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Summary

Introduction

As part of the 1986 policies aimed at restoring economic growth to Singapore, the employer contribution to the Central Provident Fund (CPF) of Singapore was reduced from 25 per cent of wages with a $19,500 annual maximum, to 10 per cent of wages with a $7,800 ceiling. The employee contribution remained at 25 per cent of wages with a $19,500 annual maximum. The initial announcement spoke of a two-year suspension of the incremental 15 per cent employer contribution. A subsequent official statement expressed hope of a slow gradual restoration over an unspecified time period. This chapter provides a range of estimates for the resulting shortfall in retirement incomes of Singapore employees, as compared to continuation of the full 25 per cent employer contribution.

Methods

First we present the percentage declines in the remaining CPF accumulations of employees who have 5, or 10, or 15, or 20, or 25 or 30 or 35 more years of contribution to make until terminal valuation at age 55. We consider seven alternative time-paths: the norm of 25 per cent, the status quo of 10 per cent, as well as five scenarios over time of return to the full 25 per cent employer contribution. Because percentages alone do not tell the full story, in the latter parts of this chapter we show projected dollar values for the 14 simulated cases.

In each case, we use the total CPF accumulation valued at age 55 as a proxy for retirement income, since it is potentially convertible into a life annuity. Whether or not a significant portion of CPF savers elect to exercise that particular option, is not critical to our findings.

In each case, the employee contribution to the CPF remains at 25 per cent, thus the variations occur in the employer share.

Time-path (1), our benchmark, has the 25 per cent employer share, continuing throughout the 35-year period.

Summary

General Framework of Study

It is well known that agriculture dominates the Burmese economy. It contributes 35-45 per cent of GDP (in value added), provides employment for 60-70 per cent of the labour force, and accounts for 70-90 per cent of the country's export earnings. An assessment of agricultural development in Burma reveals two major developments (Mya Than 1980). The first took place during the colonial period (1860s to 1940/41). From a state of subsistence economy before the annexation, Burma was transformed into the largest exporter of rice and rice products. The main driving force was the area expansion in lower Burma. However, the dynamic and educative effect was lacking because with commercialization agrarian class relations deteriorated, and the benefits of agricultural development were channelled out of the country.

After independence came the period of static and stagnant agriculture, which lasted for more than a quarter of a century (from late 1948 to the first half of the 1970s). The performance of rice production was poor: there was no substantial increase in productivity or in volume. World War II, the post-independence unrest, and the lack of adequate institutional factors (such as land reform, credit system, and pricing policy) and incentives, together with the absence of any substantial change in technology, contributed to the poor agricultural production at that time.

The second epoch of agricultural development occurred recently. Soon after the start of the Second Four-year Plan (Second FYP) in 1974/75, there was a breakthrough in yield per acre and production of paddy. The contributing factors include favourable weather conditions, the introduction of high-yielding variety (HYV) seed programmes, along with improved techniques and farmers’ positive response to the government campaign — “Whole Township Special Rice Production Programme” — successfully launched by the government during the second half of the Second FYP. The introduction of the technology package consisted mainly of HYV seeds, increased utilization of chemical fertilizers, improved transplanting methods, and better weed control practices. In 1978/79, twenty-three townships took part in the campaign and in 1982/83, the number of participating townships increased to eighty-two.

Summary

The four chapters in this paper were written between November 1986 and May 1987 (before the announcement of the newly proposed long-term CPF rate), and reflect a bird's eye view of the Singapore Central Provident Fund (CPF). The CPF is a large, important, and complex instrument of the Singapore Government, and while we may have illuminated some of its facets, others may have remained hidden from us.

On this, our first, co-operative professional effort, we divided labour by Hanna Zowall producing the tables on the computer and Antal Deutsch doing the rest. None of our efforts would have come to fruit had we not received advice and support from a number of colleagues. Mukul Asher, Glenn P. Jenkins, Lee (Tsao) Yuan, Lim Chong-Yah, and Wee Chow Hou gave us written comments. Subbiah Gunasekaran and Kenneth James helped to overcome computer problems. Monika Queisser co-operated in the production of Tables 2.1, 2.5, and 2.7. Celina Kiong typed it all with speed, accuracy, and unfailing enthusiasm.

McGill University gave sabbatical leave to one of us to do research in Singapore during 1986-87, where the Institute of Southeast Asian Studies provided us with first class facilities and a delightful working environment. We are leaving it not only with regret, but also with a deep and abiding interest in Southeast Asia in general, and Singapore in particular.

