Commentary number 1

Title of Article : Additional subsidies for pre-schools to increase from January 2020

Source of Article: https://www.channelnewsasia.com/news/singapore/pre-school-

subsidies-fees-increased-income-josephine-teo-11848782

Date article published: 28 August 2019

Date commentary written: 13 May 2020

Section of syllabus: Unit 1 Microeconomics

Word Count: 694 words

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SINGAPORE: Parents can look forward to paying less for pre-school from January 2020, as

subsidy amounts will be increased across all eligible income tiers.

The increased subsidies were announced as part of measures to support marriage and

parenthood, details of which were provided at a joint media conference on Wednesday (Aug

28) by Manpower Minister Josephine Teo, Minister for Social and Family Development

Desmond Lee and Dr Amy Khor, Senior Minister of State at the Ministry of Health.

READ: All childhood vaccinations to be subsidised at polyclinics and CHAS GPs by end of 2020

READ: Singapore to remove age limit for IVF treatments, introduce new subsidies

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In a media release outlining the details of the new scheme, the Early Childhood Development

Agency (ECDA) said that families with a gross monthly income of S$3,000 will pay S$3 a month

per child at anchor operator pre-schools, as the maximum additional subsidy will be increased

from S$400 to S$467.

This is on top of the S$300 basic subsidy.

Today, families with a gross monthly income of S$3,000 pay about S$70 a month per child at

anchor operator pre-schools.

Families with a gross monthly income of S$5,000 qualify for a maximum additional subsidy of

S$340 - an increase of S$240.

READ: NDR 2019: More pre-school subsidies as Singapore set to spend more on early
childhood education

READ: More support in pre-schools for children with developmental needs

Those with a gross monthly income above S$7,500, who are currently not eligible for the

additional subsidy, will also qualify.

Families with a gross monthly income of S$8,000 will be eligible for a maximum additional

subsidy of S$190.

And for those with a gross monthly income of S$12,000, they qualify for a maximum additional

subsidy of S$80.

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Mrs Teo, who oversees population matters, said pre-school education is “prominent” on the

minds of Singaporean parents.

“All of us would like our children to do well. We want to provide as best as possible for the

children, that’s number one.”

She also stressed the growing importance of full-day childcare services for working parents, and

improving the affordability and accessibility of such services.

Those who are still unable to pay can apply for further financial assistance, said Mr Lee.

“For instance, start-up grants are available to defray the initial costs of enrolling in pre-school,

such as uniforms and deposit.”

READ: Why it's still so hard to have more early childhood educators in Singapore

READ: Too scared for pre-school: A young mum’s struggle with her daughter’s fears

In his National Day Rally speech, Prime Minister Lee Hsien Loong announced that Singapore’s

annual spending of about S$1 billion on early childhood education will “more than double” over

the next few years, as the Government looks to make pre-schools more affordable.

He also announced that the gross monthly household income ceiling will be raised to S$12,000,

up from S$7,500 for additional subsidy and S$6,000 for the Kindergarten Fee Assistance

Scheme (KiFAS).

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This will extend the means-tested subsidies to 30,000 more households, or over 60 per cent of

households in Singapore.

Mr Desmond Lee also announced that ECDA will expand the partner operator scheme for

childcare operators and a small number of quality kindergartens in 2021, as the current term

for partner operator centres ends in 2020.

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The fee cap for childcare partner operators will also be slightly lowered from January 2021. The

current fee cap for full-day childcare partner operators is S$856 after GST.

“Kindergartens that join as partner operators will have to meet conditions to ensure

accessibility, quality and affordability for all segments of the public.”

There are currently five anchor operators and 23 partner operators. As of August, they manage

a total of 822 infant care centres, childcare centres and kindergartens.

Mr Desmond Lee also said the Government aims to lower fee caps at government-supported

pre-schools “in the medium term” so that families pay about S$300 per month after basic

subsidy, to match that of primary school fees plus after-school student care fees.

“Lower- to middle-income working families will continue to receive more help, and pay even

less with means-tested preschool subsidies.”

He added that 80 per cent of pre-schoolers will have a place in government-supported pre-

schools by 2025. This includes anchor operators, partner operators and MOE-run kindergartens,

which account for just over 50 per cent of pre-school places today.

