Quality of Life and Inclusive Growth: The Case of Singapore. Assoc Prof Hui Weng Tat Lee Kuan Yew School of Public Policy 16 August 2010

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Quality of Life and Inclusive Growth: The Case of Singapore Assoc Prof Hui Weng Tat Lee Kuan Yew School of Public Policy 16 August 2010

Singapore Tops International Rankings Singapore is ranked 28th in the Mercer 2010 Quality of Living Survey and is the highest ranking Asian city Singapore is the most liveable Asian city, taking first place in the newly launched Global Liveable Cities Index in 2010 Singapore is the world s 3 rd most competitive country in the world, after Switzerland and the US in the World Economic Forum Global Competitiveness Report 2009-2010

Singapore s Per Capita GDP 1965-2009 at Current Market Prices S$ US$ 60,000 55,000 50,000 45,000 40,000 35,000 30,000000 25,000 20,000 15,000 10,000 5,000 0 Source: Singapore Year Book of Statistics 2010, Singapore Department of Statistics

800000 Education Enrolment 700000 600000 500000 400000 300000 200000 100000 0 1999 2004 2005 2006 2007 2008 2009 Primary Schools Secondary Schools Pre University 1 Institute of Technical Education 2 Polytechnics 3 National Institute of Education Universities 4 Source: Singapore Year Book of Statistics 2010,

Health Indicators Life expectancy at birth has increased from 77.6 years in 1999 to 81.4 years in 2009. Infant mortality is 2nd lowest in the world at 2.2 per 1,000 live births as compared to 26.3 in 1965 Ranked 9th for Life Expectancy at birth (81 years) IMD s World Competitiveness Yearbook 2008 ranked Singapore s Health Infrastructure 3rd out of 55 countries

Development Strategy Focus on economic growth and development to raise incomes and standards of living Inclusive growth through wealth accumulation and redistribution, in particular for low-income families. Good governance and policies that promote external security and social stability Investment in human capital through investments in healthcare, and education and job training.

Pillars of Social Security Singapore s 4 pillars of social security embodies its strategies t for inclusive i growth: Central Provident Fund (CPF) for retirement Workfare Income Supplement Scheme (WIS) to supplement the wages and CPF savings of older low-wage workers Housing for wealth accumulation Healthcare for human capital development

Central Provident Fund CPF is a fully-funded, funded, defined contribution social security account that finances housing, healthcare, retirement Each working individual contributes 20% of gross monthly income to his/her individual CPF account. Employers contribute 14.5% Long term target is to restore CPF contribution rate to 36%

WIS Scheme Launched in 2007 to help low wage workers (both employed and self-employed). Objective is to encourage low wage workers to seek and continue employment and enhance their retirement adequacy. Low wage workers above 35 years of age and earning a monthly income of below $1,700 can qualify for the scheme Beyond income supplement, the WIS also includes additional incentives to help low wage workers improve their skills, employability and wages through the Workfare Training Support Scheme (WTS)

Universal Home Ownership Schemes CPF Housing Grant S$30,000 000 for married couples, and S$40,000 000 for married couples who buy HDB flat near parents To promote citizenship, CPF housing grant will be reduced to $20,000 for a citizen and Singapore Permanent Resident (SPR) married couple and S$30,000 for married couple who live near parents. Grants will be topped up if SPR takes on citizenship. Singles also enjoy a grant when they buy a HDB flat $11,000 if they live alone and $20,000 if they live with their parents. The grant will be topped up if singles marry

Schemes for Low Income Families Smaller flats- 2-room and 3-room flats are reserved for low income families with household income of not more than S$2,000 and S$3,000 respectively Low income families with household h income below $5000 receive an additional housing grant over and above the universal CPF grants Sitting tenants scheme allow tenants of HDB rental flats to buy over their rental flats at a discount over current market price Tenants may also apply for the additional CPF Housing Grant depending on their household income

Additional Housing Grant Average Monthly Gross Household Income AHG with effect from 6 Feb 2009 $1,500 or less $40,000 $1,501 $2,000 $35,000 $2,001 $2,500 $30,000 $2,501 $3,000 $25,000 $3,001 $3,500 $20,000 $3,501 $4,000 $15,000 $4,001 $4,500 $10,000 $4,501 $5,000 $ 5,000

Healthcare Provision Government provides 20% of primary healthcare through polyclinics and up to 80% of acute care in public hospitals More subsidies are given for acute care as these expenses tend to be higher and in many cases unexpected In public hospitals, subsidies for hospitalisation are means tested with higher subsidies for lower incomes

Healthcare Financing Schemes Medisave provides the second tier of protection, allowing majority of Singaporeans to co-pay for their share of medical treatment MediShield, a low cost catastrophic medical insurance scheme provides the third-tier of protection against the financial risks of major illnesses through risk pooling Medifund, a Government medical endowment fund helps needy Singaporean patients who cannot afford to pay their medical bills ElderShield, a severe disability insurance, is also available for subscription by Singaporeans to risk-pool against the financial risks of suffering a severe disability.

