Following the publication - of the
retired Senior Civil Servant - in the Straits Times dated 16
January 2004, the Straits Times conducted interviews from members
of the public concerning their reaction the issues raised by Mr
Ngiam:-
You're wrong on some
things
He may not be a famous businessman or politician, but HDB
Corporation chairman Ngiam Tong Dow was the talk of the town
yesterday. In a hard-hitting speech to the Economics Society of
Singapore on Thursday, the career civil servant questioned the
assumptions behind key government policies. LAUREL TEO, AUDREY TAN
and BRYAN LEE find out what people think of his wide-ranging
remarks.
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LAND POLICY
Recent Government land valuations are too high because the Chief
Valuer uses the concept of opportunity cost to price land, with
Raffles Place as the benchmark. As a result, Singapore has become
less competitive and PSA, for example, has priced itself out of the
market for transshipment.
Reactions: Land cost critical
THE Government prices land according to Raffles Place prices? That
is probably exaggerated, say the four analysts interviewed.
But they agree that land cost was a critical reason for Singapore's
loss of cost-competitiveness.
That is because land valuations of government-built housing and
factories ultimately act as a floor for prices of privately-owned
land.
If land prices are high, property prices and rents will also be
high since land cost can be as much as 80 per cent of the cost of a
development. This raises overheads for businesses and other service
providers, like hospitals, which pass these on to consumers.
'The high cost of land feeds its way insidiously into all other
costs. Wages are high due to the high cost of living,' says one
economist.
The solution to the problem?
Reset all land prices to their 'natural' levels and do away with
government-subsidised property, says DBS Bank's senior regional
economist Sailesh Jha. Let market forces do the pricing
instead.
But this would hurt many property owners, who could lose up to half
the value of their assets.
So the analysts suggest that the Government use its reserves to
soften the blow, or wait until the economy is in better shape
before doing what is needed.
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THE SING DOLLAR
Singapore should peg its currency to the US dollar - just as
Malaysia, China and Hong Kong have done - instead of a weighted
basket of currencies. After all, nearly all international trading
is denominated in US dollars.
Reactions: No US$ peg, please
WHILE it's true that exporters will benefit from the convenience of
having a fixed exchange rate, most economists disagree with Mr
Ngiam about pegging the Sing dollar to the greenback.
Why? Because Singapore would effectively be giving up its ability
to use monetary policy as a tool.
Take Hong Kong, for example. While other Asian currencies fell
after the 1997 financial crisis, Hong Kong's currency strengthened
together with the US dollar, say economists. As a result, Hong Kong
became more uncompetitive compared to its neighbours, and it
slumped into five years of deflation as asset prices crashed.
Mr Lian Chia Liang, an economist at JP Morgan, adds that the
prevailing trend is for countries to move from fixed to floating
exchange rates, not vice versa. 'Since 1996, 19 emerging market
countries have moved towards more flexible exchange rates, while
only four - Bulgaria, Ecuador, Venezuela and Malaysia - have moved
the other way,' he said.
Economists add that Singapore's current exchange rate regime has
served it well. Since the Sing dollar's value is tied to a basket
of currencies, the exchange rate reflects the diversity of
Singapore's trading partners. It does not fluctuate wildly and is
also allowed to trade only within a narrow band determined by the
Monetary Authority of Singapore.
Mr Nizam Idris, an economist at IDEAglobal, says: 'Singapore's
current monetary policy has a combination of both keeping currency
volatility to a minimum and yet allowing adjustment.'
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HDB'S ROLE
The Government should perhaps have closed down the Housing Board
after providing 80 per cent of Singaporeans with their first home.
Yet it provided incentives for HDB owners to upgrade to larger
homes and the HDB went into overdrive, building far too many flats.
The HDB's attempt to focus on upgrading was also misplaced, because
the increase in resale value of an upgraded flat is now lower than
the cost of upgrading.
Reactions: HDB is passe
BOTH economists that The Straits Times spoke to agree with Mr
Ngiam, saying the HDB had a crucial role to play in the early days,
but it has since outgrown its use. So it should not have continued
its building spree in the 1990s.
Looking ahead, DBS Bank's senior regional economist Sailesh Jha
sees no way out but for the HDB to be privatised. 'There is no need
for it to be run by the Government. We should allow the market to
play a bigger role in determining prices,' he says.
Centennial Group's head of economic research Manu Bhaskaran has an
even more radical suggestion. 'The HDB should shut down as it has
done its job. It could just concentrate on renting flats to poor
people,' he suggests.
But others disagree with the veteran civil servant. MP Teo Ho Pin
(Holland-Bukit Panjang GRC) thinks Mr Ngiam's comments on the HDB's
upgrading programmes, for example, may have missed the mark. Asset
enhancement aside, upgrading had been conceptualised with an
equally important social objective in mind, says the chairman of
the Government Parliamentary Committee for National Development and
Environment.
'The intention was to keep the community intact. The upgrading
would spruce up the older and more run-down estates, so that
residents would not move away and scatter to the newer ones.'
As for HDB's flat-building frenzy, this was partly the result of
the liberalisation of the HDB resale market in the late 1980s, Mr
Teo adds. 'In hindsight, of course you can say this and that. But
at that point, the Government had to meet the needs of the
people.'
