PM Lee: Nordic model won’t work for growth in Singapore

Mr Lee with Economic Society of Singapore president Euston Quah. The PM says the fundamental choice is: low taxes and targeted welfare benefits – as Singapore has – or high taxes and comprehensive welfare. — ST PHOTO: DESMOND WEE

Differences in culture, society mean outcomes unlikely to be the same

AS PUBLIC debate continues over what growth policies Singapore should pursue, one model that keeps coming up is the Scandinavian example.

Economists and social experts have repeatedly cited the Nordic experience, noting how egalitarian systems and pro-family policies have helped countries like Norway and Sweden achieve high growth, high birth rates and generous welfare, all at the same time.

Last night, however, Prime Minister Lee Hsien Loong explained why Singapore could not do the same thing.

Basic differences in culture, society and environment, he said, made it difficult for the Republic to achieve the same outcomes.

‘There is indeed much we can and should learn from the Scandinavian societies, such as their pro-family policies and their success in nurturing global companies,’ he said.

‘But there are basic differences between Singapore and Scandinavia, in our strategic situations and our approaches to growth and equity.’

Essentially, it came down to one fundamental choice: Low taxes and targeted welfare benefits – as Singapore has – or high taxes and comprehensive welfare.

‘You can have one or the other, cannot mix and match,’ observed Mr Lee, at a dinner for the Economic Society of Singapore.

Nordic nations, he noted, had natural resources, a rich hinterland in Europe, and long histories as homogeneous societies which were willing to pay high taxes for high social protection.

‘I do not believe that Singaporeans would be willing to pay the taxes that Scandinavians pay, or that our economy could be competitive at such heavy tax rates,’ said Mr Lee. He acknowledged that Singapore could raise its social spending as well as taxes ‘moderately’ – in fact, it was exactly what the country needed to do in the long term, with its population ageing and health-care needs growing.

‘But the limits are tighter than many people realise,’ he added.

Raising income tax rates, he noted, could affect Singapore’s competitiveness in the region.

He nevertheless promised to keep strengthening social safety nets here, but also warned that this would cost more – and ultimately, mean higher taxes.

Said PM Lee: ‘At some point – not in this term of government, but surely within the next 20 years – the government will need new sources of revenue, which means raising taxes.

‘I hope that when this becomes necessary, the government of the day will have the courage to do so, and the electorate will understand why it is in everyone’s interests that we do so.’

Otherwise, Mr Lee added, Singapore could face problems seen in parts of Europe, where citizens have resisted higher taxes but want to keep high welfare levels.

He said: ‘We are a long way from that, but still we must proceed very carefully, because benefits once given can never be taken away… Spending is popular, but raising money to pay for it is not. One wins votes, one loses votes.’

By Leslie Koh, Assistant Political Editor, published on Jun 9, 2012, Straits Times

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