Strategies for Inclusive Growth Inclusive growth pursued through investment rather than subsidising consumption Human capital enhancement education, workers training Housing as asset enhancement Emphasising shared responsibilities by: mobilising family as an informal safety net co-payment of public services preserving the work ethic Minimise public expenditure on welfare and public services lower taxes, business costs and preserve Singapore s economic o c competitiveness e ess

Population Challenges Changing economic and social context is challenging the efficacy of Singapore s approach to inclusive growth Singapore s fertility rates have been falling below the replacement of 2.1 since 1975. In 2009, Singapore s total t fertility was only 1.22 Singapore s population is also ageing rapidly

Rapidly Ageing Population Year Resident Population ( 000) Median Age Resident TFR Index of Ageing g 1 Support Ratio 2 1960 1646.4 18.0 5.76 5.0 23.0 1970 2013.6 19.5 3.07 8.7 17.0 1980 2282.1 24.4 1.82 17.7 13.8 1990 2735.9 29.8 1.83 26.2 11.8 2000 3273.4 34.0 1.60 32.8 9.9 2009 3,733.9 36.9 1.22 35.5 8.3 Notes:. 1. Date for 1970 and from 1980 onwards refer to residents aged 65 years per 100 residents under 15 years. Prior to 1980 (except 1970) figures refer to total population. Data from 2003 onwards have been revised to exclude residents who are overseas for a continuous period of 12 months or longer as at the reference period. 2. Number of persons aged 15-64 years per elderly 18

Countries with Highest Share & Fastest t Growth of Older Population Percentage of 60+ in population in 2050 Percentage point increase in 60+ share 2000 2050 Japan 44.0 South Korea 30.7 South Korea 42.2 Singapore 29.3 Slovenia 40.5 Cuba 24.5 Bulgaria 40.2 Poland 22.9 Singapore 39.8 Kuwait 22.3 Poland 39.6 Slovakia 22.2 Cuba 39.3 UAE 22.1 Romania 39.1 Slovenia 21.1 Spain 39.0 China 21.0 Czech Republic 38.6 Japan 20.7 Note: Calculations based on data in United Nations, World Population Prospects: The 2006 Revision. Source:Bloom et al. (2008) 19

Healthcare Implications Increases pressure upon the younger population and the government to take care of the elderly Singapore s existing healthcare expenditure kept low at 4% of GDP, an ageing population will put pressure on healthcare expenditure. In 1999, per capita government expenditure on health was $275, but this has risen by almost three times to $750 in 2009 Adequacy of Medisave to meet healthcare needs of aged

Labour Market Implications Increasing number of older persons who are economically inactive Issues of employability of older workers To augment its labour pool immigration policies have been liberalised Singapore s total population has increased by 63% from 3 million in 1990 to 5 million in 2009 Between 1998 & 2008 foreigners employed increased by 438,000 or 48 % of total new employment Highest growth was between 2006 and 2008, spurred by rise in non citizen population. In 2009, Singapore s permanent resident grew by 11.5% compared to citizen population o growth go of 1.1%.

Employment & Employability of Older Workers Older workers more susceptible to retrenchment and face greater difficulties in getting re-employed Average Reemployment Rate of Retrenched Residents Age 97 98 99 00 01 02 03 04 05 06 07 08 Below 30 78.4 68.3 69.9 77.3 73.2 68.4 70.1 73.8 72.2 73.5 76.3 77.4 30-39 72.0 63.9 64.1 69.3 64.4 61.9 63.8 64.7 66.6 71.1 71.9 73.3 40-49 70.00 60.00 60.9 64.2 58.6 59.8 61.66 57.8 62.5 63.7 66.5 70.5 50 & over 58.7 49.9 49.1 52.2 43.1 51.7 56.0 44.7 51.6 58.6 52.0 59.8 Note: Reemployment rate is defined as the percentage of retrenched who find employment within 6 months of retrenchment. The dt data is based on Ministry Miit of fmanpower Labour Lb Market ktsurvey and dcentral lprovident tfund records Source: Ministry of Manpower 22

1400 1200 1000 800 600 Singapore s Non Resident Population 30.0 25.0 20.0 15.0 Thousands Percent 400 200 0 23 10.0 5.0 0.0 2008 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Non residents ('000) Share of Non-residents 1980

