Footnotes

2 Ibid. back

3 Ibid. back

4 In addition, Singapore has an extremely limited and stringently means-tested program of old-age assistance. However, the government encourages families to provide support for elderly parents through incentives and disincentives. For example, the law requires adult children to financially maintain their parents in old age. Those failing to do so can be prosecuted. back

5 Lessons must be drawn with care. The social security institutions of each country need to be consistent with the country’s own basic philosophy and social, political and economic systems. See R. Rose, “What Is Lesson Drawing?” Journal of Public Policy, Vol. 11, No. 1, 1991, pp. 3-30. back

6 All amounts in Singapore dollars are preceded by "S." The current rate of exchange is about S$1.40 to US$1.00. back

7 The savings are managed by the governing board of the CPF, which consists of a chairman, deputy chairman and nine additional appointees. The board has at least two representatives each from the government, employers and employees. All board members are appointed by the Minister of Labor, who oversees the CPF. back

8 Foreign workers earning below a certain wage are given work permits and are subject to a foreign worker’s levy, the revenue from which accrues to the government. back

9 This new pension fund is being funded from accumulated budget surpluses held by the government. A portion of these has been converted into an endowment fund, from which the income will repay the surpluses. back

10 From August 1, 1995, all foreign workers, including those on an employment pass, are excluded from the CPF system. They have no recourse to the tax-advantaged retirement scheme in Singapore. As a result, their tax liabilities will increase, resulting in a substantial cut in their take-home pay. Very little advance notice was given before the provision became effective. In view of Singapore’s dependence on foreign manpower and its need for predictable and consistent policies, the measure is perplexing. It could even increase overall labor costs, thereby impinging on Singapore’s international competitiveness. As a result of adverse reaction, the government subsequently announced certain modifications, though the underlying exclusion remains. back

11 The sustainability of this high rate remains to be seen. back

12 The reason is that people are forced to save more than they prefer to. Thus mandatory contributions are less desirable than wages - even though the contributions are not taxed and the wages are. back

13 Alternatives are: (1) CPF contributions plus accrued interest; (2) changes in CPF balances plus withdrawals for housing; (3) changes in CPF balances. back

14 Government budget surplus on the current account, plus current surpluses of statutory boards and government companies. back

15 The 1995 individual income tax rates range from 2.5 percent to 30 percent, with 14 brackets. However,Singapore makes extensive use of tax incentives to achieve its social goals for businesses and individuals. As a result, the difference between the nominal and effective tax rates is large, though no empirical estimates are available. In general, Singapore does not tax capital gains, and estate duties are light (a two-rate structure of 5 percent and 10 percent). back

16 Most social security systems tend to be somewhat progressive, paying a higher rate of return on payroll tax contributions, the lower a person’s income. By contrast, the Singapore system is slightly regressive in three ways. First, people get back exactly what they put in, plus any buildup. Second, although the practice of not taxing social security contributions (at least the employee’s share) is common throughout the world, this practice also favors those in higher tax brackets. Finally, the investment options discussed in the text favor higher-income earners. back

17 When parents have a low CPF balance as a result of low wages through their working life or purchasing a house with money from their account, their children may top up the parents’ account by transferring money into it. Such contributions are tax-advantaged, but a primary reason for helping the parents is that adult children are legally required to provide for their parents if needed. back

18 For members ages 45 and above, the amount going to the Ordinary account is reduced to 28 percentage points to offset the Medisave increase. back

19 Incrementally, this amount will be increased to S$80,000 by July 2003, of which at least S$40,000 must be in cash. The increase in the cash amount is to help ensure that retirees will have an adequate income after retirement. back

20 There is no way of determining what the average Medisave balance is, but it probably runs between S$3,000 and S$4,000. back

21 William C. Hsiao, "Medical Savings Accounts: Lessons from Singapore," Health Affairs, Summer 1995, pp. 262-63. back

22 Some employers also purchase private insurance for their employees. However, they are permitted to deduct no more than 2 percent of payroll for health insurance. Employer-provided policies are the least expensive high-deductible policies covering only basic care. back

23 The existence of Medishield does not solve the financial problem of those who have an inadequate Medisave balance, but it is an improvement over Medisave alone, since it gives people a way to pay for catastrophic costs. back

24 Coverage is intentionally low in order to keep costs low. back

25 Utilization rates of Medifund are not made public. Thus it is not possible to evaluate the program’s effectiveness in helping the needy. Because the requirements are so stringent, very few people have access to Medifund. back

26 The land, however, is owned by the government. back

27 This rule also applies to purchase of private residential housing and nonresidential properties, discussed below. back

28 Stocks approved by the CPF board are called trustee stocks; approved unit trusts are mutual funds; and convertible loan stocks are loans that can be converted into equity at a specified future date. back

29 This is the minimum reserve as of April 1, 1994, in the Ordinary and Special accounts. back

30 Fund management accounts are personal accounts placed in the hands of an investment manager. back

31 Transactions under these programs can be undertaken by opening a CPF investment account with an approved agent bank. Except for the Hong Kong Bank, approved banks are locally owned. Only approved institutions are permitted to handle money market accounts, and EIS investments must be made at approved institutions. back

32 1994 was the first full year of BIS and EIS schemes. back

33 The Straits Times, March 3, 1995. back

34 This is similar to a "credit life" policy in the United States. It pays off an outstanding note should the borrower become incapacitated or die. back

35 The market value of this fund was S$142.6 million at the end of 1993. back

36 This is calculated as income and profit on sale of investments divided by the beginning balance plus half of premiums paid for the year. back

37 This largely explains the existence of the government’s large internal debt. In 1993, Singapore’s internal debt was S$69,810.4 million - an amount equal to 75.6 percent of GDP, or 92.0 percent of indigenous GNP, which excludes contributions to GNP by nonresidents. This large debt has been incurred in spite of the government’s running large budget surpluses consistently over many years. back

38 For individuals to accumulate sufficient balances, prolonged periods of high employment are necessary. back

39 Such strategies are not easy to implement, either by the individual or by the government investment boards. back

40 According to the psychological theories of saving, "...behavior may be governed primarily by habitual rules regarding the disposition of resources rather than by rational life-cycle planning." D.B. Bernheim, The Vanishing Nest Egg: Reflections on Saving in America (New York: Twentieth Century Fund, 1991), p. 71. Individuals mentally separate their resources into separate accounts, some of which are easier to invade than others. Moreover, according to the psychological theories, the rate of saving is sensitive to the composition of income and wealth. Public campaigns stressing the virtues of saving can also affect the rate of saving. An individual is more likely to behave in a socially desired manner if a great many of his fellows act the same way. A. Lindbeck, "Hazardous Welfare-State Dynamics," American Economic Review, May 1995, pp. 9-15. back