Saturday, May 14, 2011

The New Singapore Economy - Part III

This is a continuation of the previous two posts:
The New Singapore Economy - Part II
The New Singapore Economy - Part I

I guess the one major issue with the paper's Rengeration Plan as it was called, was actually the sustainability of the various measures. Just to jot down a partial list of proposals:

1. Doubling the no. of schools and teachers
2. Doubling the no. of hospitals and medical professionals
3. Waiver of Govt fees and taxes such as GST for basic items etc
4. Reducing the cost of raising kids: free education, monthly allowance, more maternity and paternity benefits etc

The problem here is that both schools and hospitals do not make money. Hence the first two proposals increases the burden on the State. At the same time, the last two proposals take money away from the State by reducing its revenue, either with lesser tax and fees or increasing cash outflow such as more allowance, more benefits etc.

While I think we can accept that the first $60bn sunk into building the initial infrastructure can earn zero return (after all it's a Govt, not a profit making entity), it might not be prudent if, on an on-going basis, all the measures simply run losses with no possibility of breaking even on an annual cashflow basis.

Just take an example of a school. The new school has on average say 600 students. Suppose we double the no. of teachers from currently maybe 30 to 60 teachers. In order to attract more people to become teachers, we need to pay them more, say on average $80k per teacher. This means that payroll alone is close to $5mn, including other running costs such utilities, peripheral services like security, maintenance etc, we might be talking about $6-8mn annual cost per school.

With zero revenue since school fees are proposed to be free, and 800 primary schools in Singapore, this alone is $5-6bn. Today, Education consumes just $8-9bn in our Budget including secondary schools and tertiary education. Hence this Regeneration Plan with the doubling of just primary schools and teachers will almost double the burden to the State, with no way of squaring the equation on the revenue side.

Of course the argument is that our Govt always incur surpluses, year in year out, which means that it has too much revenue in the first place. So doubling the burden is just making things right. It is okay to have a $14-15bn Education spending, which by the way will make Education the biggest spending, even bigger than Defense at $10bn.

Nevertheless, it might be prudent for these schools and hospitals to introduce some kind of revenue measures to offset the huge costs. Sustainability has always been a key aspect of our system and I believe our leaders really did get it right for some of the best sustainable systems put in place in the early years.

So how can we make the plan more sustainable?

With schools, we could have a two-pronged approach:
1. Endowment/Foundation for Primary and Secondary Schools
2. Aim to be a Tertiary Education Hub attracting foreign students

The Govt can setup an Endowment Fund for all Singapore primary schools and encourage old boys and girls to donate to their alma mater. Their donations can be tax deductable which would mean those who are successful would be keen to donate more.

Some of the most prestigious universities in US have endowment funds that are so big that they need to invest this money professionally for a good return. Our endowment funds should strive to do the same.

For tertiary education, we have already made some inroads in the private sector. Insead and Chicago have their MBA campuses here. The Govt should devise a comprehensive plan to make Singapore an overall education hub in Asia. Revenue made at the tertiary level can be used to subsidize primary and secondary schools.

For hospitals, there is only one option: become a medical hub. ie they would have to attract overseas patients. This means that Singapore has to become a 1st class medical hub that can compete globally with Bumrungrad in Thailand and Mayo Clinic in the US. The potential is definitely there. Our private hospitals such as Mt E Hospital have already made an impression in the region. It shouldn't be too difficult for the Govt to succeed as well.

It will take some time to achieve sustainability so perhaps the most important task for the Govt when it does embark on the Regeneration Plan is to optimize its revenue from taxes such that it can support the system during transformation (as the schools and hospitals try to gain sustainability).

It would probably mean more taxes from the rich and famous, more revenue from property (the playground for the rich and famous) and perhaps some cost savings by de-emphasizing Defence, reducing fat from every civil sector and *drumrolls* reducing Ministers' Pay: the No. 1 item on the voters' wishlist!
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