part.

The SkillsFuture Credit empowers individuals, but what happens at the workplace is critical - investing in employees and helping them to up their skills and their potential.

ST: How far along do you think we are at this point?

DPM Tharman: I would say we are about a third of the journey. No society has embarked on this systematically, of reinvesting in people through life. We are going about it more systematically than most, but there is a long way to go, especially to develop that culture of wanting to invest in your people, amongst the employers.

We did not have the culture of some of the Northern European societies, where employers take deep responsibility for their workers and keep building up their skills. We have to develop that culture in our own way. In our case, it requires strong government support and the strong role for our universities, polytechnics and ITEs as anchors of the system. But developing close links with employers, with networks of employers, is critical. Because training that is relevant to the job and future careers is the most effective.

ST: Should we not proceed a bit faster on this journey?

DPM Tharman: We can’t summon this up through government policy. It is about working on it with industry, through our ITMs. SkillsFuture is a very important part of each ITM. Working with the trade associations, working with networks of individual employers and getting our educational institutions to tie up with employers, so that together they spur things forward.

ST: Has the government encountered much resistance from the community?

DPM Tharman: It is not so much resistance as a natural inertia. We need to step it up through engagement. And it goes hand in hand with everything we do to create a vibrant economy, so that companies see opportunities for themselves, also helps them to take a positive attitude towards investing in their employees.

ST: But why do you think there is that inertia?

DPM Tharman: It is a challenge in most countries. The Northern Europeans have a different corporate culture, evolved over long histories. But in other places like the US, companies have been spending less on training, and are in fact spending less now than they used to.

We have to develop it in our own way in Singapore. And I think the role of our government institutions will be a little more important than it is in the Northern European societies, where employers take the lead. But employers in Singapore still need to step up.

ST: What might be some reasons why that is so? Is it that they are not buying the message, they are not getting it or they are just facing challenges themselves?

DPM Tharman: They do have challenges themselves, particularly the SMEs. They find it difficult to have long horizons. Secondly, in a tight labour market, they are not sure the people they invest in would stay with them. But what you want is a situation where every employer invests in people, so that even if people are moving, what goes around comes around. If every employer is investing in their people, the quality of the hires you get will also be higher, even if you lose some of your own. That culture has to be developed, but it won’t come instantaneously.

Every society has this same problem. We are going about it much more systematically than most, in a very deliberate fashion. There’s no other country with as deliberate a strategy as SkillsFuture.

ST: Is that fast enough given the changes in the global…

DPM Tharman: It is not fast enough and we need to step up the pace. But not just through policy incentives. The subsidies are already extensive. We have to work with employers to develop programmes that they find relevant, and that employees find relevant. That’s a very important task, and is what we are focusing on. Curating programmes to also help individuals to take advantage of their SkillsFuture Credit, in a way that makes sense for their careers and their lives. That new layer of curation and advice, both for individual and employers, is very important to making SkillsFuture work for them. We are training the mentors and the advisors for this.

ST: Can I ask you, which are the sacred cows of social policies left in Singapore? We have talked about minimum wage, unemployment insurance. Looking ahead, do you think the government’s stance may shift?

DPM Tharman: If we come to a point where our current approach no longer leads to broad-based income growth, and that you find that year after year, the bottom 10 per cent, bottom 20 per cent, is slipping further away from the rest of the population, then we may need new approaches.

So far, our current approach has sustained very low unemployment, low long-term unemployment as well, compared to many other countries in the same situation as ours. And it has sustained income growth across all brackets of the workforce, including the bottom 10 and 20 per cent. It was tougher for the lower end of the workforce early in the previous decade, when we went through two recessions. But if you look at the last 10 years, the lower income group has in fact had as fast or faster income growth.

The current approach still requires a lot of hard work. If at some point we find that it is inadequate and we are not sustaining this broad-based income growth, then we have to consider alternatives that are workable, and nothing is sacrosanct.

The Progressive Wage Model would not have been introduced 20 years ago. But we did it, because even with jobs being available for all, even with a relatively healthy economy, we found that some workers were not being fairly treated - particularly in industries where there was a lot of outsourcing, such as cleaners, security guards, some others - and we needed the additional intervention. That’s an example of what I mean. If our current approach is not working, we need to adapt it or try something else.

ST: This idea that nothing is sacrosanct, is that a thinking that permeates throughout the entire Cabinet? Is everyone on board?

DPM Tharman: Basically, we take a practical approach towards social and economic policy, not embedded in ideology.

ST: And the 4G leaders. Are they…?

DPM Tharman: Very much so. They very much have this approach. They have open minds.

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