The tip of the toll increase iceberg

The article below has been contributed by Khor Wee Siong

 
We recently increased our charges for Malaysian lorries entering Singapore from $10 to $40. The common belief is this would help control our road congestion. I would like to suggest that this is a counter-productive way to do so.

If we want to reduce the number of vehicles coming in we can change rules and restrict their access.

But this is just the tip of the iceberg. The toll increases give rise to a murkier picture. Why did we choose to raise charges and contribute to another increase in the costs to living in Singapore?

 

The Bigger Picture

My suggestion is that this is because the administration is losing sight of the big picture – that we achieved our position as one of the most expensive cities in the world by many small price increases. Hence, it took yet another small step and made another small increase.

Being one of the most expensive cities in the world isn’t a good thing. It means that we are less competitive on the global stage. It means that our people will face higher costs.

 

Little Things Add Up

Using the example of the raising of Causeway charges, it can be demonstrated why raising government charges as a method of economic regulation is a dangerous trend that we need to stop and reverse as soon as possible.

Malaysia provides much of our fresh vegetables and fruits. Our tomatoes, our potatoes, our green vegetables, papayas, water melons, etc. The list is long. Most of this fresh produce comes mostly through the Causeway before eventually arriving at a retail outlet near you.

So you see, food prices isn’t just about what the growers charge us – everyone along the chain adds to the cost. All these costs must be borne by end consumer.

Let’s look at some more examples:

  • If a supermarket pays S$5psf for rental, this $5psf will be passed on. On the reverse, if a supermarket pays S$1psf for rental, the savings can be passed on.
  • If a trucking company transporting the vegetables from Pasir Panjang to Fairprice pays S$50,000 COE, this S$50,000 has to be passed on to the consumer. Likewise, if the COE is $5,000, the savings can also be passed on.
  • If an employer has to pay a foreign worker’s levy of S$200, it gets passed on. If the foreign worker’s levy is S$1,000 it gets passed on.
  • If the minimum salary to qualify for a “S-Pass” is increased and an employer doesn’t want to loose a good employee, the employer has no choice but to raise the salary. This pay raise then needs to get passed on.
  • If a Malaysian trucker pays S$10 per month to bring in our food, he will pass on this S$10. If the Malaysian trucker has to pay S$40/-, this S$40 will have to be passed on.

All these little streams of costs contribute to the inflation waterfall.

 

Reducing living expenses

Given our present position as one of the most expensive cities in this world, our government needs to start thinking about how to reduce and not increase their charges because every little bit adds up.

In order to do so, we need a whole of government approach.

This whole of government approach should identify the various drivers of inflation. Then the government has to design specific policies to address each factor to make many small co-ordinated cost cuts to slowly decompress the inflationary pressures gradually without shocking the system.

After food inflation is addressed, the government should also address the other inflationary pressures.

I don’t feel the government is acting enough to reduce costs. I believe they are reluctant to interfere because of their commitment to allowing the free market supply and demand forces to find the right balance internally.

But, is sitting back and letting the free market work the right thing to do?

I doubt it. Our domestic markets don’t operate in a silo, we are affected by international factors also.

 

Consequences are manifesting

Just as competitive forces operate within countries, competitive forces operate between countries. There seem to be a lack of consideration on the impact of domestic rising prices on our international competitiveness. Our prices move higher, we become less competitive globally.

Let’s take an example – tourism.

For example, we tout our cheap and good hawker food as a tourist attraction. But how cheap can our hawker food be hawkers have to pay high rents, high food costs, and, have high costs of living to pay? Singapore also used to be a good place to come and shop. Is it anymore?

Bloomberg reported on 5 Aug 2014 that this year’s Great Singapore Sale was a failure because Chinese tourists prefer cheaper alternatives.

I suggest that unless Singapore successfully lowers our costs, tourist arrivals will drop. Tourists will seek alternatives that offer better bang for the buck. Once we loose these tourists, it will be difficult to get them back.

What about foreign investment? For example, foreigners starting a business or planting a regional HQ?

This year, the Economist suggested we were one of the most expensive places for an expat to live:

If our costs keep rising, will foreign companies want to come here or will they decide to find cheaper alternatives?

 

Outlook if Costs Continue to Rise

What then is the outlook for Singapore if the present unmitigated free market is allowed to continue inflating costs of living? In the short term, foreign investment and tourism will decline. This would hurt jobs and increase unemployment. In the medium term, high costs and unemployment can lead to a nightmare situation where social and economic order breaks.

 

Let’s cool this over-heated internal market

We can do this. Singapore had faced and overcame this same challenge before in the 60’s. This was when we had high unemployment and the PAP government attracted foreign investment to create jobs. For example:

  • To combat profiteering, NTUC setup NTUC Welcome (which then evolved to become Fairprice).
  • To provide cheap factory spaces, HDB and JTC setup flatted factories.
  • To house our people cheaply, the HDB was tasked to build rudimentary, utilitarian HDB flats.
  • To provide transport to our people, private bus companies were nationalised and this gave way to the Singapore Bus Service.
  • To keep food costs low, hawker centers (and wet markets) with cheap rents evolved from street side hawkers.

These solutions worked in the 60’s and 70’s. They provided a stable socio-economic environment. They made us competitive globally. The whole country prospered.

I would like to conclude with some questions:- Has the administration gone overboard with their free market policies? Or, do we need to get back to basics?

My answer is we need to go back to the small baby steps that were taken by the PAP Government back in the 1960s.

 

 

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