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Explained: Singapore’s Formula for A Welfare State

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According to the Fraser Institute’s Freedom of the World report, Singapore in the second freest economy in the world, after Hong Kong. With a per capita income of $52,000 a year and a steady 7% growth rate since the 1970s, its economic prowess is definitely one to aspire too. However, even with this high-octane capitalism, Singapore still considers itself a welfare state, which means the state’s top priority in the socio-economic wellbeing of the people.

So how does Singapore strike the balance between capitalism and welfare?

1. Taxes are kept low, so that money can go in the right places

Only 15% of the Singaporean Government’s revenue comes from personal income tax. This means the individual citizen has to pay very little income tax to the Government.  This incentivizes citizens to engage in economic activity. Since more people participate in the economy because of this, more people actually end up paying taxes compared to countries in which taxes are high and fewer people participate in the country. Instead, the state believes in making the people self-reliant for their own expenditure instead of collecting taxes to subsidize services. The state does that by ‘enforcing’ savings. Meanwhile, the Government makes most of their money through the sale of land and corporate income tax, which accounts for nearly 60% of the Singaporean Government’s revenue.

2. Instead of giving social security, it demands citizens secure themselves.

In contrast to western welfare states like the U.S. or U.K., the Singaporean state does not provide social security. Instead, people have to compulsorily support themselves when they are unemployed or when they’ve retired. This is possible because of the ‘enforced’ savings mentioned before. People under 50 years of age have to put aside a percentage of their income (currently 5-20%, but can be as high as 50%), while their employer must contribute about 6-15.5% into something called the ‘Central Provident Fund’. This fund has three accounts – Ordinary, Special and Medisave. Every month certain money is allotted in these accounts. Money from the Ordinary Account can be used for education and housing. The Special Account is reserved specifically for retirement and  Medisave is obviously just for health purposes. This way, the state has no role in personal social security. The people use their own funds to secure themselves.

3. Healthcare isn’t a macro plan, in fact, it’s extremely micro.

Healthcare in Singapore is another one of its achievements. In 1984, Singapore started an extensive system of ‘Medisave Accounts’. Today, about 7% of the required saving rate is deposited in these ‘Medisave Accounts’. When the account balance reaches $34,100 (an amount less than the median family income), the excess money can be used for any other non-health purposes. They also have mandatory Catastrophic Health Insurance that one has to save for, but one can opt out of it later. Since catastrophic health expenses are often what pushes even middle-class people into poverty, having this as part of Medisave is invaluable.

This simple system has worked like a charm for the Singaporeans. They are one of the healthiest countries in the world, with other countries actually consulting Singapore in terms of healthcare. Even though Government spending on healthcare has reduced from 50% to 20% in the last 30 years, and private players have assumed the greater role, the price of the healthcare has been kept in check. This is due to the healthy competition in the health industry due to the various options for the consumer to choose from since they can afford to.

4. People are treated as the country’s biggest and best resource

Accounting to the Singaporean state, Singapore’s best resource is its people. This is most evident in how the state nurtures its people through its education system. Their system of learning is extremely meritocratic. Although education is affordable to everyone and offers everyone equal opportunities to make their mark on the world, rewards are given only to students with merit. Their national system of scholarships enables the best students to represent the country at the world’s premier universities. Government scholarship recipients have to serve in the public sector for a minimum of two years for every one year of study, making sure the best students bring their A-game to public service as well.

Additionally, unlike in other countries, where teaching feels like a thankless job and teachers are tragically underpaid, teacher’s salaries in Singapore are above the national median income. This means it develops and retains some of the best graduates. Educators are frequently encouraged to participate in policy work and there is a revolving door between the Education Ministry, classrooms, and school administration. This means the school system always stays in touch with the ground realities.

5. Entitlements aren’t for everyone, only those who need them

In Singapore, welfare is not seen as a responsibility of the state but as the crutch for the helpless and the needy. Therefore, the welfare entitlements are only offered and given to the actual needy. This sentiment can be better understood through the words of the Finance Minister Tharman Shanmugaratnam. He says, “The first [priority] is to keep government subsidies targeted at those who most need them, rather than commit to benefits for all. Universal benefits are ‘wasteful and inequitable,’ and hard to take away once given.’

That means, that rather than squandering the resources, the Government would only lend a financial hand to the people who deserve it through their actual despicable conditions and not to people who have the ability to make progress independently without needy any help. In 2015, only 3000 families qualified for Governmental monetary support. The rest of the unemployed were integrated into ‘workfares’ or training schemes to prepare them for future employment.

With a philosophy like this one – ‘Each generation should pay its own way. Each family should pay its own way. Each individual should pay his own way. Only after passing through these three filters should anyone turn to the government for help. But it will be there when needed.’- Singapore’s Department of Welfare has created a system where capitalism and social welfare go side by side by using one to benefit the other. High corporate taxes and CPF burden makes business responsible for their people rather than the government taking on that role. In turn, every generation is mindful of future generations, each family pays for its own and the government only steps in when absolutely required.

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