In my last article (here), I gave readers a sense of our minister wages in actual dollars. I apologize if you suffered the revolting churn in your stomach after reading the obscenity. In this piece, I want to point out the fallacies of pegging minister wages to the GDP.
The GDP is one of the indicators of the size of an economy. It is sensitive to a multitude of factors such as the production of goods and services, the spending of consumers, investments and the government, and the value of export among other things. Some of these factors are not necessarily good for society.
For example, when the government buys more military hardware, GDP goes up. When cost of living skyrockets, GDP goes up. When housing prices hit the roof, GDP goes up.
Even when Sports Minister Dr Vivian Balakrishnan busts the Youth Olympic Games budget, yes, GDP goes up!
It is easy to see how the concept of pegging ministerial bonuses to GDP growth is entirely flawed. Yet our ministers have a specific bonus pegged to GDP growth called the GDP bonus (GB) that accounts for a large portion of their annual remuneration.
The GB pays 3 months of a minister’s monthly salary if the GDP grows by 5%. The maximum is an enormous 8 months if the GDP grows by 10% or more, such as last year. The GB does not pay if GDP growth is below 2%.1
In a good year, even if every minister does nothing, the GDP would go up. In a bad economy, a government would typically pump money to stimulate it. That act in itself would contribute to the increase in GDP.
In Singapore when GDP does go down during a recession, our ministers still get their 16 months fixed pay. All they would miss are their bonuses for the year. When the economy recovers, they would recoup everything and then some.
Compare this to their commercial counterparts who, in a recession, may lose more than just their bonuses. Their entire investments and livelihoods could be wiped out. Our ministers share only the benefits that businesspeople in the private sector reap, not the risks and consequences that they face.
Is this why the Government wanted to build the casinos so badly? Is this why they are so motivated to keep foreign workers coming in?
The logic gets weirder
When a bonus is pegged to GDP growth, our ministers can get a bigger bonus even when our economy suffers. Let me illustrate by drawing an example using only the GDP growth bonus (GB).
Scenario A: Let’s assume that our GDP in a base year is $300 billion. If we experience a growth of 3% per year over the next 2 years (see table below). This situation would result in the ministers getting two consecutive annual bonuses of say 1 month worth of GB per year, totaling 2 months in two years.
Scenario B: Now, let’s change the scenario. Instead of growth, our economy hits a recession and our GDP dips to $288 billion in year 1. That would give us a negative growth rate of -4%. Accordingly, our ministers receive no bonus for that year.
The government then pumps-prime the economy with all sorts of questionable schemes. As a result, we see our GDP going back up to $316.8 billion in year 2, registering a growth of 10% relative to year 1. Such an increase in GDP will attract a GB of about 8 months.
Now let’s see: In Scenario A, our GDP moved up from $300 billion to $318.27 billion—a nett GDP growth of 6.09% over 2 years. The ministers receive a 2 months GB. In Scenario B, the GDP dropped in year 1 before rising to $316.8 billion in year 2—a nett growth of only 5.8% over 2 years. In this instance, the ministers get 8 months GB.
It’s a win-win situation for them.
The hard truth
Don’t let the Government impress you with big numbers and confuse you with big words. Let me summarize the matter with a few hard truths.
Hard truth #1: GDP growth increases the ministers’ pay directly, not ours.
Hard truth #2: Ministers get big bucks even when the economy is down.
Hard truth #3: Ministers get big multiple bonuses even when they screw-up over and over again.
Hard truth #4: If you are an average earner, you will have to work for 100 years to get what a minister gets in one year.
Hard truth #5: You have only one weapon to stop this nonsense—your vote.
John Tan is SDP’s Assistant Secretary-General.