Budget 2015 will be unveiled on Feb 23. Since 2011, each annual Budget has contained major policy announcements that come with hefty price tags to address housing, education, infrastructure, social support, and productivity and innovation issues.

Measures we can reasonably anticipate in the coming Budget include MediShield Life, adjustments to the Central Provident Fund (CPF) scheme and policies to boost the labour force participation. Singaporeans should look beyond the announcements in the coming Budget and consider the long-term consequences at the national level. We should also think critically about the effectiveness, efficiency and aggregated consequences of recent Budget policies.

TAKING STOCK

If we think of each particular policy shift as a colour in the light spectrum of policy, taken together the social-friendly and business-friendly commitments over the past four years form a beautiful rainbow at the end of which should be an improved Singapore. Each of these policy commitments is a costly structural fiscal commitment. This is especially a concern given that the economy is slowing in a secular manner, thus limiting the upside for revenue collection to offset these higher expenditures.

I would like to see in the Budget an explanation of how these cumulative expenditures add up and how they will be supported. It is an important reality check for Singaporeans to know that nothing is for free and to be informed as to what are the knock-on implications in terms of revenue raising measures and trade-offs.

In support of the recommendations of the 2010 Economic Strategies Committee (ESC), the Government has committed billions of dollars each year to support businesses to improve productivity and boost innovation. This is on top of the billions expended to support businesses during the 2009 economic crisis.

However, our economic growth is slowing not speeding up. Annual productivity change continues to be negative. Wages at the lower- and middle-income levels are up only marginally and even then largely as a result of policy adjustments to labour supply and wage intervention.

Against this backdrop, and with this Budget coming at the halfway point of the 10-year ESC plan, it will be useful to take stock of the effectiveness of current policies. What is working and what is not? Before additional expenditures or new policies or programmes are layered on current ones we should declutter the policy space by rationalising across similar policies, sun-setting redundant or underperforming efforts and committing to measures of performance to ensure public accountability. That would be the business-like thing for the Government to do.

INCENTIVISING BUSINESS TO HIRE SINGAPOREANS

There has been a lot of attention paid to constraining the supply of foreign labour. The sharp increases in the years between 2005 and 2011 caused political blowback from which the Government is still feeling the negative effects of. However, the efforts to limit supply have focused on the less-skilled work-permit holders and not the more highly-skilled Employment Pass category.

The case for not similarly limiting the issue of employment passes with a levy system has been that we need a globally competitive labour market and depend on the infusion of talent, skills and ideas to feed economic growth. It is also taken as axiomatic that Singaporeans should upgrade to remain competitive in the labour market which implies that those who fall behind in wages or fall out of employment have not been able to keep up in terms of skill level and performance.

However, there is a strong asymmetry between employment in our small economy and a global supply of labour. This creates a condition where finite local labour can be substituted with an infinite and perennially replenished supply of foreign professionals who may be younger or willing to work for less.

Singaporean professionals who are most at risk of job loss are those in their 40s and 50s. It is often not their performance that triggers their retrenchment, but price competition. Thus, the retort that they should defend their employability through upskilling is not entirely appropriate. It is also this demographic for whom retooling to switch industry is most difficult given age considerations and who probably have high liabilities in terms of family responsibilities and mortgages.

The reactive response would be, as some have suggested, to limit the flow of foreign professionals or to put in place a Singaporean-first policy. I would suggest a third approach. This is to degrade the economic temptation to businesses to substitute local with foreign labour because of price with incentive to businesses to recruit and retain Singaporeans who are performing. This would be done through financial rewards, either in the form of cash or tax credits per head count to businesses who hire and retain Singaporeans.

This would be better than issuing wage supplements to local professionals, which is what Workfare does for the lower-skilled. This is for two reasons. The first is that in the case of professionals, it is not an issue of wage inadequacy. Second, it is business-owners who take risks and have to rationalise why they should pay higher labour costs to Singaporeans when less expensive foreign supply is available. Hence, rewarding businesses helps make that rationalisation easier.

In all three proposals for the Budget, my motive is to point to structural challenges that we are better off facing earlier than deferring or proceeding on an assumption basis.

The large costs of fiscal commitments may well lead to new revenue-raising measures in the form of higher taxes. If this is so, it is better to prepare Singaporeans early.

The approach to supporting businesses needs evaluation and rationalisation to focus on what is working, where there is deadweight and to discard the manifestly underperforming or mis-targeted.

However, the most important of the three proposals deals with our labour situation because it is the most politically impactful. Beyond the question of dollars, the Budget should make sense for the long-term future of Singapore as measured in terms of the well-being of Singaporeans and not only gross domestic product growth.

ABOUT THE AUTHOR:

Devadas Krishnadas is the chief executive officer of Future-Moves Group, an international strategic consultancy and executive education provider based in Singapore.