Walking on the high wire

This article was contributed and first published in Business Times on 26 February 2013.

IT was clear early on that this year's Budget was not going to be of significant interest from a technical tax perspective (unfortunately, as Tom Jones would have said, that's not unusual).

On the other hand, it was probably the most anticipated in a general sense, against a backdrop of a government White Paper on population in January (which sparked off the largest public demonstration in the country's modern history), and the announcement of closer economic and infrastructural ties with Malaysia, aimed at - among other things - a high-speed rail link to Kuala Lumpur, the Malaysian capital.

The Budget had to do a balancing act (and an aerial one at that, given how high the stakes are) between political and economic expediency.
On the one side sits a population that is becoming increasingly concerned about immigration, not only from the perspective of "Singapore our home", but from the fear of an overcrowded Singapore buckling under the weight of sheer numbers.

On the other side sit the small to medium-sized enterprises (SMEs) who are concerned that turning off the foreign worker tap too quickly will damage or even destroy their businesses.

So how did the Budget fare on the population front? The population issue has of course been the topic of hot debate. In the run-up to the Budget, a report suggested: "Coming in the wake of the population White Paper, Mr Tharman's Budget speech at 3.30pm will be closely watched to see how it addresses the issues raised by the White Paper."

Well, anybody who was watching the speech with this in mind will have been somewhat disappointed. Notably, it was almost silent on the issues raised in the White Paper. In particular, there was no reference to the need to increase the patter of tiny Singaporean feet, apart from some possible collateral impact from the reduction in the foreign maid's levy from $170 to $120 month (although this is also aimed at the elderly); and the $3 billion projected spending on the pre-school sector (which is aimed more at increasing capacity and quality rather than lowering the costs per se).
However, one area that will of course have an impact on the population - not necessarily the size, but the ethnic mix - is the relentless pursuit by the government (reinforced in this Budget) of enhanced productivity through strict controls on the number of foreign workers allowed into the country.
With no apologies to the hardship that certain businesses may experience as a result of these controls, the Minister for Finance gave the thumbscrews a further twist this year. Not only is he proposing an increase in, but a sharpening of, the focus of the dependency ratio caps - the ratio of foreign workers to Singaporeans that a company can employ.

Forced use of S'poreans

Leaving aside the impact on the SMEs who may feel the heat, the other side of this is to force businesses to increase the use of Singaporeans - if they can find one who is not already gainfully and quite happily employed - to do the job required.

Ultimately, the government is quite right to try to cap the increase in the workforce as even with this capping, the population will drift inexorably towards the more than six million projected by 2030. Some demographers may say that even this cap is not enough; but the uncontested message is that if labour force growth is allowed to stay at current levels (about 3.9 per cent per annum), the outcome could be significantly more alarming; not only that, the proportion of Singaporeans to foreigners in such a scenario would be quite insignificant.

The other uncontested message is that the population of Singaporean citizens is dwindling rapidly. Accordingly, continued immigration is a sine qua non for the survival of the country as a multi-cultural cosmopolitan state, or indeed as a state at all.

The last Mohican

In this context, I was fortunate enough to attend a lecture by a world renowned demographer last week, who suggested that Singaporeans should be less concerned than they are about the future of their indigenous population. While a 2.1 birth rate is the target replacement ratio, a country that is increasing the productivity of its population can continue to grow its economy with a lower fertility rate (1.7 was suggested) through increased educational standards, both within formal education and in the workplace. This is something that Singapore is actively pursuing.

That is fine and dandy, but there are limitations to productivity per head; and if the Singaporean headcount is still falling (albeit more slowly than the current rate of 1.2), then you end up one day with only one lonely but admittedly very productive Singaporean. Mathematics at its finest.

Integrate or disintegrate

So controlled immigration is undoubtedly the best and only way forward. As that is a given, the next question that needs to be asked is how to integrate new immigrants to make them "Singaporean". Clearly, this is a social question and there is really little that can be done in terms of fiscal measures - at least any that have a short term impact. Rather, it is the integration of foreigners' children into schools and the local environment that "reverse engineers" itself back to the parents through enhanced contact between parents of different backgrounds. How this process can be enhanced with the help of fiscal measures is an area to which thought should now be given. No choice, lah.