Lesson from Singapore: Avoid magical thinking

Editorial

In the wake of Minister Padayachy’s Budget Speech last Friday, a widely circulated video on social media featured Singapore President Tharman Shanmugaratnam discussing his government’s financial principles. His remarks highlight a stark contrast between Singapore’s meticulous fiscal management and the more relaxed – in some cases, irresponsible – approach observed in many other countries, including ours.

President Shanmugaratnam emphasized a principle that has become increasingly rare globally: avoiding “magical thinking” in budgeting. This approach involves spending only what the government can sustainably afford, rather than accumulating unsustainable debts in the hope that future revenues will somehow cover the shortfall. Singapore’s budgeting philosophy is straightforward: plan prudently, execute transparently, and ensure long-term financial sustainability.

In his March 22 statement, President Shanmugaratnam outlined the dire consequences of fiscal irresponsibility. Countries that engage in magical thinking often end up burdening future generations with debts they did not incur, leading to severe cutbacks in public spending, deterioration of critical infrastructure, and substantial tax hikes. This scenario, he argued, is fundamentally unfair and something Singapore’s constitutional rules are designed to prevent.

This disciplined fiscal approach enables Singapore to prepare in advance for inevitable increases in healthcare spending due to an ageing population and investments in green energy to combat climate change. By ensuring that these expenditures are pre-financed, Singapore avoids the need to deplete its reserves, except in extraordinary circumstances. This method not only maintains fairness across generations but also fortifies the country’s economic resilience.

Contrasting this with our own fiscal strategy, as outlined in successive budgets during the current government’s mandate — especially the latest budget presented in the run-up to the general elections — reveals a cynical approach to financial management. While the recent budget has garnered praise in some quarters for its “social generosity,” as highlighted by the MBC-TV primetime news bulletin, which showcased substantial benefits for retirees, women, young adults, farmers, and fishermen, critical voices highlight the absence of structural reforms necessary for balanced, inclusive, and sustainable development. Some stakeholders view the social policies as a relief amid rising living costs. But several measures are a repetition of unimplemented past budget announcements while others remind us that these handouts come from taxpayers and consumers who are being partially compensated for what the exchequer took during the year.

However, those knowledgeable in economics remain concerned about the ongoing erosion of purchasing power caused by rampant inflation and the steady depreciation of the rupee, which has fallen by 46% since 2014. Other stakeholders note that there are urgent unfinished business like the readjustment of skewed salary structures following past and current minimal revenue rises which may add a significant burden on the Treasury outside the budget.

At first glance, the budget appears to enhance the welfare state by expanding social benefits, tax concessions, and subsidies. However, a tax and public debt based pension system is clearly unsustainable. The budget fundamentally fails to shift the economic policy framework away from an opportunistic electioneering approach. It neglects to prioritize meaningful tax and structural reforms necessary to prevent stagnation and reliance on inflation to inflate budget revenues. Additionally, it fails to align budgetary allocations with national priorities and to enhance transparency in financial reporting while failing to promote new avenues or pillars for the economy To face economic uncertainties more effectively and ensure a fairer distribution of resources across generations, we should be emulating Singapore’s commitment to prudent planning, transparency, and long-term sustainability.

The key lesson from Singapore is clear: we must avoid magical thinking and instead adopt a disciplined, forward-looking approach to fiscal management. This will not only secure our economic future but also ensure fairness to both current and future generations. However, this might be too much to ask from the political class, whose vision is often limited to the next five years. On the other hand, whether the feel-good measures announced by Minister Padayachy in his fifth and last budget will secure enough votes from the targeted sections of the electorate to tilt the balance in favour of the current government remains uncertain as the after-effects may wear out rapidly in the reality of continued high fuel costs and price rises in supermarkets and pharmacies.

At a juncture when the world trade, food security and commodity prices look increasingly uncertain, our national currency depreciating continuously and dollar reserves or public debt worrying, we are treading on thin ice. Hoping future generations will finance our current lifestyles or keep governments in office, is all about magical thinking.

Mauritius Times ePaper Friday 14 June 2024