More anchor operator pre-schools will be built in areas of demand, especially estates with

young families, he added, and void deck space will continue to be set aside for pre-schools.

“By ensuring access to affordable, good quality preschool, we will give every child a good start

in life, regardless of their background,” said Mr Lee.

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“With these enhancements, we hope to reduce concerns about the cost of putting children

through preschool,and that working parents will have greater peace of mind knowing they are

supported in their parenthood journey.”

Source: CNA/ad(mn)

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Commentary

The increase of additional subsidies for preschools from January 2020 onwards across

all income tiers, placed more emphasis on preschool education. The measures

introduced were aimed at supporting marriage and parenthood by making preschool

education affordable.

Preschool education for dual income families could be a necessity due to both parents

working full-time jobs and therefore unable to care for their children during working

hours. Therefore, basic education services are price inelastic demand (PED<1) in

Singapore’s developed economy, as they are still needed by dual income families.

Quantity demanded for these services and goods will not increase or decrease by much

with a change in price.

Lower income families require the same services as most parents of lower income

families work full time. However, they are less likely to be able to afford these services

and need financial assistance.

This subsidy makes basic education more affordable for lower income families.

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 Fig.1 : Market for preschool education

Price/Cost/Benefit

MPC=MSC

A
PS
Pe

MSB

MPB

Qe QS Quantity

With reference to Fig.1, the market transacts at Qe and Pe, assuming there are no

externalities in production. The divergence of the marginal social benefit curve and the

marginal private benefit curve indicates positive externalities of consumption.

Positive externalities include a better educated population that may benefit the economy

in the long run. Society also benefits in the long run from a better educated population.

The policy increases productivity of the workforce as a whole as more parents are able

to send their children for preschool education and full day childcare services, thus able

to attend work more frequently, increasing productivity of labor.

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At Qe, marginal social benefit (MSB) exceeds marginal social cost (MSC), which is not

ideal as the benefit society stands to gain exceeds potential cost. A is the area that

society is not enjoying because of underconsumption from Qe to Qs due to

underallocation of resources. This is market failure since allocative efficiency has not

been achieved. The socially optimal point of consumption is when MSC = MSB.

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 Fig.2: Market for preschool education with subsidies

Producer benefit MPC with subsidy

Consumer benefit

P2

With reference to fig.2, supply of preschool education increases with subsidy as the

government funds part of the cost of production of preschool education, lowering the

cost of production for preschool education providers such as kindergarten services, thus

more services can be supplied at each price. Price falls from P e to P2. Quantity

demanded for childcare services increases by a less than proportionate amount from

Qe to Qs.

With government subsidies, supply increases, consumers pay P 2 for QS instead of Ps for

Qs. Since the cost of production falls, the price of basic education and childcare services

fall and consumers which include dual-income families will benefit from lower prices.

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The advantages are that the subsidy incidence enjoyed by consumers is greater than

subsidy incidence enjoyed by producers as shown in fig.2. Lower income families are

encouraged to give their children basic education since financial burden is eased by the

subsidies provided as there is a large fall in price of preschool education from P e to P2.

Disadvantages of this policy are that the government incurs an opportunity cost for the

subsidy of preschool education. Increased coverage means the government will have to

use more of government revenue to cover subsidy incurring opportunity cost, which

could be spent on other areas.

The subsidy would bring more benefits than disadvantages to the Singapore economy.

Productivity loss may be significant in Singapore’s labor-dependent economy if working

parents do not work in order to take care of their children. The external benefits gained

from the subsidy are thus especially significant with the consumption of preschool

education.

Additional measures may be introduced to bring down the price of preschool education

such that it is affordable for dual-income families, such as incentivising job-seekers to

take up preschool education as a viable career to facilitate the increase of supply of

preschools. The article also mentions space set aside for preschools in accessible

areas such as void decks, which encourages families to attain a preschool education for

their children in a convenient environment. By taking into account the causes of the lack

of a socially optimum quantity of preschool being consumed and the possible benefits

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that society and economy might gain, the government subsidy for preschool education

services is a justified policy.

(694 words)

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