Singapore’s Success Story

Introduction

When Singapore first gained independence in 1965, it faced many challenges. It was a small country with no natural resources and had to depend on its neighbors like Malaysia for basic things like water. Singapore also didn’t have an army to defend itself with, so you could say it was in a very precarious position.

Fast forward through an amazing 50 years, and we see that Singapore has become one of the richest countries in the world. It has one of the highest GDPs in the world, and some of the highest living expectancies. It also managed to increase its territory by 22% by reclaiming more land for development from the sea. Singapore has grown both economically and physically.

Singapore has progressed to the point where it has more exports than the whole of Australia, at about S$550 billion. It also has a very sizable military, ranked 29th out of 145 countries considered for the annual Global Firepower review.

How did Singapore manage this move from a third-world country to a first-world country?

The answer lies in the sound decisions made over the years by its governments.

A Practical Way of Addressing the Country’s Budget

For example, in most countries, government agencies see automatic increases in their budgets annually. This tends to increase the risk of waste because when it comes to the end of the financial year, these government agencies expense as much as leftover budget possible to give the impression that they need a bigger budget for the next year.

In Singapore, all the ministries have to present their plans for the upcoming year. Parliament will then sit as the Committee of Supply to examine the plans, and the respective ministries will have to justify their plans.

For example, if one government agency wants to restructure the IT system and provide a way for citizens to do something on their phones instead of going to their office, and that project is passed by the majority of parliament, then that ministry might be selected to get the bulk of the funding for the year.

It’s a simple expedient that creates a type of competition between the ministries, which ultimately creates a more efficient government. And it saves money in the process as the country’s budget is allocated to the most pressing programs for the year.

To be Really Fair, Tax the Source

In places like Germany, income taxes keep increasing, sales tax has pushed beyond 20% and is still increasing. You have to pay capital gains tax, tax on interest… at some point you lose the motivation to work.

Singapore has one of the lowest tax rates in the world. There are no taxes on capital gains, no taxes on interest, and the personal tax rate is very low. Tax returns are a simple affair – usually everything is automated, and your payment is spread through the year.

So how does Singapore keep the tax rates so low?

Besides having a very efficient government, there is a “taxation at source” concept. So, instead of taxing the entire population for a particular luxury, the government levies the taxes directly on those who consume.

One good example of this is car ownership. Singapore has an excellent public transport system with taxis and private hire car companies to supplement the fleet of buses and trains that cover the island. Because it’s an island city, you don’t really need to have a car. Given the small size of the country, if everyone were to have a car, the city would be like a big parking lot!

So, Singapore limits the cars on the road by imposing a Certificate of Entitlement (COE) system. The COE is basically a license that allows you the right to register, own and operate a vehicle in Singapore for 10 years. After 10 years, you can bid for another license, or deregister your vehicle.

It’s a simple bidding process. Every quarter or so, the government releases a certain number of certificates, and the market determines how much they cost. At the moment, a COE for cars 1600cc and above costs S$150,001 (or US$109,000). With the average rate of COEs released at about 3,000 per month, and the average costs of COEs at S$100,000, that’s at least S$3,600,000,000 collected per year, just for the right to own a car.

This makes Singapore a very bad place to own a car in terms of cost. However, given the amount of wealth in Singapore, this has become a major income source for Singapore government. Importantly, it means that the cost of maintaining roads and expenditure for public transport can be funded from the people driving cars.

That’s taxation at source. And it keeps taxes lower for the rest of us.

To Get the Best Talent, Be Prepared to Pay Them

Ministerial pay in Singapore is also intentionally set high. In fact, the pay for an entry-level minister is based on the median of the top 1,000 Singapore citizen income earners. It may sound counter-intuitive, but the idea is that if you want better people in government, then you need to be willing to pay more. In Singapore for example, the Prime Minister’s salary is about S$2.2 million per year, which might seem a lot, but if you think about the type of decisions the Prime Minister has to make, is really money well spent.

At the same time, Singapore’s Corrupt Practices Investigation Bureau (CPIB) is an independent agency that monitors the government agencies on a regular basis to watch for procedures that can be exploited for corrupt practices. At the same time, the CPIB is empowered to act independently to ensure that corruption is “fought without fear or favor”. With the CPIB, government officials are monitored closely for favoritism and other unacceptable behavior.

At the same time, lobbying is largely eliminated in Singapore as there are strict limits on the ease of people switching from industry to politics and vice versa. For example, if a politician moves to the private sector, the primary duties of the new role should not involve government relations. Party rules also explicitly state that a Member of Parliament “must not exploit” his public position for personal interest or the benefit of his employer.

So that’s an example of how policies have been created that put the interest of the country as a whole over the interest of any particular industry.

A Pension System That’s Self-funded

Another thing that works well in Singapore is the way the pension system is handled.  

In Singapore, we have what’s known as the Central Provident Fund (CPF). This is like a 401K system, where every citizen pays 20% of their income into the fund on a monthly basis. Under law, this 20% contribution is matched by another 16%* from the employer, so 36% of the gross wage goes into the scheme.

(* For employees 55 and below. Contributions for both parties decrease as age approaches 70).

Every citizen has their own account that only they can access.

The money in your account is yours. The government never takes it, and if you decide leave Singapore and give up your permanent residency, it will be paid out to you. You can also make a nomination to designate your next-of-kin to receive the money in the event of your death.

Something you can do with the CPF is use it to pay your mortgage. Your home is a long-term investment for you that helps to provide for your retirement. So, why not use the money to help pay off the mortgage?  That’s one of the ways Singapore’s government encourages home ownership.

The CPF can also be used to pay for medical expenses. Full-time diploma/degree courses at approved educational institutions for yourself and your family are also covered. However, the student will have to start repaying the amount withdrawn (plus accrued interest) to your CPF account one year after graduation (or termination of studies). Ultimately, the government ensures that money is returned to your CPF because you need it for retirement.

To Prevent Abuse, Make People Pay

One concept the Singapore government maintains is not making something free unnecessarily. Because then people don’t value it. For example, healthcare. In some countries, healthcare is completely free and as a result, people abuse it.  

In Singapore, healthcare is also subsidized, but the system is such that consumer decides for himself how much subsidy he receives. For example, at the hospitals there are generally three or four grades of wards. There is Grade A where you have your own private room, TV, and extra bells and whistles, but no government subsidy. If you go to the lower B2+ ward, you be sharing the room with three other patients, but you’ll get between 35% to 50% government subsidy (based on your household income). Move down one more grade to the B2 and C+ wards, and you will share the room with five to seven other patients, but you’ll get a greater amount of government subsidy.

In essence, the system is self-regulating, and the individual determines the amount of subsidy received. It is a different way of doing things where fraud and abuse are minimized because the amount of government aid distributed is transparent.

Conclusion

These are just some examples of how things are done differently in Singapore. If you look at the book “From Third world to First: The Singapore Story 1965-2000” by the late Mr. Lee Kwan Yew, you’ll find many other examples of policies based on pragmatism that, when put together gives you a different way of governing.

In the case of Singapore, that has meant great efficiency leading to some amazing results.