Singapore's growth expected to slow in next decade
08 June 2012 2246 hrs (SST)
SINGAPORE: Singapore's economy will experience growth slower than in the last 10 years.
This, against the backdrop of a more developed economy, internal resources constraints and fierce competition from the region.
But Singapore needs to strive for growth to improve the collective well-being of its people.
Prime Minister Lee Hsien Loong said this at the Economic Society of Singapore's annual dinner on Friday evening.
Since 2003, Singapore's economy grew an average 6.3 per cent per year.
Mr Lee said: "Singapore cannot avoid slower growth in the next decade and beyond. This is natural because we are now more developed and we are also running up against land and labour constraints, especially as we reduce the inflow of foreign workers.
"Plus competition is fiercer, not only from hundreds of millions of hungry workers in the emerging economies, but also from new technologies that will transform industries all over the world."
Mr Lee noted that some Singaporeans may desire slower growth, but deliberately slowing growth beyond Singapore's economic potential could have irreversible consequences.
"For Singapore, slow growth will mean fewer new investments. Good jobs will be scarcer, and unemployment will be higher," he said.
"Enterprising and talented Singaporeans will be lured away by the opportunities and the incomes they can earn in other leading cities. Low-income workers will be hardest hit, just as they were each time our economy slowed down in the last decade. Over time, our confidence will be dented."
The government is also prioritising low-income Singaporeans through skills upgrading and sharing productivity gains.
Low-income households are also not neglected.
According to Mr Lee, a low-income household will receive more than S$500,000 in transfers from the government over a lifetime.
And to boost their assets more than incomes, Mr Lee said the bottom 20 per cent of households have an average of more than S$200,000 of equity in their HDB flat.
To continue doing so, he pointed out that Singapore must have a successful thriving economy to improve the collective well-being of its people.
But Mr Lee cautioned that the Singapore government must strike a balance between raising social spending and taxes.
Expenditure has so far been 17 per cent of GDP including defence, while tax revenue is only 15 per cent of GDP.
"For decades, we have gradually reduced our income tax rates, and partially made up with indirect taxes like the GST, in order to stay competitive with other Asian economies like Hong Kong. This has helped to foster growth, and increase the resources available to strengthen our social compact," said Mr Lee.
"As we enhance our social safety nets, expenditure will inexorably rise, and revenue must keep up. Surely within the next 20 years, the government of the day will need new sources of revenue, which means raising taxes," he said.
But this will require public consensus to support the government of the day's policies and the country's leaders. In the long run, Mr Lee hopes that Singaporeans will understand the options and trade-offs to collectively choose an optimal path forward.
At an answer-and-question session, Mr Lee said there is no country in the world where the population gets smaller and incomes rise at the same time.
Therefore, Singapore needs to have an inflow of talent and people for continued growth.
"We need to maintain that spirit of being exciting, of being welcoming, of being open and adventurous... at a time when there are constraints to our size... when our population is growing gradually less young and therefore perhaps less adventurous... that's the challenge," said Mr Lee.