More aid for job loss, low income can bolster Singapore's social safety net

Singapore

SINGAPORE has in place many safety nets that have been enhanced over the years but those related to loss of work could still be strengthened, observers say.

Their comments come in the wake of Prime Minister Lee Hsien Loong's speech on June 7, in which he highlighted the need to strengthen the social compact. While the country has taken emergency measures to help everyone come through the Covid-19 crisis, Singapore has to think carefully how to improve its social safety nets, Mr Lee said. At the same time, it is important for everyone to have the incentive to be self-reliant and to progress through their own efforts.

Economists and academics told BT that basic income support for those who are unable to work or who have jobs which pay relatively low wages, or some form of unemployment insurance, are potential options for Singapore.

As has been made evident from the Covid-19 crisis, there are entire sectors and work functions that can be made unsustainable or irrelevant, pointed out Gillian Koh, Institute of Policy Studies' deputy director (research) and senior research fellow in its governance and economy department.

"Time will be needed for workers to retrain and to adapt to work in new sectors, so this can take months or a year or so," she said. "It has to be sustainable but there has to be some spur to bounce back from being made redundant."

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Singapore University of Social Sciences associate professor of economics Walter Theseira noted that although there have been financial support programmes for the needy for some time, the introduction of the Self-Employed Person Income Relief Scheme (SIRS) and Covid-19 Support Grant is a recognition that there is a broad group of Singaporeans in the middle class who can be economically vulnerable and need support in difficult economic times.

While Singapore already has many programmes in the area of basic social support, the question is whether that is sufficient to help families break free from the poverty cycle, said Dr Theseira, who is also a Nominated Member of Parliament.

What is required is a systematic assessment of any needs gap, he said. "For example, many people are concerned about the problem of hunger or inadequate nutrition in Singapore, and there are so many charities providing meals, yet there has never been any systematic assessment of this need, or thinking about whether it should be the government's role to ensure minimum nutrition, such as through grocery voucher programmes," he said.

On income replacement schemes, being able to provide "automatic resilience" (in the form of unemployment insurance programmes) against income shock would be useful.

"While some might say that workers should save for themselves, there are some risks that workers find it hard to save . . . (also) it's not really a family's fault if the income earner happens to be the sort of person who doesn't know how to save," Dr Theseira pointed out.

In terms of how costs might be shared, IPS's Dr Koh said this will likely be split by workers and employers primarily through taxes.

"There has to be shared contribution and some trade-off to the worker in tapping it," she said

Such a scheme will likely to be built on the Central Provident Fund (CPF) system.

"To keep it sustainable, it should only be tapped after a few months of retraining and/or fruitless job seeking . . . There should be incentive not to tap it, and this could be done by saying that funds that are not used will go towards retirement funding," she suggested.

This essentially gives CPF account holders a choice - if in real need, they can use this money to sustain their livelihood and bounce back; or opt not to and be even more earnest to find that next job, she said.

Dr Theseira agreed that there is merit to studying the suggestion that workers be allowed to withdraw from their CPF during unemployment shocks.

But it is likely the case that many of the people who most need such unemployment insurance help also do not have substantial CPF savings, he said. "Hence, depleting their own savings may create some unintended harm to retirement adequacy in the future. Some risk-sharing is probably more useful, in addition to CPF withdrawal proposals."

OCBC Bank chief economist Selena Ling said Singapore's social compact will likely be a unique Singapore model, perhaps a hybrid of the Nordic or Canadian models, but with a Singaporean touch.

"It is unlikely that Singapore will adopt high taxes to fund generous welfare benefits. Maintaining GDP growth while providing social welfare services requires a framework of trust and an equitable cost-sharing structure with the appropriate incentives for work as well," she said.

Assuming that businesses have to bear some of the costs either directly or indirectly, Andre Toh, EY Asean and Singapore valuation, modelling and economics leader, said: "Businesses flourish in a stable environment where there is consumer confidence and less uncertainty. In many markets where these ingredients are lacking, businesses incur hidden costs to address such issues."

Dr Theseira agreed that the existence of these programmes might harm competitiveness or may affect business and investment decisions.

"But there is also potential for these programmes to improve efficiency if they help to protect people against income shocks, which otherwise could exact a huge toll on people's well-being, health and their family," he said.

"Who pays for it really depends on the relative bargaining power of the business versus employees, regardless of whether you say the policy is that workers pay, or that businesses pay. It's quite likely that both business and workers will pay, through reduced wages or reduced wage increases for workers, and reduced profits for business.

"It is also possible that such programmes are risk-adjusted, so businesses with higher demonstrated risks pay more. The more important question is whether people find the benefits of having these protections worth it. If the benefits outweigh the costs, you can always find a way of financing it."

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