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CPF RATES
The Government was right to slash Central Provident Fund
contribution rates down to 30 per cent in 1986. But its failure to
keep the rates there made Singapore workers less competitive.
Instead of allowing CPF contribution rates to range from 30 to 36
per cent, the Government should now fix the rates permanently at 30
per cent.
Reactions: No magic number yet
YES, Singapore should probably have left its CPF rates at 30 per
cent post-1986, say analysts.
The subsequent hikes in employers' contribution rates 'magnified
the whole problem of our costs being high', says IDEAglobal
economist Nizam Idris. He is also a strong supporter of keeping the
CPF rates at a fixed level instead of adjusting them with the
fluctuations of the economy.
Mr Manu Bhaskaran, partner and head of economic research at
Centennial Group, says Mr Ngiam's point is valid. 'It's better to
have certainty than uncertainty. That's a lesson we can learn for
the future.' However, other economists like OCBC Bank's Suan Teck
Kin note that there are also disadvantages to sticking to a fixed
rate. 'If it's going to be so fixed, then you cannot respond to
changes in the economy. Your hands are tied. For example, 40 per
cent used to be a comfortable rate. But when the situation called
for it, the Government was able to reduce it.'
Yet Mr Nizam has a counter to this point. 'Adjusting the rates in
reaction to changes is a very inefficient counter-cyclical tool,
because you tend to be always behind the curve,' he says.
All three, however, agree that it might be too hasty to conclude
that 30 per cent is the magic number for CPF rates. They point out
that the Finance Ministry is still conducting a study on what
should be the optimum contribution rate for CPF. Says Mr Bhaskaran:
'First we need to work out the amounts needed to meet the most
important objectives of CPF - meet retirement, medical and housing
needs.'
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TRANSPORT
When it comes to public transport, the Government is on the wrong
track. Let buses and the rail operators compete freely, instead of
trying to regulate fares and micro-managing any overlap of bus and
rail routes.
Reactions : A call for real competition
THREE transport analysts that The Straits Times spoke to all see Mr
Ngiam's comments as a call for real competition. This comes after
last year's controversy over transport competition, which erupted
when SBS Transit, which began operating the North-East Line in
June, started changing or removing bus routes.
Mr Vincent Ng, an analyst with Standard & Poor's Asian equity
research agency, says: 'A consumer may seem to have a lot of choice
when he can decide whether to take the bus, MRT or taxi from where
he lives. But if all three are owned by the same company... it's
virtually a monopoly.' And prices can thus be manipulated.
Therefore, it is much better to have, as Mr Ngiam suggested,
different companies running different transport modes, say
analysts. Competition would ensure that fares are competitive, so
they need not be subject to regulation.
But MP Chay Wai Chuen, who chairs the Government Parliamentary
Committee on Transport, says Singapore is too small to have bus and
rail operators duplicating services.
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TAXES AND GST
The Government made several tax errors. It should have cut income
taxes during a boom, not the recent recession. Then, it decided to
increase the Goods and Services Tax to make up for the loss of
revenue, but failed to do this because it also gave GST rebates.
What the Government should have done was to cut its own
expenditure.
Reactions: Look at the long-term benefits
TWO analysts that The Straits Times spoke to agree that the timing
of the income tax cuts and the GST increase may have been slightly
off. But the changes are needed for the long term.
Mr Joseph Tan, an economist at Standard Chartered Bank, says: 'The
income tax cut was... to counter also a structural problem.
Companies were moving operations to other countries.' The cuts sent
an important signal that Singapore will have one of the most
competitive tax regimes in the region.
The GST increase should also be taken in the broader context.
Singapore's ageing population means it needs to rely less on income
taxes for its revenues, or it will face budget deficits year after
year.
Singapore's tax revenues also depend heavily on a narrow segment of
the top earners, something Mr Ngiam himself pointed out. Mr Nizam
Idris, an economist at IDEAglobal, says: 'The Government needs to
broaden the tax base so there is a good long-term reason to
increase GST.'
The analysts agree that the GST hikes will further slow consumption
at a time when the economy is still weak.
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HE'S SEEN ISSUES FROM A RARE PERSPECTIVE
'Mr Ngiam has contributed extraordinarily to Singapore's economic
development and has seen things from a perspective very few people
have, so we should give due respect to his views. Our economy is
now at a turning point and his speech was a useful contribution to
the economic debate in Singapore.'
- Mr Manu Bhaskaran, partner and head of economic research at the
Centennial Group
THINGS ARE NOT ALWAYS SO CLEAR-CUT
'Mr Ngiam's speech is quite hard-hitting, very frank. But some of
the Government's objectives then were not purely economic. And if
you are going to balance economics and politics, sometimes politics
will win out. It's not so clear-cut.'
- Mr Suan Teck Kin, OCBC Bank economist, on how the economic
'misses' could have been political 'hits'
GOOD OVERALL ECONOMIC PICTURE
'It was a good overall picture of the Singapore economy. Mr Ngiam
highlighted quite a few key themes and issues, such as property
prices and the exchange rate, though there are other pressing areas
such as the development of SMEs, improving productivity and
innovation.'
- Dr Sailesh Jha, DBS Bank's senior regional economist, who reckons
that Singapore should focus on getting its small and medium
enterprises (SMEs) to drive economic growth, as with Switzerland,
instead of focusing only on cutting costs
