Side Views

Get to the social root of the problem — James Clemence and Margaret Duong

February 06, 2012

FEB 6 — As he prepares to deliver the 2012 Budget on February 17, the Singapore finance minister is in an unenviable position. The global economy has not rebounded with the vigour hoped for 12 months ago. It appears the road to recovery may be longer, and perhaps steeper, than many had originally anticipated.

While the finance minister may take bold steps to protect the economy, there are some more basic issues to contend with at home — such as Singapore’s low birth rate and ageing population.

It is well known that birth rates in developed countries tend to drop during times of economic strife. Putting the expected boom in this year’s “dragon babies” to one side, there could be severe long-term consequences for Singapore’s already low birth rate, if the financial recovery is as slow a process as it currently appears and if we follow this statistical trend. Quite simply, in order to become more self-sufficient and reduce the reliance on foreign workers, Singapore will need to grow a larger labour force.

The government has already introduced a number of fiscal incentives. The Baby Bonus, Child Relief, Parenthood Tax Rebate and Extended Maternity Leave have all been in place for a number of years, but do not appear to have had a material effect on population growth.

Rather than providing greater monetary “carrots”, it may be more effective to address some of the underlying social factors which influence a family’s decision to have (or to have more) babies:

Mothers of Singaporean children are currently entitled to up to four months of fully-paid maternity leave. This compares favourably to most other countries in the region, yet relatively few mothers are taking breaks from their busy careers to have children.

It may be that women are unwilling to spend significant periods of time out of the office, fearful of the perceived impact on their long-term career prospects. The government could allay these fears by encouraging employers to develop flexible working practices, enabling new mothers to work from home or return to work part-time after childbirth.

Of course, developing flexible working practices and hiring part-time workers would involve additional costs to the employer. To reduce this financial impact, the government could fund the employer’s Central Provident Fund (CPF) contributions for up to six months for individuals who return to work after childbirth on reduced hours or with flexible working arrangements. Employers would also be far more positive about releasing experienced staff for their full four months of maternity leave if they could claim a 150 per cent tax deduction for the cost of hiring temporary workers to cover regular employees during maternity leave.

The father plays as much a part as the mother in the decision to have (or not have) babies. This decision may be influenced not only by financial considerations but also emotional considerations, such as lack of quality time to bond with the newborn.

Providing the father with mandatory paternity leave (say, two weeks) may enable a family to share the time out of the office between both parents, help create an everlasting family bond and generally lead to a happier parenting experience. In order to minimise the cost to the employer, the second week’s pay could be reimbursed to the employer, to mirror the funding for maternity leave during the third and fourth months.

Flexible working patterns and mandatory paternity leave are still relatively uncommon in the region, so introducing these measures would have the added advantage of highlighting Singapore’s progressiveness and modern approach.

After four months of maternity leave, mothers who return to work may need to use infant and childcare facilities to look after their babies. The expensive nature of such childcare may prevent some mothers from returning to work after birth and possibly even discourage childbirth in the first place.

Employers may already provide tax-free childcare subsidies to employees whose children are in licensed childcare centres. However, such subsidies are relatively uncommon in practice. Employers may be encouraged to provide such subsidies more regularly if they were given a 150 per cent (or more) tax deduction for the provision of infant/childcare benefits and subsidies to all employees.

As to the matter of Singapore’s ageing population, the CPF can only provide limited support to the elderly. Tax relief is available to children who support their parents, grandparents or great-grandparents — but as there are fewer children being born than there are parents, a time may be reached when there are not enough children to look after older generations.

The government should, therefore, introduce measures to encourage Singaporeans to provide for their own old age.

It has already taken initial steps to encourage employers to hire and retain older employees by introducing the Retirement Age Act. The Act enables employers to offer reduced wages to employees who have reached the statutory retirement age. While this encourages employers to employ and retain older workers, this may have a negative effect on the income of those workers.

Rather than reduce wages, the government could help turn silver into gold for employers by providing a 150 per cent deduction for the salary costs of employees aged over 62. This would help stabilise incomes for the elderly, while still incentivising companies to employ more experienced workers.

Employer and employee CPF contribution rates decrease for employees after they reach their 50th year. While this reduces the business cost of employing older staff, it reduces the overall CPF contribution at exactly the time when older workers may become increasingly reliant on their CPF.

The Finance Ministry could allow increased voluntary CPF contributions for the elderly, to encourage them to save more for their post-employment years.

In addition to mandatory CPF contributions, individuals may top up their CPF funds with voluntary contributions, up to certain annual limits.

To encourage younger workers to provide for their own old age, the limit to voluntary tax deductible CPF contributions should be removed, to allow unlimited contributions with full tax relief for all voluntary contributions.

Limited tax relief is already available for children who support their dependent parents, grandparents or great-grandparents. But as this relief is only available if the parent earns less than S$4,000 (RM9,600) a year, many carers fail to qualify for this well-intentioned tax relief.

As the above measures are all designed to encourage the elderly to continue earning their own income, it may be worth raising the income threshold, or abolishing the income threshold condition altogether.

Finding a “magic bullet” to address the challenges that Singapore businesses currently face must surely rank highly on the finance minister’s agenda, but using the forthcoming Budget as a means to enhance the social capital in the country will be a timely step.

These measures may well enable the government to create a silver lining to the current cloud which continues to loom large over the global economy. — Today

* James Clemence and Margaret Duong are tax partners at PwC International Assignment Services (Singapore) Pte Ltd.

* This is the personal opinion of the writer or publication. The Malaysian Insider does not endorse the view unless specified.