Singapore Population 6,000.0 5,000.0 4,000.0 3,000.0 2,000.0 1,000.0 00 0.0 1990 (Census) 2000 (Census) 2004 2005 2006 2007 2008 2009 Singapore Citizens Singapore Permanent Residents Non Residents

Real Median Monthly Income of Resident Employed 1996 2009 8000 12.0 7000 6000 5000 5328 7.5 5834 5536 5657 7.1 7.2 7.2 6385 6362 6378 6352 8.1 7.9 8.2 8.1 6636 8.9 7105 9.4 7501 10.0 7278 9.7 10.0 80 8.0 4000 6.0 3000 4.0 2000 1000 1767 1876 2025 1968 2262 2270 2260 2267 2234 2328 2465 2420 2.0 0 711 775 809 782 786 804 776 784 743 759 751 749 1996 1997 1998 1999 2001 2002 2003 2004 2006 2007 2008 2009 Top 20% Median Bottom 20% Ratio of Top to Bottom 20% 0.0 Source: Report on Labour Force in Singapore, various issues, MOM

Implications of Wage Depression Withdrawal of local workers from the labour market in favour of non-labour market activities. Others prefer to work part- time instead of full-time Lower full-time employment rate of local workers leading to underutilisation of scarce labour resources Need for WIS to prop up wages. WIS scheme costs $1.2 billion thus far and expected to cost $400m in 2010 Group of vulnerable workers will remain. Other costly social support schemes will also increase Adverse impact on worker s perception of fairness affecting morale and productivity improvement Could potentially fracture social cohesion and assimilation of foreign worker at workplace when income gaps are attributed to presence of foreign workers

Minimum Wage for Singapore Minimum wage will raise the incentive to work Reduce the need for costly market interventions Moderate excessive inflow of cheap foreign labour Boost worker s morale and productivity Deter employers from absorbing levy increases through lower wages for foreign workers which attracts less productive workers to Singapore Enhance Singapore s international reputation 27

Monthly Household Income and Selling Price of Flats 1974/1975 Monthly Household Income Selling Price of Flat at New Town Selling Price to Annual Income 1 Room 2 Room 3 Room 4 Room 5 Room Improved Improved Improved Improved $326 $363 S$428 $637 $1,006 $3,300 $6,900 $11,800 $18,500 $30,000 0.8 1.6 2.3 2.4 2.5 Source: Housing and Development Board Annual Report 1974/1975

Monthly Household Income and Selling Price of Flats 2007/08 Average Monthly Household Income* Average Selling Price of New Flat+ 1 Room 2 Room 3 Room Improved 4 Room Improved 5 Room $1,186 $1,186 $3,503 $5,114 $8,177 $88,875 $146,643 $233,857 $310,125 Price Payable after AHG $58,875 $136,643 $233, 857 $310,125 Selling Price To Annual Income 4.1 3.3 3.8 3.2 Average Selling Price of Resale Flat ^ Price Payable after CPF and AHG $150,500 $170,000 $232,000 $313,000 $380,000 $90,500 $110,000 $192,000 $283,000 $350,000 Selling Price To Annual Income 6.4 7.7 4.6 4.6 3.6 Sources: *Singapore Department of Statistics Report of the Household Expenditure Survey 2007/2008. ^Housing and Development Board Press Release June 2007. +Housing and Development Board Annual Report 2008/2009. The respective average selling prices of new flats are computed based on the average of published selling prices for the year across different estates.

Rising HDB Resale Price Index 160 140 120 100 80 60 40 20 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Implications: Retirement Adequacy CPF has helped to increase the wealth of Singaporeans by helping them accumulate wealth in the form of assets. Only up to 7% of each individuals monthly CPF contribution is credited to retirement account, a large proportion of the OA is used to pay for housing Would Singaporean s have sufficient funds to finance their retirement? In 2009 only one-third of active CPF members met the required Minimum Sum of $117,000

Implications of Rising Property Price Diversion of income into property will reduce disposable income for consumption Widening income gap and stagnating social mobility could lead to disenchantment, in particular the middle class who find it increasingly harder to achieve their Singapore Dream Adverse impact on early marriage and fertility Could also potentially cause social tensions particularly when social mobility falls along ethnic and local/foreign lines

Rethink of Housing Policy Need to take a strategic longer term view of current policies which has impact on property price & welfare of residents Continued price escalation may benefit current generation but it will decrease retirement adequacy and adversely affect housing affordability and quality of life of next generation Uncontrolled housing cost will derail achievement of sustained growth to increase living standards in future Need to rethink policies that ensure property is primarily to be used for consumption and not for investment/speculation purposes

Thank you 34