Summary

Introduction

Many countries allow a limited accumulation of tax-sheltered retirement savings during the working life of the taxpayer. On retirement, these savings are usually converted to a stream of annuity payments taxable in the hands of the recipient. In Singapore, where substantial retirement savings are compulsory for all employees, tax treatment is even more beneficial. All contributions to the Central Provident Fund (CPF) are fully excluded from chargeable income for tax purposes, and the benefits emerging on retirement are not taxable. Because the Singapore personal income tax has a progressive rate structure, a dollar of deductions has a different value in each tax bracket. It is obvious, therefore, that the gains from the combination of the CPF deduction and the income tax system must vary with income. Chanoch Shreiber and Wee Chow Hou each published findings showing very substantial variations in rates of return on savers' CPF contributions, depending on their income bracket.

This chapter reports the results of a study using Wee Chow Hou's methodology, with a modified interest rate assumption for the CPF, along with contemporary income tax rates and contribution rates to the CPF. Our results show that rates of return of CPF savers have decreased considerably, but continue to vary directly with incomes, and inversely with the length of the accumulation period. The largest declines occurred for the highest income groups and for the shortest accumulation periods.

Method

Wee Chow Hou examines the case of fourteen taxpayers whose “chargeable income” for tax purposes corresponds to the lower limit of each non-zero tax-bracket under the rules then prevailing. He calculates their employer-employee CPF contributions, and accumulates these forward at the then prevailing CPF interest rate of 6.5 per cent to 5, 10, 15, 20, 25, 30, and 35 years. Each resulting terminal value is then compared, at an unknown return rate re, to a corresponding sacrifice stream consisting of contributions net of the tax savings occasioned by the favoured treatment of CPF contributions and accumulations.

Summary

The findings in Chapters III and IV can be summarized as follows:

Summary

The Central Provident Fund of Singapore (hereafter CPF), may be thought of as a very unusual institution for the working life accumulation of funds to provide a pension. As its most basic arrangements go, there is not much to distinguish its features from many other pension plans in the world. It provides a fully vested money purchase account accumulated as a fixed percentage of pay, with an employer and an employee share. Interest is credited at something resembling market rates at regular intervals. Account balances are reported periodically to the members. There is a “normal retirement age” at 55 in the plan.

CPF differs from many other pension plans by the proportion of income it absorbs, the income tax treatment of CPF savings, the exceptions to the arrangements to lock savings in until age 55, and the forms of access to the accumulation at that age. In a most significant way, CPF appears to have a role beyond that normally expected of a pension plan, as an instrument of government policy.

Singapore's savings rate, by world standards, is very high. Most of the savings arise in the public sector, but the compulsory personal savings collected by the CPF provide a considerable addition. The rate of contributions, now 25 per cent of pay by the employee and 10 per cent by the employer to a maximum total annual contribution of $27,300, was at 25 per cent until April 1986 for each employer and employee, with a total annual maximum of $39,000. Either of these magnitudes accumulated through a working life, and compounded at, say, 3 per cent over the inflation rate, should provide for a life annuity ample enough to pay for a comfortable retirement. Chapter Four provides many illustrations of the magnitudes. The accumulation of large sums by an individual is, of course, contingent on a stable lifetime record of contributions, hence of employment.

Summary

In this chapter the marginal contribution of each input to the resultant output is estimated with the help of the Cobb-Douglas production function. Such estimates will enable us to evaluate the performance of inputs vis-a-vis land productivity7 as well as to total output. The Cobb-Douglas function undoubtedly has its limits. The lack of knowledge of the precise nature of the input-output relationships and the difficulty of accurately measuring all inputs somewhat erode the results obtained from the assumed Cobb-Douglas function. Moreover, there can exist inter-correlationships among inputs, whereas the function assumes a unilateral causal relation between input and output. Despite its shortcomings, the Cobb-Douglas function may still yield the best possible estimates of marginal contributions of various inputs to the output.

Contribution of Inputs to Land Productivity

Table 10 presents the result of applying a Cobb-Douglas production function, taking land productivity as the dependent variable with total fixed capital per acre (including state capital expenditure, tractors, and draught cattle) and total current capital per acre (including state current expenditure, fertilizers, and chemicals) as independent variables. As far as the T-value is concerned, total fixed capital was the only input which is significant here while that of other inputs was less than one — in other words, insignificant. This suggests that at the present technological level, fixed capital is the major determinant towards improving land productivity. Since the sum of the regression coefficients (elasticity coefficients) is greater than one, it indicates an increasing return to inputs on land productivity. Theoretically, the regression coefficient of total fixed capital suggests that a 10 per cent increase in total fixed capital would increase 14 per cent in land productivity while a 10 per cent increase in total current capital could produce an increase of only 0.3 per cent in land productivity. The value of R1 = 0.99 shows that the joint influence of the inputs explained 99 per cent of land productivity.

