01 Oct 2013

The rising trend of income inequality continues, even as Singapore’s real economic growth remains impressive, making 3.5 per cent to 4 per cent for 2013. The average growth rate is 1.25 per cent for developed economies and 5 per cent for developing economies, according to the IMF’s World Economic Outlook of October 2013. Jobs still outnumber demand and inflation has eased. However, Mukul Asher and Kwan Chang Yee point out that “the impact of raw growth on quality-of-life concerns is increasingly limited”*.

By continuing to resist defining a poverty line, policymakers risk ignoring “a need to not only define such a line but to design policies addressing relative rather than absolute poverty”.

A report by the Singapore Department of Statistics published in 2013 found the unadjusted Gini coefficient for wage income stood at just under 0.46 after government transfers and taxes. This is likely to be higher if capital income, which is more unevenly distributed, is included.

Meanwhile, citizen concerns are growing across a range of social issues, including: relative poverty; access, equity and affordability in health care; and retirement income provision. Singaporeans also desire higher quality urban amenities, especially in public transport and recreation spaces, and meaningful participation in issues affecting them.

Subsequently, Singapore’s 2013 Budget introduced minor changes to income rebates for lower-income households and higher marginal tax rates on higher-valued properties. MediShield, the basic catastrophic health insurance scheme, will be revamped to a universal scheme, to be announced in 2015.

However, Asher and Kwan said these are unlikely to have substantial impact on income inequalities. Key issues in the MediShield revamp will need to tackle the scope of coverage; increasing the share of insurance benefits as a percentage of total hospital bills and medical event costs under various probable conditions; premium schedules; and the nature of assistance to those unable to pay premiums. It will continue to run on commercial principles with higher premiums.

Asher and Kwan state what is needed is less “tinkering”, more substantive reforms in philosophies, policies and programmes. By continuing to resist defining a poverty line, policymakers risk ignoring “a need to not only define such a line but to design policies addressing relative rather than absolute poverty”. The implications are most stark in the area of retirement income security. The Central Provident Fund (CPF) system is based on direct-contributions. This bears macroeconomic, longevity and inflation risks, and does little to combat relative poverty, even as it may alleviate absolute poverty.

Singapore’s location-based growth strategy depends on keeping the wage share of income below capital’s share at around 42 percent of national income; relying heavily on foreign workers at both low- and high-skill levels; and valuing commercial concerns over the provision of social amenities. Recent calls for public transport to be nationalised reflect this imbalance, including the bus riot of 2013 and what many has termed the “Little India riot” by foreign workers. Asher and Kwan cite these landmark incidents suggest that a shift towards greater fairness and distributive equity should be considered.

One way to do this is to initiate a social pension that is noncontributory and budget-financed. This means-tested basic social pension could work alongside the CPF system. Mukul and Kwan estimates the cost is expected to be less than 2 per cent of GDP assuming benefit levels at 20 per cent of the annual median wage income with universal coverage. Fiscal surpluses averaging 6.2 percent of GDP over 2000–13 suggest there is ample fiscal space available for such an initiative.

They point out that this remains as the policymaker’s challenge, as “Singapore’s citizenry increasingly expects equitable as well as raw growth, and broad ranging welfare and public good provisions”.

Mukul G. Asher is Professorial Fellow at the LKY School and Councillor at The Takshashila Institution. Kwan Chang Yee is Research Fellow at the LKY School. The article, “Singapore, still growing strongly, resists social transfor- mation” was part of an East Asia Forum special feature series.

Editor’s note: This was published in print in Global-is-Asian, Issue 20. The error in name has been corrected (KWAN Chang Yee) in this digital version.

Melanie Chua is editor and case researcher at the Case Study Unit, the LKY School. Her email is decb64_bWVsYW5pZWNodWFAbnVzLmVkdS5zZw==_decb64