Contribution of Inputs to Total Net Output

Assuming total agricultural net output as a dependent variable with respect to inputs such as total fixed capital per acre and total current capital per acre, the results from the application of a Cobb-Douglas production function is shown in Table 11.

Summary

Productivity

Four types of productivity are considered here: labour productivity, land productivity, capital-output ratio, and total productivity index (see Table 6).

Labour Productivity

This is the ratio of agricultural net output to labour force employed in agriculture for a given year. Three points are noted regarding the labour productivity trend from 1974/75 to 1984/85:

Summary

The chapters in this volume are the results of the second research cycle of the Joint Committee on Western Europe of the Social Science Research Council and the American Council of Learned Societies. A first volume of papers, published in 1981 as Organizing Interests in Western Europe, examined the changing structures of representation and interest intermediation. Collectively, as Suzanne Berger explained in her introduction, those essays argued for a model of the relationship between state and civil society that significantly departed from the paradigms of American social science in the 1950s and 1960s. Whereas this earlier work described a system of decentralized competitive pluralism, the contributions to Organizing Interests suggested that policy emerged from a more restrictive collaboration of state agencies and large producer interests. The authors explored the growth, the patterns, and – just as significant – the limits of what is often termed “corporatism”.

The contributions to this second volume take up a theme that is an outgrowth of our earlier work. Beyond the issue of the representation of interests and opinions lies that of the claims of politics in general. When the then members of the Joint Committee on Western Europe framed this inquiry, they were acutely aware that the agendas of political discussion in Western Europe and other industrial countries had become crowded with issues that had not been subjects of controversy for many years. These intrusive issues included questions of family and sexual relationships, of environmental degradation, fundamental dilemmas of national security and sovereignty, and the heightened perception of economic vulnerability.

Summary

Introduction

The postwar period of the economic history of the capitalist societies of the West is at an end. In the course of the 1970s, it became apparent that the standards of economic performance achieved by these societies over the previous twenty-five years were no longer being maintained and, furthermore, that there was no assurance – and indeed little prospect – of any rapid return to these standards. An observer of Western economies around 1965 might well have concluded that steady and sustained growth, at a high level of capacity utilization and with no more than modest inflation, had in effect become institutionalized. The progressive acceptance of Keynesian economic theory and associated techniques of economic management, together with the growing control exercised by public authorities over the functioning of the economic system, seemed to have inaugurated a new era of capitalism in which stability and dynamism were reconciled and guaranteed. However, ten years later these same economies were for the most part characterized by greatly reduced growth rates and moreover, by a tendency for unemployment and general price levels to rise simultaneously. In other words, it emerged not only that the business cycle was not after all obsolete; but further, and much more disturbing, that recession and inflation could now be complementary rather than alternative expressions of economic disorder. A “discomfort index,” created by summing the rate of unemployment and the rate of inflation in seven major Organization for Economic Cooperation and Development (OECD) countries, rose from around 5.5 percentage points for the decade 1959–69 to 17 percentage points for 1974–75.

Summary

Historical research must force open the gates of the present. The paradox is that the best means to that end seems to me an immersion in what I have called the historical longue durée.

Fernand Braudel

Dimensions of social protection and welfare

The overwhelming public support for government intervention in the social field and for the welfare state has been gradually but surely weakening. As one official observer has pointed out:

In the early 1960's it would have been very difficult to find any long-term forecast not based on the assumption that the growth of the welfare state was just as long lasting – and for that matter just as desirable – a process as economic growth itself. Since then, however, general attitudes have changed considerably and the ruling thought nowadays is more probably that the continued growth of the welfare state is neither likely nor even desirable.

Indeed, both neoliberal and neo-Marxist analyses of the crisis of the welfare state converge. They argue that the spectacular growth of public expenditures in Western countries in the last decades endangers the accumulation process. The burden imposed upon business to finance welfare programs together with the rise in the interest rates resulting from deficit financing induce a scarcity in the supply of capital for productive investment. Albert Hirschmann reminds us that this argument was advanced long ago by Colin Clark, who “alleged that in the nature of the capitalist system a fairly rigid limit was set to the ability to divert factor income for purposes of expanding social services and other public expenditures.”

Political economy

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IV - Retirement Income Changes in Singapore

Summary

I - Introduction

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The Author

Frontmatter

Preface

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II - Inequalities in the Tax Impact of Compulsory Retirement Savings

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V - Conclusions

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References

I - The CPF: Pension Plan, Tax Shelter and Debt Instrument

Summary

IV - Contributions of Inputs to Land Productivity and Overall Growth of Agricultural Output

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List of Tables

III - Productivity and Its Relationships

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THE AUTHOR

Contents

Frontmatter

Introduction

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11 - Problems of political economy after the postwar period

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List of contributors

Frontmatter

5 - Long waves in the development of welfare systems

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